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David Goldstein’s Blog

Energy Efficiency and the "Rebound Effect"

David Goldstein

Posted February 17, 2011 in Curbing Pollution

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I'm co-authoring this blog post with my colleague Ralph Cavanagh, senior attorney and co-director of NRDC's energy program.

Throughout almost four decades of societal progress in getting more work out of less energy, those who deny the promise of energy efficiency have persisted in a bizarre claim: any energy savings from efficiency are offset by activities that demand additional energy consumption.

While implausible concerns about “rebound effect” have been around since the mid-nineteenth century, they have not impeded recent progress in improving the efficiency of energy use and reducing its environmental impacts. 

The most obvious rebuttal to “rebound effect” claims is the performance of the US economy since the early 1970’s: between 1973 and 2009, US economic production more than tripled even as total US energy use increased by less than a third. If “rebound effect” advocates were right, that record would have been flatly impossible, since savings in energy use would be offset by activities that demand energy, keeping energy use trends in lockstep with economic growth (just as they were for the first three decades after World War II).

That was indeed the confident prediction of some economists when we began our careers in the mid-1970s, and such forecasts lie today on the ash heap of history -- along with hundreds of unmourned power plants that never had to be built and mines that never had to be dug.

Yet the same discredited thesis has resurfaced recently in reports by The New Yorker writer David Owen and the iconoclastic Breakthrough Institute, which today released a report subtitled, “A Review of the Literature” [translation: “don’t expect anything new”].  In the report, the Institute acknowledges that, “truly cost-effective energy efficiency measures should be vigorously pursued as they will lead to an improvement in the general welfare.” Since we agree entirely with that conclusion, it is tempting to end the discussion there, but the authors of the study also insist that the “rebound effect” will deny the global environment any benefits following that “improvement in the general welfare,” so an additional word is in order.

We reject the Institute’s implication that there is some kind of emerging academic consensus around the “rebound effect.” To the contrary, the most respected academic energy efficiency think tanks such as the UC Davis Center on Energy Efficiency  and Stanford’s Precourt Institute on Energy Efficiency share the view that energy efficiency delivers big economic and environmental benefits. The reality is that energy efficiency is a huge success story and a key tool to reducing global warming, increasing electric reliability, slashing energy bills for those consumers who can least afford them, and avoids the need to build new costly power plants.

The Breakthrough Institute blames a host of evils on efficiency, but fails to back up their accusations with facts. It acknowledges that serious energy analysis of rebound effects shows them to be “comparatively trivial.” People who insulate their houses don’t absorb all the savings by sweltering through the winter, and buyers of efficient refrigerators don’t start leaving the doors open gratuitously. But after admitting that studies show rebound effects to be small and getting smaller over time, it tries to create a counter-narrative by inserting warnings that “the available evidence to date remains too limited to draw precise conclusions.”

Efficiency does not mean restraining energy services growth. It means using less for the same amount of service. The skeptics are confusing this trend with the sometimes-on, sometimes-off trend towards more efficiency, and claiming that more efficiency induces more demand for energy services.

The problem is that neither Owen nor the Breakthrough Institute has presented any evidence that this is happening in the real world: all of their examples are devoid of any mention of how efficiency leads to demand for activities that demand more energy, as opposed to other economic factors. Instead, they rely on naïve interpretations of economic theory—the same interpretations that show that cost effective energy efficiency is impossible.

Given the weaknesses of this form of economic theory for the purposes of efficiency analysis, it is even more important than usual to rely on data. The clearest data-focused test of the “rebound” hypothesis is whether an economy that embarks seriously on efficiency policy really can cut its overall energy use. Because without question, if the thesis has any plausibility at all, the answer has to be “no”; or at least “not nearly as much as predicted.”

Fortunately for the cause of economic truth, we have such experiments. California, for one, embarked on a broad set of policy reforms to encourage efficiency and promote renewable energy in 1974.

The influence of energy efficiency policies are helping the whole California economy (California would be the 8th largest national economy in the world if it were a nation) to save much more than one would expect. California is not the only example of a state or country promoting efficiency through policy and then showing divergent usage trends from its neighbors and thus demonstrating that energy really is saved. Perhaps this is why serious studies have found that the economy-wide rebound effect is trivially small.

In my blog, I show how California’s projected savings from energy efficiency programs, derived year by year in real time by the California Energy Commission, have resulted in 15 percent reductions; and these programs have resulted in 40 percent reductions compared to the rest of the country.

California is just one example. Other states and several countries that have pursued efficiency policies also demonstrate lower energy usage and growth than those that did not so implement such policies.

Energy efficiency saves energy, increases electric reliability, avoids the need to build new power plants, and saves Americans money. It’s really that simple.

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Comments

MarcFeb 17 2011 06:10 PM

Thanks for this post, and your attempt to bring clarity to a confusing topic. I think I agree with you. I want to agree with you.

But I wonder about the two big pieces of evidences you cite--the fact that both the U.S. economy and especially the California economy dramatically increased their economic output while energy usage grew much more slowly. Couldn't this be because those economies shifted away from manufacturing and towards services in the last few decades?

