'What is the use of supporting energy efficient appliances, when rebound effects cancel out all net energy savings?' This kind of scepticism regarding energy efficiency is being heard more and more in public debates.
The rebound effect occurs when energy efficiency of products improves, but then people just use more of these products. The net effect is thus cancelling out any overall savings. The rebound effect can be both direct and indirect. For instance, a direct effect can occur when consumers buy a fuel efficient car, but then discover that they can drive much more for the same cost and alter their previous driving habits. The rebound effect can also be indirect as when people use the money they save by driving more efficiently for other energy services, such as an extra holiday by air to Spain.
While this rebound effect certainly exists, it is being overused 'as another reason to do nothing', argues Bill Thompson in a post on WattWatt. Jumping to the conclusion that the rebound effect makes all energy efficiency measures useless is indeed an oversimplification that cannot be justified.
The rebound effect is directly linked to what economists call price elasticity: that is, the degree to which a given population will buy less or more of something as the price goes up or down.
If the price is elastic, it means that people do not immediately change their buying behaviour when the price changes. The rebound effect of energy savings supposes that the energy price is non-elastic: if the energy cost for an appliance goes down because of higher efficiency, people will use it more. If the cost of energy were to be non-elastic in all conditions, people would proportionally lower their consumption as the energy price goes up. This is clearly not happening. However, such a different behaviour when price goes up as when price goes down is not necessarily contradictory. Downward and upward price elasticity is not always similar.
The degree to which the energy price is elastic has been the subject of seemingly everlasting debate among economists since the late 19th century.
Concerning energy savings measures, one can say with relatively high confidence that a rebound effect is occurring to some degree, but that it is not cancelling out all savings.
A study by the UK Energy Research Centre calculated that the long term rebound effect for personal transport, space heating, and space cooling is less than 30 per cent. In general, most studies estimate the rebound effect for improved energy efficiency in electric appliances to be 20 to 30 per cent.
One way to reduce the rebound effect is to set up extensive education campaigns on the importance of energy savings before more energy efficient technologies become widely available on the market. Even though such campaigns do not have the potential to reach everybody, they can increase the social responsibility factor in the general population and in this way initiate at least a limited behavioural change.
Another reaction could be to increase energy taxes. As the energy consumption of appliances decreases, energy taxes could be increased without affecting the purse of consumers. In this way, the externalities of energy will be charged through to a higher degree and consumers will be stimulated to actually use the increased efficiency to reduce their consumption. The degree to which this mechanism is effective depends upon upward price elasticity.
It is also important to note that reducing energy consumption is not everyone’s sole social and environmental preoccupation. The fact that increased energy efficiency is not used to reduce total energy consumption should not automatically be interpreted as making energy efficiency completely useless. It can enable new energy services.
For instance, many of the energy efficiency improvements that have been realized for cars in the past 25 years were used to produce safer and thus heavier, more energy hungry cars. The higher efficiency did not necessarily lower the external costs of energy consumption, but it did lower the external costs of road traffic.
Another example is that higher energy efficiency can also be used to reduce poverty in developing countries. It can make certain energy services available to people that would not otherwise be able to enjoy them.
Obviously the rebound effect of energy efficiency is a very complex, far-reaching subject. It is certainly not a valid argument to completely dismiss the usefulness of energy efficiency campaigns. While it is true that it should be taken into account when predicting the results of those campaigns. In the past some of those predictions have been far too optimistic because they did not take adequate account of the rebound effect.