The General Rebound Effect and How We Think About It

The rebound effect has been very much on my mind lately. Intuitively, we expect that if an energy-consuming device becomes more efficient, then we save energy and get environmental benefits. A large fraction of the world’s climate policy is based on energy efficiency. Yet we also know that since the energy service is cheaper, we will either use more of it, or we will spend the savings on some other energy service. The phenomenon is known as the rebound effect. It means, in a nutshell, that the actual energy savings will be less than the original naive estimate, and in some cases there might not be any savings at all.

One of my business associates and I recently compiled a sample of (mostly) recent rebound studies. Estimates vary widely, but based on mainstream research we believe that a rebound of at least 50% should be expected in general.

Rebound on the Supply Side

The IEA, IPCC, and most other major NGOs operate with the unspoken assumption that the supply and demand for energy are independent. In other words, society demands a fixed amount of energy each year, and it is up to governments and industry to figure out how to supply it. Every joule of clean energy deployed displaces a joule of dirty energy.

Unlike the rebound effect for energy efficiency, which the IEA treats dismissively, the rebound effect for clean energy supply is ignored completely as far as I can tell. I wouldn’t place great confidence in any of the numbers cited above, and supply rebound is clearly a topic that needs much more thorough investigation. But I think it is also clear that we cannot assume that new clean energy deployment will displace fossil fuels in a 1-for-1 manner. Unfortunately, due to the lack of solid information, it is easy for the IEA, IPCC, and other agencies to ignore the issue.

Responding to Rebound

Being an academic by nature, of course the first thing I will say is that the rebound effect in general, and especially for energy supply, needs to be studied much more. But assuming that rebound for both supply and efficiency are real and substantial, we can say more.

Today, energy policy as conducted by think tanks and NGOs revolves primarily around concerns about climate change. I expect and hope that within the next few years, growing concern among policymakers about secular stagnation will lead to greater concern for the central role of energy in the economy. The rebound effect may be the best entry point for exploring this role.

[1] Could a degrowth scenario enhance rather than detract from human well-being? I strongly disagree with this assertion, but there are some elements of the degrowth critique that I find worthy of more serious engagement, perhaps at another time.

[2] After 1970, there again appears a significant unexplained residual, which Ayres and Warr hypothesize might be information technology.

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