Energy efficiency & the rebound effect: Neither big nor bad

By Elisa Wood

August 8, 2012

Now that you’ve installed efficient light bulbs in your house, do you think: “Guess I’ll leave my lights on all night. What the heck – it won’t cost me any extra.”

Probably not.  But some extreme critics of energy efficiency would have us believe this is the end result of appliance standards and energy savings technology – that we simply consume more energy when it becomes cheaper, negating the benefits.

This is called the ‘rebound effect’ and while it is a real phenomenon, it is quite small, according to a new white paper by the American Council for an Energy-Efficient Economy.

Claims that we use as much as we save – known as backfire – do not hold up to scrutiny; but there does appear to be about a 20 percent rebound, according to the paper.

How bad is this? Should you still bother with those more expensive LED light bulbs?

“Overall, even if total rebound is about 20 percent then 80 percent of the savings from energy efficiency programs and policies register in terms of reduced energy use. And the 20 percent rebound contributes to increased consumer amenities and a larger economy. These savings are not ‘lost’ but are put to other generally beneficial uses,” says the paper “The Rebound Effect: Large or Small?” by Steve Nadel, ACEEE executive director.

Nadel describes two types of rebound effect: direct and indirect.

Direct rebound occurs when a consumer buys a car with better gas mileage and then drives more, or a homeowner installs tighter windows and reduces the home’s heating bill, but then cranks up the thermostat because of the lower cost.

Indirect rebound occurs when we take the money saved through energy efficiency and use it to purchase new energy consuming devices or pursuits. For example, the consumer might spend money saved on heating to buy a flat screen television. Or a widget manufacturer might drop the price of the widget to reflect the lower energy cost, and as result sell more widgets. That leads to a decision to produce even more widgets and thus use more energy.

The direct rebound effect amounts to about 10 percent of energy savings and indirect rebound around 11 percent (based on best estimates), according to the paper. To put these numbers in perspective, if a program reduces energy use by 10 percent and there is an 11 percent rebound, that means actual energy savings is only 8.9 percent, not 10 percent.

So the rebound effect is not all that big. It’s not all that bad either. The energy savings are not lost; the money saved on energy generally goes back into the economy or it serves to make the home more comfortable (warmer or cooler).

It’s important to note that rising energy use does not indicate rebound – although some wrongly cite it as such. The US Energy Information Administration expects worldwide energy consumption to grow 53 percent from 2008 to 2035. This is certainly not because energy is becoming cheaper thanks to efficiency measures, but because advanced economies are adding more and more electric gadgets and air conditioning  (not to mention electric cars), and India and China are wiring up their remaining off-the-grid regions and also adding more electric devices. In short, life is getting better for a lot of people. This isn’t a sign of an energy efficiency failure, but of economic success. Deprivation is not the goal of energy efficiency; the goal is consumption done more wisely.

Elisa Wood is a long-time energy writer. Subscribe to her free Energy Efficiency Markets newsletter here.