In a new report, ITIF's Matt Hourihan and Rob Atkinson write that the conventional wisdom that carbon prices can spur breakthrough innovation is wrong. While carbon prices can help at the margin by pulling mature technologies into the market, it is investment in focused, strategic research and technology development that have led to some of the great innovations of our time.
Carbon prices won't drive the level of energy innovation required to mitigate climate change and fuel sustainable global development, according to a new report by the Information Technology and Innovation Foundation (ITIF).
One of the most influential pieces of conventional wisdom in the energy and climate debate is that a price on carbon is the key to unleashing the breakthrough innovation required to make clean energy technologies much cheaper. Venture capitalist John Doerr captures this view well, saying in 2009 that "no long-term signal means no serious innovation at scale."
But the new ITIF paper, co-authored by Research Analyst Matt Hourihan and ITIF President Rob Atkinson, finds that the idea that carbon prices can spur breakthrough innovation is built on flawed assumptions about the nature of technological change and wholly inconsistent with real-world evidence of the sources of breakthrough technology innovation.
Breakthrough Institute Director of Climate and Energy Policy Jesse Jenkins speaks with NPR's Liane Hansen about the nuclear crisis in Japan and the future of nuclear power around the world.
Breakthrough Institute Director of Climate and Energy Policy Jesse Jenkins was on NPR'sWeekend Edition this past Sunday discussing Japan's nuclear crisis and what it means for the future of nuclear power.
The interview touched on many of the issues that were the subject of a recent Atlantic Monthly article co-authored by Jenkins and Breakthrough co-founders Ted Nordhaus and Michael Shellenberger.
Here is an excerpt of that article:
Lost in the hyperbolic claims of nuclear opponents, the defensive reactions of the nuclear industry, and the carefully calibrated repositioning of politicians and policymakers is the reality that Fukushima is unlikely to much change the basic political economy of nuclear power. Wealthy, developed economies, with relatively flat energy growth and mature energy infrastructure haven't built a lot of nuclear in decades and were unlikely to build much more anytime soon, even before the Fukushima accident. The nuclear renaissance, such as it is, has been occurring in the developing world, where fast growing, modernizing economies need as much new energy generation as possible and where China and India alone have constructed dozens of new plants, with many more on the drawing board.
Absent Fukushima, developed world economies were not going to build much new nuclear power anytime soon. The deliberations in Germany have involved whether to retire old plants or extend their lifetimes, not whether to build new plants. The decade long effort to restart the U.S. nuclear industry may result in the construction of, at most, two new plants over the next decade.
By contrast, even a much more serious accident would have been unlikely to delay the construction of new nuclear plants in the developing world for long. For major emerging economies like China and India, energy is still too scarce and expensive for much of their populations and economies and they will likely continue to build new nuclear plants as fast as they can in the coming decades.
In the end, what it all looks like is business as usual, for nukes specifically and the global energy economy more generally. Despite the claims of proponents, present day renewables remain too expensive and undependable for any economy in the world to rely upon at significant scale. So Germany, despite its vaunted solar feed in tariffs, will rely more heavily upon coal, which it has in abundance, as it retires its aging nuclear fleet. The US, already in the midst of a natural gas boom, will use more gas. And China and India, desperate for every kilowatt of power they can produce, will develop every available energy resource they have as fast as they can, including nuclear.
Jenkins also appeared on MSNBC's The Dylan Ratigan Show at 1:40 PM PST/ 4:40 PM EST today to discuss nuclear power and the situation in Japan. Here's the clip:
Grist environment writer Christopher Mims has written a widely read post comparing Japan's Fukushima nuclear reactor complex to solar photovoltaic energy in Germany. The post, "Germany's Solar Panels Produce More Power Than Japan's Entire Fukushima Complex," implies that solar PV may be an adequate substitute for aging nuclear reactors in both Germany and Japan.
But an analysis of the electricity generated by Germany's solar PV industry and Japan's Fukushima Daiichi reactors finds that Germany's entire solar PV capacity, installed at a cost of at least $86 billion, generated only half the amount of electricity generated by the Fukushima plants in 2010.
Mims writes:
"It's worth noting that just today, total power output of Germany's installed solar PV panels hit 12.1 GW -- greater than the total power output (10 GW) of Japan's entire 6-reactor nuclear power plant."
There are two problems with this.
First of all, the total installed capacity of Japan's Fukushima six-reactor Daiishi plant is actually 4.5 GW. The total power output of Japan's entire Fukushima complex, which consists of ten reactors--six at Daiichi and an additional four at Daini--is 8.8 GW. So Germany's peak solar PV output of 12.1 GW is nearly three times greater than Japan's Daiichi reactor complex.
Does that mean that solar in Germany is somehow equivalent to three of Japan's nuclear complexes? The answer is no, and this leads to the second problem with Mims' post.
