Energy Rebound Upside

Energy efficiency increases use, which can add economic value

By Prof. Severin Borenstein

 

Energy efficiency (EE) discussions never get far before someone raises the specter of “rebound”—consumers’ response to an energy efficiency improvement that causes them to increase energy consumption. Your car gets better fuel economy, so you drive it more. You replace incandescent lights with efficient compact fluorescents, so you light up the driveway and doorway 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 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 called “backfire.”


But 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 uses for the car now that it is cheaper to run, then you are getting even more value out of the car. Likewise, leaving those low-cost lights on when you go out has real value: You don’t have to feel around in the dark or risk running over toys 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.


If you are worried about greenhouse gas emissions (GHGs), that view of rebound may be cold comfort. But the consumer’s gain from rebound can support policies to reduce emissions. An example:


A new insulation technology would make a home more energy efficient but cost about as much as (or a bit more than) it would save the consumer, given typical thermostat settings. With the greater energy efficiency, however, the consumer keeps the house warmer in the winter and cooler in the summer, because the extra comfort is less expensive after the EE improvement. That is extra value. 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.


Consumer gain from rebound means 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 of rebound makes no more sense than opposing electronics innovations  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.

 

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