• World
    • Africa
    • Asia Pacific
    • Central & South Asia
    • Europe
    • Latin America & Caribbean
    • Middle East & North Africa
    • North America
  • Coronavirus
  • Politics
    • US Election
    • US politics
    • Joe Biden
    • Brexit
    • European Union
    • India
    • Arab world
  • Economics
    • Finance
    • Eurozone
    • International Trade
  • Business
    • Entrepreneurship
    • Startups
    • Technology
  • Culture
    • Entertainment
    • Music
    • Film
    • Books
    • Travel
  • Environment
    • Climate change
    • Smart cities
    • Green Economy
  • Global Change
    • Education
    • Refugee Crisis
    • International Aid
    • Human Rights
  • International Security
    • ISIS
    • War on Terror
    • North Korea
    • Nuclear Weapons
  • Science
    • Health
  • 360 °
  • The Interview
  • In-Depth
  • Insight
  • Quick Read
  • Video
  • Podcasts
  • Interactive
  • My Voice
  • About
  • FO Store
Sections
  • World
  • Coronavirus
  • Politics
  • Economics
  • Business
  • Culture
  • Sign Up
  • Login
  • Publish

Make Sense of the world

Unique insight from 2,000+ contributors in 80+ Countries

Close

Rebound Effects Demand an Efficiency Rethink

By Jesse Jenkins • Jul 17, 2011

Jesse Jenkins and Harry Saunders explain why energy demand will not decrease even if we find ways to use it more efficiently.

In energy planning circles, efficiency is often viewed as an inexpensive way to reduce energy consumption and greenhouse gases. Governments and NGOs prominently adopt efficiency policies, while the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPPC) estimate that efficiency measures can greatly reduce emissions, therefore helping to stabilize our global climate. This focus on efficiency is particularly prominent in the world’s emerging economies, where getting more out of less energy is seen as a key path to both sustainable growth and reduced climate risk.

Yet recent research (including ours) highlights a powerful but largely overlooked economic phenomenon that requires a global rethink of energy efficiency and its role in climate mitigation and sustainable development strategies: the “Rebound Effect.”

Acknowledging the reality of rebound effects requires a reassessment of one of the core assumptions of conventional energy and climate analysis: the idea that efficiency improvements lead to a linear, direct, and one-for-one reduction in overall energy use.  Widely cited reports by McKinsey and Company as well as strategies delineated by the IEA and IPCC ignore feedbacks between improvements in energy efficiency and economic activity or demand for energy services. Therefore, they typically conclude that a given percent gain in efficiency is assumed to lead simply and directly to an equal percent reduction in total energy use.

The problem is that, as any economist will tell you, the economy is actually anything but direct, linear, and simple, especially when responding to changes in the relative price of goods and services. When goods, services or inputs to production get cheaper, consumers and firms use more of them, find new cost-effective uses for them, and then re-invest any savings in other productive activities. These concepts may be familiar to some readers; they are often labeled “the Jevons’ Paradox,” after the British economist who first noted the mechanism in 1865. In reality though, there is nothing paradoxical about rebound at all.

Economists would never assume, for example, that a ten percent improvement in labor productivity – aka a “labor efficiency” improvement – would reduce overall demand for labor in the economy by ten percent.

At the scope of the individual factory or assembly line, improving labor productivity may mean the plant can get by with fewer laborers on the shop floor. Yet higher labor productivity also lowers product costs and increases demand for those products, while opening up new markets that were not previously profitable. Productivity frees up money to re-invest in other areas of production, and it creates new jobs in other areas of business. All of these dynamics cause a ‘rebound’ in labor demand.

At the macroeconomic level, it is widely understood that improving labor productivity drives economic growth, creates new profitable ways to utilize labor, and generally increases rather than decreases overall employment.

Despite the simplified assumptions common to energy forecasting and analysis, the reality is that energy isn’t different from labor, or materials, or capital. Improving energy productivity triggers ‘rebounds’ in demand for energy services, just as labor productivity triggers ‘rebounds’ in employment.

Through an economic lens, one can see that any truly cost-effective energy efficiency measure will lower the price of services derived from fuel consumption, such as heating, cooling, transportation, and various industrial processes. Lower prices lead consumers and industries alike to demand more of these services. Other indirect and economy-wide effects result as well, as consumers re-spend money saved through efficiency on other energy-consuming goods and services, and industrial sectors adjust to changes in the relative prices of final and intermediate goods. Meanwhile, any net improvement in energy productivity contributes to economic growth.