The 12.1 GW that Mims cites is the total power generated at one peak time of day. But Mims' numbers don't tell us anything about what we really care about, which is electricity generation.
As Mims himself notes, solar power production varies with weather and the time of day--it doesn't supply 12.1 GW of power continuously. Rather, looking at total electricity generated over a year gives us a much more accurate, apples-to-apples comparison of each technology's contribution to a country's energy needs.
Phasing out the United States' entire nuclear power supply by 2030 would increase the country's carbon dioxide emissions by at least 5% and as much as 13%, depending on what mix of power plants replace the aging nuclear units. If the United States phased out the twenty-three nuclear power plants with the same design as Japan's troubled Fukushima Daiichi nuclear complex by 2030, carbon dioxide emissions in the United States would increase overall by at least 1 percent.
As the crisis at the Japanese Fukushima Daiichi nuclear complex continues to captivate global media attention, President Obama's domestic energy plans, which have long-included a push for the construction of new nuclear reactors, are beginning to be called into question. Two days ago, Senate Democrats demanded a broad review of the safety of the country's nuclear plants, with nine Democrats even seeking to delay legislation to allow the construction of a new plant in Iowa.
The Energy Information Administration (EIA) predicts that, by 2030, nuclear power will supply about 18% of the nation's electricity, as compared to roughly 20% in 2011.
Below, we illustrate the consequences for overall United States carbon dioxide emissions if the United States phases out its entire nuclear fleet. Three scenarios project the effect of replacing lost generation either entirely by coal generation, entirely by natural gas generation, or by an equal split of both.
If nuclear power were to be completely taken out of the United States' power supply by 2030, United States carbon emissions would rise by at least 300 million tons over baseline scenarios. Carbon emissions would increase by at least 5% and as much as 13% across the entire economy, while power-sector emissions would soar by 12% to 33%, depending on the mix of replacement power.
The lowest value corresponds to a scenario in which the nuclear plants are replaced by new natural gas-fired units, perhaps the most likely scenario given recent discovery of plentiful new natural gas supplies in North America.
While a number of G20 economies appear to be backtracking on their nuclear plans, the key Canadian province of Ontario has reiterated its commitment to nuclear power.
The Globe and Mail yesterday reported that a number of key Canadian provinces have "reaffirmed their support for nuclear power" and that "the national regulator declared the country's generating stations safe even as Japan's crisis spurred other nations to back away from nuclear."
The province of Ontario, the nation's most populous and home to five of Canada's seven nuclear power plants, affirmed that "there was no change in its plans to keep the nuclear-powered portion of its electricity output at 50 per cent."
Chinese government announces temporary halt of ambitious nuclear program, suspending plant approvals and calling for thorough investigation of safety standards.
In a highly significant move, the Chinese government today appeared to be following Germany in announcing the suspension of its approval process for new nuclear construction projects. China is the world's leader in nuclear expansion, with 28 plants currently under construction -- or roughly 40 percent of the world total. The New York Timesreports that it remains "unclear how many would be affected by the new order."
After discussions with the State Council, Prime Minister Wen Jiabao further announced thorough safety checks of existing plants. A statement on the government website read that "we must fully grasp the importance and urgency of nuclear safety, and development of nuclear power must make safety the top priority. Any hazards must be thoroughly dealt with, and those that do not conform to safety standards must immediately cease construction."
Last update to post at March 29 at 7:00pm, Pacific time; please check timestamps for individual sections below to find out when information was last updated.
Live Updates via Twitter
Track live updates and breaking news relayed via Twitter below. Breakthrough Director of Energy and Climate Policy Jesse Jenkins has been covering the crisis in Japan since it began @JesseJenkins. See this "Nuclear Crisis" list for a curated feed of other sources of news on the nuclear crisis at the damaged Fukushima nuclear power station.
Note: The Twitter widgets have at times been unreliable and if the widgets above do not load properly, click on the links to the direct Twitter pages in the first paragraph above
The Advanced Research Projects Agency for Energy has drawn bipartisan praise for it's forward looking investments in advanced energy technologies. But can it survive budget cutting mania in Congress?
As both Republicans and Democrats in Congress appear willing to cut funding for key energy innovation programs, a bipartisan group of Senators have spoken out in support of maintaining funding for an innovative energy technology agency that invests in game-changing research.
Senators Lamar Alexander (R-TN), Lisa Murkowski (R-AK), and Jeff Bingaman (D-NM), have all rallied around the Advanced Research Projects Agency for Energy (ARPA-E), hoping to shield it from major budget cuts in the following months.
Speaking at ARPA-E's recent Washington D.C. summit, Senator Alexander, one of most respected Republican Senators on energy issues, discussed the importance of maintaining investments in energy research:
"Obviously we're going to have to work to reduce spending, but we have to be smart, not cheap. We need to make certain we leave room for the basic research that drives our high standard of living. Most of the focus is on reducing spending, but sooner or later we're going to have to set priorities. One of my priorities is research and development...It is my belief that ARPA-E is one of the bright stars in innovation in the world today, and certainly for our country."
