The significance of the “rebound effect” remains a matter of some debate. (The rebound effect is the frequently observed tendency for energy efficiency improvements to increase consumer use of the now more efficient good or service).
Recently the Institute for Energy Research published Robert Michaels’s survey of rebound effects. In the study, Michaels concluded:
Properly accounting for the impact of rebounds is essential to obtaining an accurate picture of how the efficiency policy in question may impact consumption levels, and will also better inform the cost-savings estimates associated with decreasing consumption. Improving the accuracy of cost-savings estimates will allow policymakers to better evaluate whether the benefits of energy efficiency programs outweigh the problems associated with limiting the choices available to consumers.
This would be a matter of mere technical interest among energy policy economists but for conservation advocates who have seized onto engineering efficiency regulation as a key public policy tool to promote resource conservation. One such group of conservation advocates, the American Council for an Energy Efficient Economy, has produced its own survey of the efficiency and rebound literature. In announcing the study, ACEEE said:
… we found that there are both direct and indirect rebound effects, but these tend to be modest. Direct rebound effects are generally 10% or less. Indirect rebound effects are less well understood but the best available estimate is somewhere around 11%. These two types of rebound can be combined to estimate total rebound of about 20%. We examined claims of “backfire” (100% rebound), but they do not stand up to scrutiny. Furthermore, direct rebound effects can potentially be reduced through improved approaches to inform consumers about their energy use in ways that might influence their behavior. And indirect rebound effects, which appear to be linked to the share of our economy that goes to energy, may decline as the energy intensity of our economy decreases.
Efficiency policy often gets treated as a “win win win” type of policy, which accounts for some of its popularity as a conservation tool. The public gets a reduction in any externalities associated with the production and consumption of the resource, more resources are left in the ground for future generations, and the consumers get more bang for their resource buck. Rebound effects cut into the first two effects, and whether consumers actually get more bang for their buck depends on the cost of the efficiency improvements and the degree to which consumers prefer to save some money now over more money later. The reason efficiency policy advocates want to push back against rebound is that recognizing even modest rebound effects can substantially tilt cost-benefit analysis against energy efficiency policies.
As mentioned in prior posts on rebound effects, the Breakthrough Institute and the Rocky Mountain Institute have dueled on the issue as well.