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RS20981: Energy Efficiency and the Rebound Effect:
Does Increasing Efficiency Decrease Demand? (pdf)
Science and Technology Analyst
Resources, Science, and Industry Division
July 30, 2001
Intuitively it seems obvious to most observers that increasing
energy efficiency willultimately reduce
demand for an energy resource such as electricity. Paradoxically,
economic theory suggests that this decrease in demand
and subsequent decrease in cost of
using the resource could cause a rebound in demand. A commonly
cited example is an increase in
the efficiency of home air conditioning which may reduce the residents
monetary incentive to conserve. The resident may opt to change the
thermostat setting to keep the
amount he pays constant, but living at a more comfortable temperature.
When actually measured this "Rebound Effect" is generally
acknowledged to lower predicted
reductions in electricity demand by 10%-40% depending on the device
that is made more efficient. This report will be updated
as events warrant.
Several bills introduced in the 107 th Congress focus on increasing
energy efficiency.Three bills in particular
have been reported in the House that aim to promote energy
efficiency through tax credits, grants,
efficiency standard mandates or increased money for energy efficiency research (H.R. 2587, H.R. 2511, and
H.R. 2460, all of which have been incorporated into H.R. 4). However some have suggested that government-supported
efforts to conserve energy by increasing
efficiency will not produce the expected results because
of the "Rebound Effect" 1 . This
brief paper describes the rebound effect and outlines the
current thinking of those studying this effect.
The rebound effect (also referred to as the "take-back" or "snap-back")
was firstdescribed in 1865 when Stanley
Jevons observed that the introduction of the new efficient
steam engine initially decreased coal consumption
which led to a drop in the price of coal. This meant not only that more people could afford coal, but also
that coal was now economically
viable for new uses, which ultimately greatly increased coal consumption
More recently, analysts have focused on
the rebound effect in the electricity and gasoline markets. If a large rebound effect exists in these markets,
it could weaken arguments for increased efficiency requirements
and strengthen arguments to scale back such efforts.
Definition of the Rebound Effect
The rebound effect is most simply measured by the difference
between the projectedand actual savings
due to increased efficiency. The rebound effect consists of direct,
indirect and macroeconomic effects that can happen following
the installation of more efficient equipment.
Direct Effects - The consumer chooses to use
more of the resource instead of realizing the energy cost
savings. For example, a person with a more efficient home heatermay chose to raise the setting on the thermostat or a
person driving a more efficient car may
drive more. This effect is limited since a person will only set
the thermostat so high or have so many hours to spend driving.
Indirect Effects - The consumer chooses to spend
the money saved by buying othergoods which
use the same resource. For example, a person whose electric bill
decreases due to a more efficient air conditioner may use
the savings to buy more electronic goods.
Market or Dynamic Effects - Decreased demand
for a resource leads to a lowerresource
price, making new uses economically viable. For example, residential
electricity was initially used
mainly for lighting, but as the price dropped many new electric
devices became common. This is the most difficult aspect of the
rebound effect to predict and to measure.
Under certain circumstances, the rebound effect could actually
turn an increase inefficiency into an
increase in demand. However this has only happened in very special
cases such as in some developing countries or in new markets
such as the coal market in the
mid 1800s or the electricity market in the early 1900s. For mature
markets, it is generally accepted
that although real the rebound effect is limited 3 . The
actual rebound depends on many
variables, including specific resource, the specific device and
how developed the resource market and overall economy are.
Actual measures of the rebound effect for electric end-use equipment
have beenfound to be between 0% and 40%
4 . That
is, the actual decrease in demand realized can range from 100% to about 60% of the projected amount. The result
is very dependent on the type of
device. For example, increasing the efficiency of home appliances
(so called "white goods") showed
no measurable rebound effect, while the rebound for space heating
or cooling units ranged from 0% to 50% (see Table 1).
The rebound effect for increasing automobile fuel economy has also been much studied. This rebound
is generally reported to range between 10% and 30% 5
Table 1. Measured Rebound Effects on Various
||NUMBER OF STUDIES|
Adapted from L.A. Greening Energy Policy (2000) 28:398
Effects on Policy
There has been much debate on the role government-supported increases
in energy efficiency should play in the
development of national energy policy. At one end of the
spectrum, some have even suggested increases in efficiency
are counterproductive because the rebound effect will lead to increased demand. Although most experts
agree that this is theoretically
possible, in the U.S. domestic electricity and gasoline markets
the rebound effect will likely
not exceed 10% to 40%, depending on which device is improved 6 .
Policy makers may be able to more accurately
gauge the true benefits of proposed efficiency programs by accounting for the rebound effect. For instance,
some may consider it desirable
to increase appliance efficiency or fuel economy standards even
further than previously suggested to compensate for the
predicted rebound effect. On the other
hand, some policy makers may feel that the proposed energy savings
have been reduced to the point
to make the program no longer cost effective. Another choice could
be to keep the same program but slightly lower expectations
of the benefits. In any event, it should help policy makers objectively evaluate programs to know
if the proponents of a plan have
accounted for the possible rebound effect in their projections
of energy savings.
It is important to remember that losses in energy savings due
to the rebound effect would generally
be associated with gains in quality of life of the consumer. That
is the recipient of a more efficient
heater can choose to live in a warmer house or spend the
energy cost savings on some other consumer good.
Greenhouse Gas Emissions.
The rebound effect can increase the difficulty of projecting
the reduction in greenhouse emissions
from an improvement in energy efficiency. For example, a consumer
who saves money on his heating bill may spend it on a
more carbon intensive activity. Alternatively, the money could be spent on a less carbon intensive
activity. Currently, the only general
agreement among specialists in this field, is that it is likely
that increases in energy efficiency
will reduce carbon emissions per unit of Gross Domestic Product
7 . Some
argue that this suggests that increasing
efficiency through government efforts is the best route to reduce emissions while others argue that the
market would produce the same or better results without
government intervention 8 .
For Additional Reading
On the rebound: the interaction of energy efficiency, energy
use and economic activityEnergy Policy, v.28 (6-7), June 2000
p.351-500, L. Schipper ed.
U. S. Dept. of Energy, An econometric analysis of the elasticity
of vehicle travel withrespect to fuel cost per mile using RTEC
survey data. ORNL-6950.
CRS Report RL30414. Global Climate
Change: The Role for Energy Efficiency, by FredSissine.
CRS Report IB10020. Energy Efficiency:
Budget, Oil Conservation, and ElectricityConservation Issues,
by Fred Sissine.
1 See K. Strassel, Conservation wastes money, Wall Street
Journal, May 17, 2001, Eastern Edition, p. A26; F. Pearce, Consuming
myths, New Scientist, September 5, 1998, p. 18-19; and J. Glassman, The
conservation myth as the latest (sub)urban legend, http://www.TechCentralStation.com/NewsDesk.asp?FormMode=MainTerminalArticles&ID=68
2 W.S. Jevons The coal question: can Britain survive?
First published 1865, Republished Macmillan, London 1906.
3 Lee Schipper, On the rebound: the interaction of energy
efficiency, energy use and economic activity. An introduction. Energy
Policy 28 (2000): 351-353.
4 L. Schipper, p. 353
5 L.A. Greening, Energy efficiency and consumption - the
rebound effect - a survey, Energy Policy (2000) 28: 389-401
6 L. Schipper, p. 351
7 L. Schipper, p. 351
8 J. Glassman, p.
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