Alexander advocates ending energy subsidies for mature energy technologies--including both oil and some older renewable energy technologies--in order to free up funding for expanded investments in energy research and advanced technologies--a concept broadly consistent with the advanced energy strategy that the Breakthrough Institute and our colleagues at Brookings and AEI called for in Post-Partisan Power.
"The cost of early research is extraordinarily high, often prohibitively so. The most significant strides we've taken in innovation in this country have, as a result, been largely the product of substantial federal investment in R&D. The early discoveries, the early inventions have rarely arisen exclusively in a private-sector environment. But with a concerted national effort, these innovative ideas can find the funding--and the resources--to become viable. Government R&D investments have resulted in the early phases of countless critical innovations. Companies like Dow have then worked with the government to take on some of the risk, to further develop the products, and to ultimately commercialize them.
Other countries are now following that model. They are spending substantial sums of money in focused R&D, providing the space for innovation that has no equivalent in the private sector. Those investments attract businesses like Dow. We want to be at the center of innovation--and the center of innovation is increasingly moving offshore.
The United States should substantially increase it's R&D budget, and should focus specifically on industries--like clean energy--where success in innovation has the greatest potential to result in valuable products, high-paying jobs, and sustainable economic growth."
In the latest in DC's battle over the federal budget, the Senate Democrats released on Friday their plan to fund the government through FY2011, which would make substantial cuts in federal energy innovation across DOE agencies.
While ultimately keeping energy innovation-related spending at a higher level than would the House's Continuing Resolution (CR) (passed two weeks ago), the Senate's plan decreases budgets for each of the DOE's offices involved in energy-innovation as compared to FY2010 appropriations, in sharp contrast to the proposed increases for energy innovation related spending through President Obama's proposed FY2012 budget.
(click to enlarge)
*ARPA-E received $400 million in ARRA funding, to be spent over FY2009 and FY2010, or $200 million per year on average. No additional funding was provided for the agency in regular FY2010 appropriations.
**The estimates for Fossil Energy R&D used in this post refer solely to the Fossil Energy R&D program, rather than Fossil Energy Program as a whole, as Fossil Energy R&D is where energy innovation investments are concentrated.
***For exact figures, see chart at the end of this post.
Two more influential voices have joined the growing ranks of innovation hawks on both sides of the political spectrum in urging against cuts in federal investment in science and technology. Noted political commentator Mort Kondrake writes that the GOP budget would "torch America's seed corn," while Duke Energy CEO Jim Rogers writes that Congress should increase funding for energy research to make clean energy cheap.
As the Congressional Republicans continue to push cuts to critical federal investments in innovation, two more prominent voices have joined a growing group of innovation hawks on both sides of the aisle seeking to preserve or even increase federal funding for science and technology.
The first is noted political commentator Mort Kondrake, who wrote recently in Roll Call that the GOP is threatening to "torch America's seed corn" by cutting federal technology investment. Kondrake, a long-time contributor to Fox News and Executive Editor of Roll Call, notes that the Republicans' budget bill would cut funding for scientific research agencies by more than 33 percent, at a time when countless science and technology experts argue that we must increase such investments to spur economic growth. As Kondrake notes, the GOP budget proposal would abandon the long, bipartisan history of federal investment in American innovation:
Republican priorities represent not just a repudiation of President Barack Obama's proposed increases for science -- 10 percent for energy, 13 percent for the NSF, 15 percent for NIST -- but of a bipartisan process started in 2005 to secure a doubling of hard science research.
Although fossil energy sources receive far more federal subsidy than renewables, when compared based on the share of U.S. energy consumption provided, renewable energy sources receive over seven times more subsidy than fossil fuels.
Here's your latest edition of Friday Factoids, (this one a smidgen early)...
A while back, I posted some quick math reminding readers that while pushing to end subsidies for mature, centuries-old fossil fuel technologies is a pretty smart policy, it on it's own will be far from sufficient to make clean energy cost competitive. The global figures come from the International Energy Agency's latest World Energy Outlook and reveal that worldwide, renewable energy sources receive more than twice the subsidy than fossil fuels, when compared based on how much of global energy demand they supply.
Here's a summary of the global figures:
Fossil energy:
Total subsidies (2009) = $312 billion;
Share of global energy consumption provided (2009) = 83 percent;
Subsidy per percentage of global energy consumption provided: $3.8 billion
Renewable energy:
Total subsidies (2009) = $57 billion;
Share of global energy consumption provided (2009) = 7 percent;
Subsidy per percentage of global energy consumption provided: $8.1 billion (Note: excludes conventional hydropower and biomass)
Compared on a per unit of energy provided basis, renewables therefore receive 2.1x more government subsidies than fossil fuels.
