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In Praise of Energy Efficiency Rebound

Energy efficiency (EE) discussions never get far before someone raises the specter of “rebound.”  Rebound is the consumers’ response to an energy efficiency improvement that causes them to increase energy consumption.   If your car gets better fuel economy, you may drive it more.    If incandescent lights are replaced with efficient compact fluorescents, you feel ok about leaving the driveway and doorway lit up while you are out for the evening.

EE rebound is often treated as a failure.  Many in the EE community act as if it is our dirty secret and claim that it is minimal.  Some opponents of government policies to support energy efficiency investment argue that rebound is so large that it wipes out the entire energy savings from the investment, an outcome given the evocative name of “backfire”.

I’ve been reading a lot about rebound lately (and am working on a paper on the subject).  I’m convinced that EE rebound is quite significant, though it’s very unlikely to make it all the way to backfire in most cases.

But here’s the more important point:  Rebound is a good thing.  It’s economic value creation.  When your car gets better fuel economy, you are better off even if you drive no more.  But if you find new valuable uses for the car now that it is cheaper to run, then you are getting even more value out of the car than you would if the improved fuel economy didn’t change your use of it.  Likewise, leaving those lights on when you go out has real value.  It wasn’t valuable enough when you had the old expensive lights, but with low-cost CFLs, it’s worth lighting your path, so you don’t have to feel around in the dark or risk running over the toys that were left in the driveway.  Rebound is a benefit of EE investment, not a drawback.  It signals that the investment has made consumers even better off than the simple gain from using less energy when you do the same thing.

If you are worried about GHG emissions, however, that view of rebound may be cold comfort.  But take heart: The consumer’s extra gain from rebound can support policies to reduce GHGs.  An example:

A new insulation technology would make a home more energy efficient, but would cost about as much as (or maybe even a bit more than) it would save the consumer given their typical thermostat settings.  With the greater energy efficiency, however, the consumer keeps the house at a warmer temperature in the winter and cooler in the summer, because the extra comfort is less expensive after the EE improvement.  That is extra value to the consumer.  If the no-rebound energy savings calculation was about (or not quite) break-even, the extra value from a more comfortable temperature setting makes it a winner for the consumer.

More generally (and speaking in economics now), the consumer surplus gain from rebound means that more complementary policies that decrease GHGs, such as a simultaneous tax increase on electricity, can be adopted while still leaving the consumer better off.

Opposing energy efficiency because it causes rebound makes no more sense than opposing innovations in electronics because they increase energy use.  Any value-creating activity is likely to boost energy consumption.  The question is how we channel that value creation, and whether we are wise enough to use our newfound wealth to solve society’s most pressing problems, including climate change.

Severin Borenstein View All

Severin Borenstein is E.T. Grether Professor of Business Administration and Public Policy at the Haas School of Business. He has published extensively on the oil and gasoline industries, electricity markets and pricing greenhouse gases. His current research projects include the economics of renewable energy, economic policies for reducing greenhouse gases, and alternative models of retail electricity pricing. In 2012-13, he served on the Emissions Market Assessment Committee that advised the California Air Resources Board on the operation of California’s Cap and Trade market for greenhouse gases. Currently, he chairs the California Energy Commission's Petroleum Market Advisory Committee and is a member of the Bay Area Air Quality Management District's Advisory Council.

12 thoughts on “In Praise of Energy Efficiency Rebound Leave a comment

  1. My new demand water heater never runs out of hot water, and now my kids never get out of the shower, since I got my new high efficiency Furnace, I have stopped burning wood, and my new AC keeps my Master bedroom cool and my wife happy, but every time I upgrade, I spend more!

