Energy Efficiency on the Rebound

24 January 2013
Posted by Laurie Winkless.

These days, most of us try to live a 'greener' life; we may drive a hybrid car, recycle all we can and reduce the number of flights we take.

And, on a national and international level, the energy question Smart carhas taken centre stage, led by efforts to become more energy efficient.

But, are we all wasting our time? A growing number of economists believe that the environmental benefits of improving energy efficiency have been oversold, and that as a result of making systems more efficient, we could even see an increase in emissions.

This paradox is called the rebound effect, and an article on it in the New York Times prompted Yale environmental scientist, Kevin Gillingham, to write a piece in Nature.

Although Gillingham and his colleagues agree that the rebound effect is real, they believe that economists have overstated its impact and have therefore introduced nothing more than a distraction into the energy debate.

Energy is never straightforward - saving it always requires a compromise, and the rebound effect is an example of this. One manifestation of it occurs when a decrease in price results in a rise in demand.

Higher-efficiency cars certainly burn less fuel per kilometre, but studies have shown that this just results in people driving more ('direct' rebound). And those who save money through improved energy efficiency may then go on to buy another product which requires energy to manufacture ('indirect' rebound).

So the rebound effect is real, but the debate centres on quantifying it, by measuring the overall gain or loss due to energy efficiency. It is expected the lat¬est fuel-economy standards passed by the United States will reduce demand for oil there.

But because this will result in a global decrease in oil prices (supply and demand!), this reduction in US consumption may just be 'topped up' by an increase in consumption in other countries. Gillingham suggests that such decrease in global oil prices will actually reduce the incentive to produce it, so that overall, less oil will be produced. So, the debate on this issue rages on.

No-one seems to deny that the rebound effect is real, or that it makes energy-efficient policies less effective. What those on opposite sides of the fence fundamentally disagree on is the size of the effect.

Some economists suggest that fuel savings have increased driving by up to 30%, but Gillingham argues that in real terms, this number is much lower. Say you save money on your fuel per kilometre; if you then drive further, you don't actually save any money, and without this saving you're unlikely to 'treat' yourself to a new laptop.

People often feel flummoxed by energy issues, and this debate won't do much to help. But if the goal is to reduce greenhouse emissions, it's obvious that solely focussing on improving efficiencies is not the answer.

The key is to reduce consumption, and there is a whole other debate on how to do this. Based on the idea that people (and companies) respond more strongly to price than to efficiency when it comes to energy, some suggest a tax on energy generated from fossil fuels.

Others say that more global investment is needed to develop alternative, 'carbon-free' sources of energy. In reality, it may be that only a battle fought on all of these fronts simultaneously will provide any real solution to the energy crisis.

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