Today, we'll add in the U.S. figures, which advantage renewables even more. That's because globally, much of the subsidies provided for fossil fuels are provided in either developing nations or in oil rich Middle Eastern nations, which make it easier for their citizens to purchase fuels through government-funded subsidies for consumer purchases (rather than subsidies for fossil fuel producers; see IEA for more on that).
For the United States:
Fossil energy:
Total subsidies (2002-2008, cumulative): $72.4 billion;
Share of U.S. energy consumption provided (2008): 84.6 percent;
Subsidy per percentage of U.S. energy consumption provided: $0.9 billion.
Renewable energy:
Total subsidies (2002-2008, cumulative): $28.9 billion;
Share of U.S. energy consumption provided (2008): 4.3 percent;
Subsidy per percentage of U.S. energy consumption provided: $6.7 billion. (Note: excludes conventional hydropower)
Compared on a per unit of energy provided basis, renewables therefore receive 7.4x more U.S. federal subsidies than fossil fuels.
Data source: subsidies for Environmental Law Institute, energy cosumption from U.S. Energy Information Administration, "Annual Energy Outlook 2010." Note that subsidy figures are cumulative for the seven years from 2002 to 2008. The per unit subsidy figures for the U.S. should therefore not be strictly compared to the global figures above.
Clearly, ending all subsidies for fossil and renewables alike would not 'even the playing field' for renewables, as some have argued. These figures indicate that fossil energy would still retain quite a distinct price advantage.
Even if we cut all subsidies for fossil fuels, then, we'll need accelerated innovation to fully close the price gap between new renewables and incumbent fossil energy. (For more on that price gap, see a previous installment of our Friday Factoids series here).
There are times when the nation's political leadership in Washington is perfectly in sync with the realities of the day, and there are times when much of that leadership is out to lunch. Exhibit A: the current energy debate.
There are times when the nation’s political leadership in Washington is perfectly in sync with the realities of the day, and there are times when much of that leadership is out to lunch. Exhibit A: the current energy debate. Even as global demand and instability threatens to challenge affordable supply, and as overseas states are investing heavily in clean technology, many of the nation’s leaders are contemplating gutting domestic investment in clean energy.
Amid this context, enter the 2011 ARPA-E Energy Innovation Summit, a gathering of some of the best and brightest in clean energy innovation intended to showcase often-astounding advances in energy technology. The Advanced Research Projects Agency-Energy – one of the single most important agencies in the federal innovation portfolio – has recently been fighting for its budgetary life, surviving a recent push to de-fund the program, and still facing significant uncertainty over future appropriations. Yet few programs are doing what ARPA-E is doing: supporting cutting-edge energy research in the private and academic sectors in search of revolutionary game-changers to fundamentally alter our energy landscape.
ARPA-E was modeled after DARPA – the cutting-edge Defense Department research agency – to be an agile, dynamic innovation engine at the recommendation of the National Academies. It’s early yet (the agency’s research programs are multiyear endeavors), but if just a handful pay off, the potential upside is enormous. Already, certain awardees are leveraging public funding to entice private investment at a 4-to-1 ratio. Agency Director Arun Majumdar summed up the program’s mission on the first day: “What ARPA-e does best is identify the opportunities and create the competition. And eventually, the market will pick the winners.” (video)
Even given its relative youth and small size, the agency has attracted plaudits for its ability, as when CO Sen. Mark Udall remarked of ARPA-E at the summit, “You're a model of efficiency. That’s government at its best.” On top of this well-earned reputation, multipleexpertrecommendations have said ARPA-E is critical to American cleantech competitiveness and urged a boost to its original $400 million budget. And last year Congress saw fit to reauthorize the agency for three more years in the America COMPETES Act, albeit at lower levels than has been recommended.
Nevertheless, some leaders want to zero out the agency, and even those who nominally support it remain unwilling to invest adequately. AK Sen. Lisa Murkowski acknowledged as much, warning that “Many programs are never funded at their authorized levels, let alone higher. At what level Congress will support funding for ARPA-E remains uncertain.”
Suffice to say, we hope those leaders out to lunch will finish up soon and get back to investing in the future.
China is on a roaring path towards single-handedly swamping any hopes of climate stability. The nation's current climate pledges appear lackadaisical rather than ambitious and just as likely to trigger significant rebounds in energy use than real CO2 reductions. The only way to avert potential climate catastrophe is to de-link economic growth from carbon emissions by fueling China -- and the world -- with clean, affordable, and massively scalable energy technologies. Our current menu of technological options is dangerously short, and there's no time to waste: we must make clean energy cheap, and fast.
I've said it before and I'll say it again: when it comes to the global climate challenge, as goes China, so goes the world.
Driving that aphorism home, co2scorecard.org, a not-for-profit project that closely tracks global greenhouse gas emissions, now reports that China's CO2 emissions increased by 906 million tons in 2009 -- the second largest annual increase for any country in recorded history. China's soaring emissions were enough to completely offset the drop in emissions wrought by the economic havoc plaguing much of the Western world (see graphic below).
