Previously, Zondits reported on the resurgence of the idea that energy efficiency’s problem is related to the rebound effect, where efficient equipment and efficiency programs might actually result in greater energy usage. Though this argument has been put forth many times, rebound related to energy efficiency is extremely hard to quantify. Recently, economists Kenneth Gillingham, David Rapson, and Gernot Wagner published a paper on this theory. They conclude that rebound can happen and be quite substantial in some situations, but that it is unlikely that rebound will be so great that it will lead to more energy use rather than a reduction. Overall, efficiency is a welfare-enhancing movement.
Reconsidering the Rebound EffectEDF, November 20, 2014
The rebound effect from improving energy efficiency has been widely discussed—from the pages of the New York Times and New Yorker to the halls of policy and to a voluminous academic literature. It’s been known for over a century and, on the surface, is simple to understand. Buy a more fuel-efficient car, drive more. Invent a more efficient bulb, use more light. If efficiency improves, the price of energy services will drop, inducing increased demand for those services. Consumers will respond, producers will respond, and markets will re-equilibrate. All of these responses can lead to reductions in the energy savings expected from improved energy efficiency. And so some question the overall value of energy efficiency, by arguing that it will only lead to more energy use—a case often called “backfire.”
In a new RFF discussion paper, “The Rebound Effect and Energy Efficiency Policy,” we review the literature on the rebound effect, classify the different types, and highlight the need for careful distinction between causal links—which are indeed worthy of the “rebound” label—and mere correlations, which are not. We find, in fact, that measures to improve efficiency, despite potential rebound effects—are likely to improve welfare, generally.