  2. Think the discussion is a bit limited on the scope of “rebound”. Yes, you can look at in in terms of individual households, but the impact is actually systemic. When a resource is less expensive many more people are able to afford using it for the first time. So not only does more efficient AC allow a household in a developed nation to turn down their thermostat a few more degrees, it allows the introduction of air conditioning (and refrigeration of food) to millions of new users, both the poor in rich nations and the general populations in developing economies. Instead of regarding this as a reason to give up it can be viewed as a fairness issue. If some people have the “right” to these utilities should not all people have the same access to the health, safety and comfort improvements provided by heating/cooling, refrigeration of food supplies, lighting, transportation, access to medical care, clean water, free information etc, etc… really all of the services that improvements in efficiency allow? Withholding these improvements says “we that already have, do not need to share with those who have not.” So, yes, it is a race. Even if we are like the Red Queen, running as fast as we can just to stay where we are… we had better keep running.
    Billions are counting on us. And I seriously doubt any human is willing to have their family be the ones who are permanently relegated to living with the alternative low quality of life.

  3. Hmm.. I think rebound is a reflection of one’s personality. Saving energy, at least to me, has only motivated me to save more… seeing results motivates me to push further. Interestingly, after I installed a 5.4kW solar system that was sized a bit larger than my total energy load, I continue to aggressively use thermostat setback, open the windows when conditions are favorable, and increase the off-times on my water heater timer, even though my utility pays a pittance for any excess solar energy I generate. Go figure.

  4. As an active rebounder, I feel better now. I just knew that I had to be creating value through my additional consumption, and it’s nice to have a framework with which to explain this to my critics. Thank you, Severin. Off to Best Buy now; I think there’s a sale on 60-inch plasma TVs…but it’s O.K., I’ll be driving my Prius 🙂

  5. while I agree with your comments, there are many efficiency improvements that create only a small rebound….in the U.S., travel is fairly saturated, and most people yearn to drive less, not more…higher efficiency yields more travel only for those individuals whose income is low enough that they’ve had to forgo travel because of its expense. For heating and cooling, there’s probably more room for a rebound, but for most people it is limited….too much heating or cooling makes one uncomfortable, and frankly, I would question how large a percentage of Americans actually wear sweaters in their houses in the winter, or underdress in the summer to reduce their monthly bills….though one concern would be whether a large decrease in heating and cooling bills might reduce people’s incentive to use a programmable thermostat or other similar measures.

  6. This is upside down! Rebound is about more than leaving lights on. It’s about using the money saved by efficiency to buy extra goods and services ( holiday by plane,tumble dryers, patio heaters), which will consume more energy and generate more GHE. So its bad for the climate. Only if you invest in green energy tech can the carbon savings be fully captured. Otherwise it just fuels (literally) more carbon intense economic growth. Until all energy is generated from green sources then that’s bad news

  7. I think I agree and disagree. I agree in the sense that rebound is a bit like winter in Boston. You can – like many who live here – deny or wish it away – but it will come!! Rather than minimizing or maximizing rebound in our speeches, we should learn more about it – how big it is, what influences it, etc. Having read through a lot of energy efficiency literature recently, I am astonished at how little actual data we have to allow us some real insights. Sometimes rebound is really a response to being able to consume an energy service at a lower cost, but sometimes it is also just a consequence of faulty policy design, such as when appliance rebate programs don’t force you to show that you are actually replacing an inefficient with a more efficient appliance (leading to a mass migration of old refrigerators into the basement, where the hold a couple of extra beers for the Sunday football crowd).

    But I am not sure I agree with the point that rebound is a good thing in that it creates room for complementary policies to fight global warming etc. That may be so – but it could also create more room for other things that worsen the climate change challenge. The final sentence puts this out front – unfortunately I am less convinced about our natural wisdom when it comes to using the extra resources to combat climate change than I fear that we’ll find more stuff that uses energy (directly or in its making). At the very least I would argue that the jury is out and we should try to understand what drives our desire to use the extra cash to finance our solar PV roof versus spending the extra cash on a nice little road trip across the US in the new cross-over (I guess SUV has gone out of style).

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