China's unprecedented surge in CO2
As Goes China, So Goes the World: Soaring CO2 emissions from energy use in China drive global greenhouse gas trends (click image to enlarge; source: co2scorecard.org)
Over the last decade, China's annual emissions of climate destabilizing CO2 jumped by 5 billion tons per year. According to Shakeb Afsah, President and CEO of co2scorecard.org, that's "the highest [increase in annual CO2 output] for a single country in recorded history, representing an average annual emissions increase of almost 12%--more than four times the rate observed [for China] the previous decade."
To put this unprecedented 5 billion ton increase in annual CO2 emissions in context, Mr Afsah and colleague Kendyl Salcito note that during the 14-year long post-war boom period of 1959-1973, during which U.S. CO2 emissions rose each year, America's annual output of CO2 jumped by only 2 billion tons.
This set of frequently asked questions accompanies a new Breakthrough Institute report, "Energy Emergence: Rebound and Backfire as Emergent Phenomena." That report surveys the relevant academic literature and finds extensive evidence that a large amount of the energy savings from below-cost energy efficiency are eroded by demand 'rebound effects.'
On February 17th, Breakthrough Institute released a new, comprehensive survey of the literature and evidence concerning the rebound effects triggered by many energy efficiency improvements.
"Energy Emergence: Rebound and Backfire as Emergent Phenomena" explains why energy efficiency measures that truly 'pay for themselves' will lower the cost of energy services -- heating, transportation, industrial processes, etc. -- driving a rebound in energy demand that can erode a significant portion of the expected energy savings and climate benefits of these measures.
This new set of Frequently Asked Questions explains rebound effects, how they operate, what kinds of energy efficiency improvements trigger bigger or smaller rebounds, and why coming to terms with the full scale of rebound challenges the heart of many contemporary climate mitigation strategies.
A: Increasing the efficiency of an energy consumptive activity will lower the cost of the services derived from that activity - that is, it will change the price of the "energy services" derived from the fuels, such as lighting, transportation goods or services, heating or cooling, industrial processes, etc.
Economic actors respond to price changes in two general ways:
Increasing the utilization of that energy service to increase outputs or incomes. For example, a low-income resident may now heat his or her home more often or heat more areas of the home after weatherizing their home, because it is now far more affordable to heat. (In economics speak, this involves 'elasticities of demand,' or the responsiveness of demand to changes in the price of goods and services)
Re-arranging the factors of production or goods and services consumed to substitute now-cheaper energy services for other goods or services (maintaining the same level of output or income). For example, a more efficient heat plant may enable a chemicals plant or metals smelter to raise temperatures in industrial processes to extract high quality product from poorer quality inputs (substituting energy for materials) or to reduce process times (substituting energy for labor). (In economic terms, this involves 'substitution elasticities,' or the ability of firms or consumers to take advantage of lower prices to productively re-arrange the production inputs or consumer goods they utilize).
Both of these dynamics are "rebound effects," a term for any economic mechanism that leads to a rebound, or increase, in demand for energy following an improvement in energy efficiency that lowers the effective cost of that energy service.
There are other rebound effects as well (for a quick description of each, see the summary here). Our report, "Energy Emergence" surveys more than half a dozen distinct rebound mechanisms, some of which are fairly direct (like the two above), others that are more indirect (like the impact of money saved through efficiency measures as it is re-spent in the economy on other goods or services that in turn require energy to produce). Still more effects are only visible in the aggregate, at the macro-economic scale, as economies respond in a variety of ways to widespread improvements in energy efficiency.
A: No, not always. Although in some cases, it is possible that efficiency improvements will "backfire," driving a rebound in energy that fully compensate for the initial energy savings, increasing energy demand overall. While backfire is by no means the norm, it is possible in some cases (we'll explore conditions that are likely to lead to backfire in a later question).
As "Energy Emergence" concludes, "Rebound effects are real and significant, and combine to drive total economy-wide rebound in energy demand with the potential to erode much (and in some cases all) of the reductions in energy consumption expected to arise from below-cost efficiency improvements."
Think of it this way: rebound effects mean that for every two steps forward we take in energy savings through efficiency, rebound effects take us one (and sometimes more) steps backwards. We may still move forward, but not as much as we initially expected.
A: Rebound matters because the magnitude of rebound effects determines how effective below-cost efficiency improvements are at contributing to lasting reductions in total energy use and therefore greenhouse gas emissions.
Energy efficiency has frequently been cited as the single greatest contributor to emissions reduction and climate mitigation strategies, by everyone from the International Energy Agency and Intergovernmental Panel on Climate Change to consultants like Amory Lovins' Rocky Mountain Institute and McKinsey to efficiency advocates and environmental NGOs. The IEA counts on efficiency for roughly half of the emissions reductions needed in their "Blue Map" climate stabilization scenario (graphic below), for example, while President Obama told reporters in 2009 that with efficiency, "we can save as much as 30 percent of our current energy usage."