Collectively, these economic mechanisms drive a rebound in demand for energy services that can erode much – and in some cases all – of the expected reductions in total energy use, along with much-hoped-for reductions in greenhouse gas emissions.

Furthermore, recent research indicates that rebound effects are likely to be most pronounced in the areas of the economy that have received the least focused study to date: The productive sectors (including industry and agriculture), and the world’s emerging economies.

Rebound likely to be largest where least studied

As it turns out, rebounds are generally smallest in exactly the situations that have received the most research to date: end-use consumer energy services in wealthy, developed economies. This includes efficiency improvements in personal transportation, home heating and cooling, and appliances.

Consumers in the world’s wealthy nations already fully enjoy most energy services, or come close to it. A consumer gains little, for example, from heating his or her home above a comfortable room temperature, even if the efficiency of home heating improves. Here, the direct increase in demand for end-use energy services due to the decrease in their apparent price is therefore relatively modest and commonly erodes 10-30% of the initial energy savings or less.  Additional rebound due to indirect and macroeconomic effects can somewhat increase the net effect.

However, the consumption of end-use services in the world’s wealthy nations is far from indicative of broader trends across the global economy.

In fact, recent research indicates that the largest rebound effects are typically found elsewhere: in the productive sectors of the economy that consume the bulk of energy in any nation, and in the world’s emerging economies, home to the vast majority of future energy demand growth.

Emerging economies

In contrast to conditions in wealthy nations, demand for energy services is still on the rise throughout the developing world. After all, roughly one-third of the global population still lacks sufficient access to even basic modern energy services. Demand can therefore be far more elastic (responsive to changes in price), and rebound effects much larger than in developed economies.

Very few studies have carefully examined rebound dynamics in developing economies, but those that have find direct rebound effects alone to be on the order of 40 to 80 percent for end-use consumer energy services, such as lighting and cooking fuel; more than twice as large as the equivalent rebounds found in wealthier nations.

Expanding access to modern energy services is also a principal driver of development. Whether such services are provided by burning more fuels, burning them more efficiently, or both (the most likely scenario), the outcome is the same: greater economic activity and expanding welfare, which in turn demands more energy.

Energy analysts must therefore be very careful in generalizing experiences or intuitions about rebound effects in rich, developed nations to the larger bulk of the global population living in developing economies. The shadow of Jevons’ Paradox still looms large over much of the developing world.

Productive sectors

We need far more study of rebound effects in the productive sectors, such as industry, commerce and agriculture, especially since roughly two-thirds of global energy is consumed in the production, transportation, refining and processing of goods and services. The literature to date indicates that direct rebound effects are much larger in the productive sectors than in end-uses – on the order of 20-70% for productive sectors, at least within a United States context – with additional rebound due to indirect and macroeconomic effects.

Rebound effects in productive sectors depend principally on the ability of firms to rearrange their factors of production (labor, capital and equipment, and various materials) to better take advantage of now-cheaper energy services. If, over the long-term, it is relatively easy for firms to substitute increasingly efficient energy services for other production factors, direct rebound effects can be substantial. This is especially true for decisions related to the construction of new productive capacity – and so we should again expect more pronounced rebound in the fast-growing productive sectors of emerging economies. Additional mechanisms add to the scale of rebound, as consumers demand more of now-cheaper products and economic productivity overall improves.

Rethinking efficiency in climate mitigation; reaffirming efficiency for development

So where does rebound leave us?

Conventional climate mitigation strategies count on energy efficiency to do a great deal of work. The IEA, for example, estimates that efficiency measures could account for roughly half of the emissions reductions needed in a global climate stabilization scenario published by the agency before international climate negotiations in Copenhagen in December 2009.

Yet from a climate or resource conservation perspective, rebound effects mean that for every two steps forward taken through greater efficiency, rebounds can take us one (or more) steps back. This is particularly true throughout the developing world and in the productive sectors of the global economy. A clear understanding of rebound effects therefore demands a fundamental re-assessment of energy efficiency’s role in global climate mitigation efforts.

