What is the Rebound Effect? — Energy Efficiency, Part 2

, Kendall Science Fellow | November 5, 2015, 10:44 am EDT
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In my previous post, I noted that energy efficiency by itself does not necessarily reduce emissions, but it does give us the resources to clean up our energy supply. One complicating factor in projecting energy savings from efficiency is the “rebound effect.” Here’s what it is, how it works, and what it means for efficiency.

Direct rebound

The rebound effect has two components. The first is direct rebound. This is the percentage of energy savings from efficiency that are offset by increased use. Efficiency makes an energy-consuming technology less expensive to use, so people use it more often.

Direct rebound is acknowledged by a wide range of energy economists. It is generally small in developed countries, so a 10% improvement in efficiency might provide “only” a 9% reduction in energy use.

VMT

U.S. vehicle-miles per capita, 1950-2013.
Source: Transportation Energy Data Book, Oak Ridge National Laboratory

This is not a problem. As the American Council for an Energy-Efficient Economy (ACEEE) notes, “These savings are not ‘lost’ but put to other generally beneficial uses.”

If cars become more efficient due to improved fuel economy standards, then fuel costs per mile will drop, and people may drive slightly more. Fuel is about 20% of the cost of driving, at 11.2 out of 58 cents per mile, according to AAA. Cutting fuel consumption by 50% (doubling miles per gallon) reduces driving cost by 10%—not including the value of your time.

The associated non-energy costs of driving limit the direct rebound. Demand saturation might also limit the direct rebound; there’s only a certain amount of time in a given day that you can spend behind the wheel. After decades of increase, vehicle-miles traveled per capita have fallen from their 2004 peak.

Indirect Rebound

The other component is indirect rebound. This results from how you spend the money you save.

Let’s assume your new car cuts fuel consumption by 50% and you drive 6% more. You buy 53% as much gasoline as before. You spend some of those savings on other goods and services, which require energy to produce.

But if you save $100 on gasoline costs, whatever else you buy with that $100 is not 100% energy; that expenditure also covers labor, materials, and capital. The energy share of your re-spending is typically on the order of 10%.

We can save money through cutting waste and use that money to meet other needs or desires? What’s not to like?

I’ll reiterate two points from before: 1) indirect rebound from energy efficiency is responsible for much or most of the economic growth over the past 200 years, and 2) we can use some of the economic gains to invest in clean energy resources.

Don’t we want to save energy?

In the example above, efficiency decreases energy consumption while the rebound effect increases end-use energy services (partially offsetting the decrease in energy consumption). So you do more with less.

Is it a problem that rebound slightly reduces energy savings? No, because reducing energy consumption is not the sole purpose of efficiency. Economic gains are valued. That’s how ACEEE can say that the rebound effect does not cause the benefits of efficiency to be “lost” but rather redirected. Establishing “using less energy” as our literal end goal would raise a few problems:

  • There are multiple ways to define “less”: overall, per capita, or per dollar of GDP; and relative to a prior level or relative to a “business as usual” projection. Similarly, there are different ways to define “energy,” whether delivered or primary forms.
  • Energy consumption will increase in developing countries as they become wealthier. There is tremendous unmet demand for services such as refrigeration. Meeting these needs with even the most efficient technologies will require more energy than not meeting them at all. Efficiency enables the use of clean energy to provide these services at low cost.
  • Some pollution control measures carry an energy penalty. Were it to be proven cost-effective, carbon capture and sequestration (CCS) would reduce energy efficiency of coal plants. If CCS could eliminate emissions from burning coal, wouldn’t that be worthwhile? The energy content of coal isn’t the problem, the pollution is—and maybe they can be further decoupled (pollution from coal mining and from coal waste disposal would also need to be addressed).
  • It’s difficult to compare the efficiency of different energy technologies. It tells you nothing about costs or impacts to compare conversion efficiency across these options. Binary-cycle geothermal power has a much lower thermodynamic efficiency than coal power, but it provides baseload power with very low emissions at a competitive cost.
  • Some policies separate energy consumption from pollution. Under a cap-and-trade program, as the U.S. has for sulfur dioxide, reducing energy use doesn’t necessarily affect emissions.

Energy isn’t the problem. Pollution is.

Energy efficiency is an extremely useful tool that provides tremendous economic and environmental benefits. It’s not an end goal, nor is it the sole measure on which to evaluate our options. A future with abundant or even surplus clean energy involves a more nuanced analysis.

Solutions for managing clean energy resources may trade off efficiency for other benefits. For example, tankless water heaters are more energy-efficient, but those with tanks can help the power grid accommodate variable resources like wind power. The less efficient option can be preferable.

Critics might attack solar power as “inefficient,” but it’s meaningless to compare the conversion efficiency of a photovoltaic module to that of a coal plant. Inputs and outputs matter.

Think of energy efficiency like batting averages in baseball. They’re very important, but getting lots of hits is not the team’s true goal. Scoring more runs than the other team is, and base hits are a means to that end. Teams often have players who have lower batting averages but who have other skills. All else being equal, the better hitter—or the more efficient option—would be preferable, but often there are tradeoffs.

For energy, what we care about isn’t strictly how much we use, but the true total cost of that energy use.

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  • Keith Burrows

    Hi Peter, thanks for the interesting essay. I’m sure you are familiar with the recent academic research from the University of Chicago and University of California Berkeley that looked at a Weatherization Assistance Program (WAP) in Michigan. Their research found average efficiency improvements of 10-20% per home, but no evidence of the (direct) rebound effect for homeowners that participated in the program. I have no doubt the rebound effect exists, but I suspect that economic factors determine the size and existence of a rebound. If the resource in question is inexpensive to begin with (i.e. price does not affect consumption) or the recipients of the efficiency improvements have limited financial means, there may be no rebound at all.

    Thanks again for a thought-provoking piece.

    • Pete O’Connor

      Glad you liked it. I agree that economic factors play a role, as well as the characteristics of the end-use technology. I don’t yet have any formal conclusions of my own regarding the WAP studies but will take another look. If I find something interesting to say, it could become another post.