So we're counting on energy efficiency to do quite a bit of "climate mitigation work," so to speak.
The problem is that all of these estimates are based on an assumption: that energy efficiency reduces energy demand in a linear, direct, and one-for-one manner. An X% gain in efficiency leads to an equivalent X% reduction in total energy use.
But the economy is anything but direct, linear, and simple, especially when responding to changes in the relative price of goods and services. When a good or service or input to production gets cheaper, consumers and firms use more of it, find new cost-effective uses for it, re-invest any savings in other productive activities, and the economy overall gets more productive overall, driving economic growth and activity.
That's the rebound effect, and it means that we can't assume that improving energy efficiency by 20%, for example, will reduce energy demand by 20%.
If we don't accurately and rigorously account for rebound effects, we risk over-relying on energy efficiency to deliver lasting reductions in energy use and greenhouse gas emissions, and we will fall dangerously short of climate mitigation goals.
A: Rebound effects differ in scale, depending on the type of energy efficiency improvements we're talking about, and where in the economy we look. In very few cases are rebound effects "very small" or insignificant.
Dozens of academic studies have examined the empirical evidence, conducted modeling inquiries, and otherwise tested the scale of rebound effects. While there is much more work to be done to determine the precise scale and impact of rebound effects in different circumstances, the conclusion is that rebound effects are significant and cannot be ignored in energy and climate analysis and policymaking. See the following three questions for summaries of the scale of rebound in different circumstances...
A: In rich, developed nations, if we improve the efficiency of end-use consumer energy services, like cars, home heating and cooling, or appliances, the literature indicates that direct rebound effects alone are typically on the scale of 10-30% of the initial energy savings. Additional indirect and macroeconomic effects may mean total rebound erodes roughly one quarter to one third of expected energy savings in these situations.
Rebound here is smallest in cases when demand for the energy service in question is already saturated (that is, we use as much of it as we would care to use), and highest in cases where the cost of the energy service is a key constraint on fulfilling demand for that service. For example, if a wealthy homeowner already reliably heats all the rooms in his or her house to 70 degrees, he/she wouldn't increase the thermostat to 77 degrees just because our heating system got 10% more efficient. But if a poorer household can't afford to turn the thermostat up, or only heats one room of the house with a small space heater, because the house is too drafty, then if the house gets weatherized and more efficient, that household is likely to use more energy to heat their home. In general, end-use consumer efficiency improvements in rich, developed economies will still lead to a net savings in energy, although rebound effects shouldn't be ignored even here.
A: No, rebound effects are almost certainly larger in poorer, developing nations.
For efficiency in end-use consumer energy services in developing nations, direct rebound effects alone are likely to be much higher than in richer nations, on the order of 40-80%. Rebound is higher here because demand for energy services is far from saturated, demand is far more elastic (responsive to changes in price), and the cost of energy services is often a key constraint on the enjoyment of energy services. This is important, because growing demand in developing nations is the principal driver of energy demand growth worldwide.
We should be very careful in generalizing our experiences or intuitions about rebound effects in rich, developed nations to the larger bulk of the global population living in developing economies. As Lee Schipper and Michael Grubb wrote in 2000:
"[I]n low-income economies, energy and energy costs are often a constraint on economic activity. ... In short, the shadow of Jevons lurks [in developing nations] for precisely the same reason that more efficient use of coal [in Jevons' Britain] did not save coal: the combined effects of different rebounds are very important when energy availability, energy efficiency, and energy costs are a significant constraint to activity and therefore energy use."
Since expanding the supply of energy services is a key constraint on economic activity in developing nations, the macro-economic impact of efficiency improvements in developing economies is also likely to be more significant, helping developing economies grow faster (and thus consume more energy).
A: While more study of rebound effects for efficiency improvements at producing firms (e.g. industry and commerce) is needed, the literature to date indicates that direct rebound effects may be on the order of 20-70% for these sectors, with additional rebound due to indirect and macroeconomic effects.
Rebound effects in firms depend principally on the ability of firms to rearrange their factors of production (labor, capital, energy, and various materials) to better take advantage of now-cheaper energy services. This is especially true for new productive capacity. If long-term substitution is high, rebound effects can be substantial. In addition, output effects contribute to rebound for energy intensive firms with a high elasticity of demand for their products (that is, where consumers are very responsive to changes in the price of their products and demand more product as the price falls).
Improvements in energy productivity at firms can also contribute to greater economic activity and growth, driving up energy demand overall. In general, rebound effects are higher for efficiency in productive sectors of the economy than for end-use consumer efficiency. This is notable, because two-thirds of the energy consumed in the U.S. is consumed in the productive sectors of the economy and "embedded" in the non-energy goods and services purchased by consumers.
