The Paradox of Energy Efficiency [View all]

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The Paradox of Energy Efficiency

A new report, The Rebound Dilemma, for the Institute for Energy Research (IER) by California State University, Fullerton economist Robert Michaels analyzes the implications of depending on energy efficiency improvements to reduce carbon dioxide emissions as a way to mitigate future climate change. Michaels looks at studies of direct, indirect, embedded energy, and economy-wide rebounds. The Melbourne heating case is largely an example of direct rebound effect in which better insulation and more efficient heaters apparently resulted in no reduction of energy use. An indirect rebound occurs when efficiency improvements raise the productivity of other goods and inputs that, in turn, boost the demand for relatively cheaper energy. Embedded energy is the energy used to produce, distribute, and maintain more energy-efficient capital goods. And economy-wide rebounds result from the ways in which people use their savings on energy to purchase other goods and services that also consume energy to produce. For example, cheap gasoline enabled suburban living.

Proponents of energy efficiency [PDF] point to studies of direct rebound effects that often find that they are rather small in comparison to the energy saved by increased efficiency. One classic 1992 study reported a 5 to 15 percent rebound effect for increased automobile fuel efficiency, i.e., people boosted their annual mileage only by that percentage in response to their lower fuel bills with the result that they burned a lot less gasoline. Maybe people aren’t driving all that much more, but the new MIT study finds that most of the rebound came from consumer preferences for bigger and more powerful cars.

So what did the IER report find? There are lots of studies of direct rebound effects that look at the effect of more energy efficient appliances on household energy use. The results of the studies vary considerably, but eyeballing the reported results the rebound appears to hover around 30 percent. Assuming an appliance that uses 100 kilowatt hours (kwh) per month to operate is replaced by one that uses just 50 kwh, a 30 percent rebound implies that the actual reduction in energy consumed would be 35 kwh per month. Still not bad at all since the consumer gets the extra services from the new appliance while saving cost of energy.

The upshot is that energy efficiency mandates advocated by environmental activists with the aim of mitigating future man-made global warming will likely fall far short of their goals. As Michaels concludes, “Instead of imposing energy efficiency mandates, energy policy should embrace market prices and disruptive innovations to guide energy to its most valuable uses.” After all, the point of improved energy efficiency is not to forgo its use but to boost its productivity as a way to provide people with more of the goods and services they want.