Continued failure to accurately and rigorously account for rebound effects, risks an over-reliance on the ability of efficiency to deliver lasting reductions in energy use and greenhouse gas emissions. Without a greater emphasis on the other key climate mitigation lever at our disposal – the decarbonization of global energy supplies through the deployment and improvement of low-carbon energy sources – the global community will fall dangerously short of climate mitigation goals.

At the same time, however, we can re-affirm the role of energy efficiency efforts in expanding human welfare and fueling global economic development.

Unlocking the full potential of efficiency may very well mean the difference between a richer, more efficient world, and a poorer, less efficient world. The former is clearly the desirable case – even if the world consumes more or less the same amount of energy in either scenario.

The pursuit of any and all cost-effective efficiency opportunities should thus continue as a key component of an efficient course for global development and modernization, even as we reconsider the degree to which these measures can contribute to climate mitigation efforts.

Share Story
CategoriesEnvironment, North America TagsFocus Article
Join our network of more than 2,000 contributors to publish your perspective, share your story and shape the global conversation. Become a Fair Observer and help us make sense of the world.

Fair Observer Recommends

Joseph Conrad’s The Secret Agent: Herald of Contemporary Terrorism? (Part 1/2) Joseph Conrad’s The Secret Agent: Herald of Contemporary Terrorism? (Part 1/2)
By Matthew Feldman • Apr 10, 2014
Kindred Spirits? Canada and the US in a Comparative Lens Kindred Spirits? Canada and the US in a Comparative Lens
By James Blake Wiener • Apr 07, 2014
The Contentious Affordable Care Act The Contentious Affordable Care Act
By Origins: Current Events in Historical Perspective • Mar 31, 2014

Leave a Reply Cancel reply

You must be logged in to post a comment.

Post navigation

Previous PostPrevious Taste (Test) of Chicago
Next PostNext The Muslim Brotherhood: A Threat Or An Opportunity In Egypt?
Subscribe
Register for $9.99 per month and become a member today.
Publish
Join our community of more than 2,500 contributors to publish your perspective, share your narrative and shape the global discourse.
Donate
We bring you perspectives from around the world. Help us to inform and educate. Your donation is tax-deductible.

Explore

  • About
  • Authors
  • FO Store
  • FAQs
  • Republish
  • Privacy Policy
  • Terms of Use
  • Contact

Regions

  • Africa
  • Asia Pacific
  • Central & South Asia
  • Europe
  • Latin America & Caribbean
  • Middle East & North Africa
  • North America

Topics

  • Politics
  • Economics
  • Business
  • Culture
  • Environment
  • Global Change
  • International Security
  • Science

Sections

  • 360°
  • The Interview
  • In-Depth
  • Insight
  • Quick Read
  • Video
  • Podcasts
  • Interactive
  • My Voice

Daily Dispatch


© Fair Observer All rights reserved
We Need Your Consent
We use cookies to give you the best possible experience. Learn more about how we use cookies or edit your cookie preferences. Privacy Policy. My Options I Accept
Privacy & Cookies Policy

Edit Cookie Preferences

The Fair Observer website uses digital cookies so it can collect statistics on how many visitors come to the site, what content is viewed and for how long, and the general location of the computer network of the visitor. These statistics are collected and processed using the Google Analytics service. Fair Observer uses these aggregate statistics from website visits to help improve the content of the website and to provide regular reports to our current and future donors and funding organizations. The type of digital cookie information collected during your visit and any derived data cannot be used or combined with other information to personally identify you. Fair Observer does not use personal data collected from its website for advertising purposes or to market to you.

As a convenience to you, Fair Observer provides buttons that link to popular social media sites, called social sharing buttons, to help you share Fair Observer content and your comments and opinions about it on these social media sites. These social sharing buttons are provided by and are part of these social media sites. They may collect and use personal data as described in their respective policies. Fair Observer does not receive personal data from your use of these social sharing buttons. It is not necessary that you use these buttons to read Fair Observer content or to share on social media.

 
Necessary
Always Enabled

These cookies essential for the website to function.

Analytics

These cookies track our website’s performance and also help us to continuously improve the experience we provide to you.

Performance
Uncategorized

This cookie consists of the word “yes” to enable us to remember your acceptance of the site cookie notification, and prevents it from displaying to you in future.

Preferences
Save & Accept