A: Yes. At the economy-wide, macro-economic scale, the aggregate impacts of widespread energy efficiency improvements can lead to substantial rebound effects, as producers and consumers respond in turn to various cascading changes in the price of goods and services, the pace of economic growth quickens, and market prices for fuels may fall, driving a further rebound due to market price effects. Since these economic responses are complex and varied, economic modeling is most often used to estimate the scale of macroeconomic rebound due to aggregate efficiency improvements.
A number of 'Computable General Equilibrium' models (see page 34 of the study) generally show rebound at the scale of a national economy of 30-50% or greater, with a surprising number predicting rebound greater than 100% (aka 'backfire'). These studies look at national economies and thus ignore global, macro-economic impacts beyond national boarders, which can add additional rebound in energy consumption.
'Integrative modeling,' a more detailed approach utilized by energy analysts at Cambridge, found that if the world adopted all of the "no regrets" energy efficiency policies suggested by the International Energy Agency, then rebounds effects would erode more than half of expected savings (52%) in the long-term. There are also several reasons to think this is may be a conservative estimate (see pages 39-40 of the study).
At the macro-economic, global scale most relevant to climate change mitigation efforts, then, rebound effects can be substantial, and erode much (if not all) of the expected energy savings and climate benefits.
A: Rebound is likely to be particularly acute and is most likely to trigger backfire (rebound >100% of initially expected energy savings) in the following cases:
If the supply of energy services is a key constraint on economic activity and growth (as it is in much of the developing world), then improvements in energy efficiency are likely to trigger acute rebound or even backfire. In a world where roughly 1.6 billion people lack access to electricity and 2.5 billion rely primarily on primitive biomass (e.g., wood and dung) for cooking and heating, huge pent-up demand for energy services persists and the availability of energy services will be a major determinant of future rates of economic growth and progress. This in turn indicates potential for very large rebounds for efficiency improvements in developing nations.
When more efficient (and thus lower cost) energy services open up new markets or enable widespread new energy-using applications, products, or even entire new industries to emerge. We dub this dynamic a 'frontier effect' in our report, because in these cases, the 'production-possibility frontier' for an energy-using technology expands significantly, opening up unforeseen opportunities for substitution and potentially significant impacts on economic activity and the composition of the economy. In such cases, backfire is the most likely outcome.
Backfire due to this 'frontier effect' dynamic is most likely to arise for 'general-purpose technologies' that have a wide scope for improvement and elaboration, have potential for use in a wide variety of products and processes, and have strong complementarities with existing or potential new technologies. Examples of 'general-purpose technologies' could include steam engines, electric motors, lighting, gas turbines, semiconductors and computing technologies, lasers, robotics, radio transmitters, and perhaps many others. Backfire is most likely to result after energy efficiency improvements in these general-purpose technologies. (See p. 47-8 of the report.)
These emergent 'frontier effect' dynamics may prove particularly challenging for energy analysts to forecast or account for in modeling efforts, as they necessarily involve unforeseen and unpredictable applications of new and improved technologies. This means that forecasts of rebound can easily underestimate eventual rebound due to frontier effects triggered by sustained efficiency gains.
When energy efficiency improvements not only improve the productivity of energy, but also result in simultaneous improvements in other factors of production, such as labor or capital (a 'multi-factor productivity improvement'), an outsized impact on economic output and significant rebound in energy demand can arise.
Very large rebound or backfire is likely the norm in cases of 'win-win' efficiency opportunities, where energy-saving technical changes simultaneously improve the productivity of other factors of production, multiplying the impacts on output, economic growth and energy demand.
For example, in a 2005 paper, efficiency consultant Amory Lovins writes:
"Improved energy efficiency, especially end-use efficiency, often delivers better services. Efficient houses are more comfortable; efficient lighting systems can look better and help you see better; efficiency motors can be more quiet, reliable, and controllable; efficient refrigerators can keep food fresher for longer; efficient cleanrooms can improve the yield, flexibility, throughput, and setup time of microchip fabrication plants; ... retail sales pressure can rise 40% in well-daylit stores ... Such side- benefits can be one or even two orders of magnitude more valuable than the energy directly saved. ...[I]n efficient buildings, ... labor productivity typically rises by about 6-16%. Since office workers in industrialized countries cost ~100x more than office energy, a 1% increase in labor productivity has the same bottom-line effect as eliminating the energy bill - and the actual gain in labor productivity is ~6-16x bigger than that."
While the multi-factor productivity improvements Lovins describes greatly improve the economic case for energy efficiency upgrades, they simultaneously raise the specter of significantly greater rebound in energy demand than if the improvement in energy productivity were considered alone (as is common in the inquiries discussed in prior sections). If the economic impact of labor productivity improvements from efficient buildings is several orders of magnitude greater than the simultaneous savings in energy consumption, for example, then the rebound due to economic growth/output effects alone should also be several orders of magnitude greater than would be predicted if the energy savings were considered alone.
