Energy Efficiency and Climate Policy: The Rebound Dilemma

August 3, 2012

Much of today's energy policy assumes that regulations mandating greater energy efficiency will reduce energy use. That isn't always the case and energy efficiency improvements are seldom as large as promised by engineering calculations because of "rebounds," says Robert J. Michaels, a senior fellow at the Institute for Energy Research.

For example, people who install lighting that is 50 percent more efficient frequently leave the lights on longer, negating some of the energy savings from greater efficiency. This is called an energy efficiency rebound, and such occurrences have been documented empirically on numerous occasions. Further, the rebound effect is even broader than many recognize.

There are four basic types of rebound that might result from improved energy efficiency:

  • Direct rebounds are adjustments in the production or consumption of a good whose energy efficiency has increased (e.g., improved vehicle fuel economy that lowers the per-mile cost of driving may motivate drivers to travel more miles).
  • Indirect rebounds are changes in the production or use of goods related in use to the activity being improved in efficiency (e.g., increased fuel economy that leads to more driving also indirectly increases the demand for tires, requiring more energy use by tire manufacturers).
  • Economy-wide rebounds are the impacts of an efficiency improvement summed over all affected economic activities (e.g., if drivers are traveling more often, hotels will require additional energy to meet increased demand for rooms and services).
  • Embedded energy inputs are those that expend energy in the process of creating more energy-efficient goods (e.g., higher efficiency building insulation that lowers annual energy use requires energy inputs to install the material).

Given the pervasiveness of various rebound effects, it should not be surprising that backfires have been documented, in which the resulting increase in energy consumption outpaced the original gains from efficiency. In these cases, the net impact on energy use is altogether negative.

Energy efficiency rebounds suggest that attempts to plan or direct energy policy toward desired goals will likely fall far short of expectations. Instead of imposing energy efficiency mandates, energy policy should embrace market prices and disruptive innovations to guide energy to its most valuable uses.

Source: Robert J. Michaels, "Energy Efficiency and Climate Policy: The Rebound Dilemma," Institute for Energy Research, July 12, 2012.

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