Energy use on the rebound: What does it mean for policy?

Whatever it may be you want to reduce, suppress or get rid of – expect the REBOUND.

This goes for a desire to feel loved after a recent breakup as much as for unwelcome thoughts of consuming yet another chocolate bar while on a diet. This goes for body builders who worry about rebound effects on their thirsty bodies from post-competition binging. And for land masses that were depressed by the weight of the ice during the last glacial period.

Unfortunately, it also goes for energy savings.

In many countries, increasing energy efficiency is a major goal to reduce carbon emissions. Fuel efficient cars, well insulated houses and highly optimised production processes are seen as the way forward. Meanwhile, energy savings from any improvement are commonly estimated based on physical principles, using engineering models. But the energy savings realised in practise often fail to stand up to the expectations. This can be explained from many factors, but it is increasingly acknowledged that part of the gap steams from a neglect of rebound effects.

Three types of rebound effects can be distinguished for energy efficiency. The direct rebound effect is relatively straightforward: improvements in energy efficiency make energy services cheaper and as a behavioural response the services are used more extensively. This is equally conceivable for more efficient factories increasing their output based on the same use of resources and for costumers choosing to travel further in their new car which needs less fuel per mile. The indirect rebound effect sees a shift in which energy services are used: an efficiency increase for one energy service can result in the increased use of a different service. For example, if people save money on heating in better insulated houses, they might decide to spend more on air-freighted foods, holidays or other carbon-intensive affairs. The sum of the direct and the indirect rebound effects represents the economy wide rebound effect.

Experts argue about how big the different rebound effects ultimately are, because they are hard to estimate. There is a lack of clear definitions and classifications as well as accepted methodologies to measure rebound effects and gathering specific data is complicated. Most estimates of direct rebound effects for residential heating and personal transport in developed countries range around 30%, this means only 70% of the projected energy savings are achieved in practise. In developing countries, the evidence is even sparser but it is believed that rebound effects are much bigger there because the saturation with energy services is initially lower.

Taking this to an extreme, the so-called ‘Khazzoom-Brookes postulat’ synthesises ideas that were independently put forward by Daniel Khazzoom and Leonard Brookes in the 1980’s. It claims that as long as energy prices do not increase significantly, cost effective energy efficiency improvements will inevitably backfire and increase economy-wide energy consumption above what it would be without those improvements.

While this interpretation may only hold under extreme circumstances, there is sufficient empirical evidence on the existence of rebound effects to start taken them into account in the estimation of energy savings, both in engineering models and governmental policies. But a second aspect of the discussion on rebound in energy efficiency is almost more interesting: Are rebound effects inevitable? Or could they somehow be mitigated?

UKERC suggest in their 2007 report on rebound effects that, yes indeed, carbon pricing could reduce them by keeping the price of energy services constant even if less energy is needed for their provision. However, an increase of the carbon price “over time at a rate sufficient to accommodate both income growth and rebound effects” would be necessary to achieve this.

At the same time, the European emissions trading scheme (EU ETS), core of the European Union’s Climate Policy is on the edge with a carbon price as low as 4€ per ton. After fierce discussions within the environmental committee of the European Parliament in mid-February, reforms aimed at rescuing ETS will be debated by the whole parliament in April. But the markets so far remain sceptical as to whether politicians will ultimately support the package which includes holding back allocated permits from auctions for several years. And even if the so-called ‘backloading’ is implement this summer, more reforms will be needed to retransform carbon trading into a successful tool of climate policy.

The mitigation of rebound effects to increase the impact of energy efficiency measures is one more good reason to try hard and get it right. Only as combined measures can energy efficiency and emissions trading work their best in combating global warming. Energy efficiency is often sold as easy and cost-effective win-win solution, but rebound effects are indicative for the need of a more intergrated climate policy.

Further reading
– UKERC’s main report
– Interesting read on rebound effects in psychology: Macrae, C.; Bodenhausen, G.; Milne, A.; Jetten, J. (1994) Out of mind but back in sight: Stereotypes on the rebound. Journal of Personality and Social Psychology, Vol 67(5), 808-817.
– Scenarios for EU ETS