Anecdotally, I find that I am less likely to worry about how much gasoline I'm using and therefore perhaps drive a bit more since I bought an efficient Honda Civic hybrid.

Michael CraigFeb 18 2011 09:23 AM

My comments are largely in line with Marc's, in that I agree with the general premise that energy efficiency does provide significant energy & economic savings and is not negated largely by "rebound", but your example of the US economy and energy use growth is largely meaningless. Until that energy use estimate is based on a life-cycle analysis approach that takes into account global energy consumption for all the products Americans use, the "energy consumption" of the United States doesn't really represent our true energy consumption.

That is, unless the statistic you cite IS a global LCA metric, in which case I would love a citation and extend my apologies.

Tim KovachFeb 18 2011 09:46 AM

Mark & Michael,

While the Jevons Paradox may seem to make logical sense, and you may be able to produce anecdotal evidence to support it, there has been much ink spilled disproving it over the years. For two good examples of it that involve actual math (unlike David Owens' piece in The New Yorker), check out these two posts by James Barrett on the topic:

http://realclimateeconomics.org/wp/archives/647

http://realclimateeconomics.org/wp/archives/654

There are too many competing economic indicators that can explain increases in energy consumption better than the rebound effect. It is a trite economic theory that doesn't hold its water in the real world. Real economic growth and the relatively static price of energy over time have contributed to increased energy use, not energy efficiency. There is a small rebound effect that has been isolated when you look at the data, but it is nothing compared to what Owens or Breakthrough would have you believe.

- Tim Kovach,
Product Coordinator, Energy Programs at COSE
www.cose.org/blog
www.twitter.com/COSEenergy

Michael CraigFeb 18 2011 11:53 AM

Tim,

Thanks for the two links. Energy efficiency is definitely an area I'd like to bolster my knowledge in, so additional sources are always useful. However, as I said before, I do not dispute at all that energy efficiency is an important and furthermore effective method of saving energy, contrary to what the "rebound effect" would have you believe. Rather, I'm simply pointing out that the use of economic and energy growth in the United States as justification for energy efficiency doesn't seem plausible to me because the given energy use does not account for shifts in industry overseas. As a result, it's entirely possible that there was not a single iota of energy efficiency increase in the period of concern, but rather all economic growth was derived from industries that use minimal amounts of energy. Again, I am not saying this happened; indeed, I think energy efficiency WAS instrumental in the uneven growth in these two metrics. I'm simply pointing out that the cited statistics do not support that story, and would love to see other metrics that do. (For instance, one possible approach would be to break down energy use and economic growth by sector.)

David B. GoldsteinFeb 18 2011 04:01 PM

I am glad to see that the blog generated so many thoughtful comments. The comments show just why this rebound hypothesis is so treacherous: since the proponents of rebound never frame their hypothesis in a way that can be tested, it is easy to generate the kind of confusion seen here.
Let me try to restate the rebound hypothesis in a rigorous, testable way: it says that policies that increase efficiency will not lead to a reduction in energy use. The reasons it provides are that increased efficiency will result in increases in energy service demands that take back all of the savings.
So the clear prediction of the theory is that if industry becomes more efficient, its output will increase so much that energy use stays the same. Thus if American in fact saw de-industrialization and a shift towards services after 1973 when policies and interest in efficiency accelerated, this proves the hypothesis is wrong. The hypothesis predicts enhanced industrial output in this case.
The hypothesis further states that a whole economy cannot save energy. It neglects to say “compared to what”, which makes testing it problematic. I try to solve this problem by saying the experiment group is California and the control group is the other 49 states. If California has actually reduced energy use while pursuing efficiency policies, this observation also refutes the hypothesis.
In this case the shift away from heavy industry is not an issue for several reasons. Most important is that the proponents of this hypothesis do not make this distinction. While it is hard to figure out exactly how they would address this issue (which is a problem in terms of trying to test it—I get the impression that they would change the definitions retrospectively in order to get the results they want), the essence of the theory is that if one country’s industry becomes more energy efficient, it should INCREASE its sales because the products are more competitive. So the shift of production overseas itself refutes the theory.
It is also not an issue because this shift occurred in all 50 states with no discernible large differences in extent. You do not need a full LCA to make this conclusion because the leakage due to imports of energy intensive materials is not growing bigger every year in California relative to the rest of the U.S.

Alex TrembathFeb 18 2011 10:04 PM

This brief attempt by Mr. Goldstein to discredit the Breakthrough Institute's report makes a couple argumentative errors, most obviously in that he mischaracterizes the central claim of the report.

First, the central claim of the report is not that there is an "emerging academic consensus around the 'rebound effect.'" Indeed, the report makes repeated concessions regarding the limitations of the surveyed research, signaling that further study is "warranted" and that "generalized conclusions should thus be viewed with caution." The report also concludes that "rebound mechanisms remain almost entirely ignored in projections of energy efficiency's ability to drive lasting reductions in energy use or greenhouse gas emissions." The report regularly discusses the lack of substantive data on, especially, economy-wide rebound/backfire, and laments that more attention is not paid towards it.

Second, the central claim of the report is not wholly contrary to Mr. Goldstein's pronouncement that "energy efficiency delivers big economic and environmental benefits." The report certainly cautions against over-reliance on energy efficiency measures to drive a reduction in greenhouse gas emissions (one might even say THIS is the central claim of the report), but it also advances economic and environmental justification for the "vigorous pursuit" of such measures. These justifications include the benefits of non-"below-cost" efficiency improvements that reduce energy demand without pursuant rebound; price-induced efficiency rebounds; numerous net economic benefits of energy efficiency that should lead to an increasing pursuit of "environmental amenities" in progressively wealthier developing nations; and the correlative association between energy modernization/diversification and decarbonization.

Third, the report does not seek to reject energy efficiency as a beneficial policy goal for environmental and economic concerns, but rather aims to aggregate the available research that indicates why such reliance on efficiency measures for GHG reductions may be overly optimistic. Mr. Goldstein condescendingly derides the authors of the report for reviewing the literature, as though a thorough survey of academic analysis is somehow worthless. Mr. Goldstein also indirectly insults the research highlighted in the report, putting down work by scientists and researchers who are aiming to improve the integrity of the data on global energy use.

In this way, Mr. Goldstein appears unnecessarily mean-spirited towards his intellectual colleagues whose goals (decarbonization, economic growth, and pursuing energy efficiency measures) are basically the same as his own.

Lastly, and I sincerely apologize for being nit-picky, but Osama bin Laden is evil. The Breakthrough Institute does not accuse energy efficiency of "evils," and I strongly believe we should leave such hyperbolic and alienating rhetoric out of these discussions.

Steve SorrellFeb 24 2011 08:03 AM

David - this blog is confrontational and seriously misleading

First, the Breakthrough report doesn't claim that rebound effects invariably offset ALL the energy savings from improved energy efficiency. They will certainly offset some and the objective should be to work out how much. That will depend a great deal on what type of efficiency improvements are occuring where.

Second, the claim that the Breakthrough Institute "fails to back up its accusations with facts" is plain wrong. Their report is based upon a large volume of empirical evidence in the academic literature. I reviewed this a few years ago - (http://www.ukerc.ac.uk/support/tiki-index.php?page=ReboundEffect) - and the Breakthrough report brings this up to date. This evidence is patchy and complex, but certainly does NOT show that rebound effects are always "trivially small" .

Third, citing examples such as California does not 'refute' the argument that in some cases rebound effects have been and will be large. Multiple factors contribute to aggregate trends in energy consumption and as anyone who has tried to do 'serious studies' will know, establishing the causal links (and estimating the size of any rebound effects) is extremely challenging.

Finally, this topic needs intelligent and careful research to help us understand it better, to improve the quantitative estimates, to reduce the uncertainties and to figure out what we can do in
response. Simply dismissing it out of hand will get us nowhere.

JonathanFeb 24 2011 06:03 PM

I think you should differentiate between the Owen piece and the BTI report. The Owen piece confuses increases in wealth and other technology trends with rebound--that confusion is common in articles written for popular audiences. The BTI report tries to be more precise and raises some legitimate issues, but it also makes some claims that concern me (I won't say more about this because I'm just beginning what looks to be a constructive technical dialogue with BTI, Amory Lovins of RMI, Harry Saunders, Lee Schipper, Jim Sweeney, Steve Sorrell and other colleagues--for the latest, see http://www.koomey.com/post/3489737805 )

It's important to distinguish different sources of rebound. First, there is what I'd call "enduse" rebound, which is what microeconomists have traditionally termed the rebound effect and what David and Ralph focus on above. That's what happens when a device becomes more efficient and people use it a bit more because it's cheaper to do so. In practice the size of this effect is zero or very small except in a small number of cases, like space heating or autos (when it's modest (10-30%).

Then there's what I'd call the "respending effect", which is what happens when the saved money from efficiency is respent on other things. This effect is in practice capped at 6-8 %, because that's the fraction of GDP that is energy related. This is a macro effect that is independent of a specific enduse--if energy is saved from efficiency, then it is either respent or reinvested, and that will have some (small) effect on aggregate energy demand. If it is reinvested into efficiency, of course, then the result is different, but if it is spent, the 6-8% number is probably a good round numbered quantification of the effect.

Finally, there's a rebound effect that BTI and others posit that takes place because of the substitution of energy for other factors of production within firms, because energy services are cheaper inside those firms. I still haven't figured this one out, but that's what we're initially focusing on in our discussions.

I do think that distinguishing between these different types of rebound is important, and that the "respending" effect I define above is a real one (but is generally small, and can be influenced by taxation policies). The micro rebound effect is in general not that big an issue, but can be important in some situations. The last effect is what we're investigating in our technical dialogue, but I'm not prepared to put a number on it at this point (or even to say yet whether I think it is a real effect).

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