A: Most certainly not! Truly cost-effective energy efficiency improvements make great economic sense and improved energy efficiency may be a key determinant of future economic welfare. In this sense, it may also contribute indirectly to climate mitigation and decarbonization objectives (see "Discussion and Implications" section of our report).
As Skip Laitner of the American Council for an Energy Efficiency Economy writes, "our lagging efforts on efficiency may actually constrain our larger economic productivity."
As we note in our report, this is often the case, particularly in the developing world. Pursuing cost effective energy efficiency opportunities makes great sense then from an economic development and human welfare perspective. At the same time, however, this is precisely why energy efficiency can trigger significant rebound effects that reduce the ability of efficiency to drive down total greenhouse gas emissions, even as efficiency contributes significantly to greater economic growth.
In short, unlocking the full potential of efficiency may mean the difference between a richer, more efficient world, and a poorer, less efficient world. The former is clearly the desirable case, and the one we should all strive for! But in either case, the world will use more or less the same amount of energy. In some parts of the economy, efficiency may reduce overall energy use, while in others it may increase it. The net effect, after accounting for efficiency's role in unlocking economic growth (among other rebound effects) is far from a linear and direct reduction in energy use.
We therefore argue that we should continue to pursue any cost-effective efficiency opportunities on economic grounds, even as we reconsider the degree to which these measures will contribute to climate mitigation efforts.
"In any case, truly cost-effective energy efficiency measures should be vigorously pursued, as they will lead to an improvement in general welfare (at least narrowly construed in economic terms). However, from a climate mitigation perspective, we must be keenly aware of the precise, macroeconomic impacts of energy efficiency improvements, since only a reduction in total aggregate energy consumption will directly contribute to emissions reduction objectives. This in turn requires an understanding and analysis of the non-linear combination of impacts on economic activity, demand for energy as a factor of production, and other macroeconomic factors that are together summed up in the term 'rebound effect.'"
A: Rebound effects are part of the reason that energy use is still growing, even as the economy gets more and more efficient. True, economic growth drives up energy use, even as we get more efficient. But those two terms - economic growth, and energy efficiency - are not unrelated, and rebound effects describe the relationship between the two.
Part of the reason the economy continues to grow is because below-cost energy efficiency improvements grow the supply of energy services and increase the productivity of the economy - we get more economic activity and income and welfare out of the same amount of energy - and productivity improvements are a key driver of economic growth.
Some economists argue that the supply of energy services is a key enabling force in economic growth: think about the impact of electric motors, industrial lasers, computing, automation, and all of the other ways in which we use energy - often quite efficiently - to greatly improve the productivity of our economy. Think about how important energy services - lighting, efficient cooking stoves, electricity - are to development outcomes in the emerging economies of the world. Efficiently expanding the supply of energy services may thus be one of the principal factors determining the rate of economic growth in rich and poor nations alike (see the previous question for more).
That said, there are definitely other factors driving economic growth, including improvements in the productivity of other inputs to the economy, such as labor, capital, and other materials. Rebound effects and energy productivity improvements aren't the only driver of economy growth by any means.
A: Overall, the global economy has been growing at the rate of roughly 3% per year. Historically, we've only seen a roughly 1-1.5% improvement in energy use per unit of economic output (energy intensity or productivity) each year.
For energy efficiency gains to outstrip the increase in energy demand driven by the growing economy, the economy must improve energy intensity/productivity by at least 3% per year, roughly double or triple the historic rate of improvement.
So economic growth continues to out-pace energy efficiency improvements, and energy use continues to grow overall.
Efficiency advocates argue that if we work harder at capturing energy efficiency opportunities, we can more than double or triple this rate of efficiency improvement and bend global energy use downwards.
That's a big task already, but at least two factors make this challenge even harder:
First, a large portion of changes in energy intensity over time can be attributed to structural changes in the economy (Baksi and Green 2007), as economies shift from agricultural to industrial to services-oriented over time. These aren't the technical improvements in transportation, lighting, buildings, or industrial efficiency that energy efficiency policies are concerned with, and these trends are hard to accelerate or effect through policy. They may not continue indefinitely either, so there are limits to gains here.
If, for example, one-half or two-thirds of the historic rate in energy intensity improvements are due to sectoral transitions and structural changes in the economy, then efforts to increase the rate of technical efficiency improvement must work two or three times harder to succeed. Instead of a more than doubling or tripling of our efforts, we must achieve a more than four to nine-fold increase in technical efficiency improvements.
Second, that estimate does not account for rebound effects. Rebound makes the goal even more challenging, as it means efficiency feeds back into energy consumption and economic growth increasing both and making the horizon we're reaching towards recede even further. For every two steps forward we take with below-cost energy efficiency, rebound effects take us roughly one (or more) steps backwards.
For these reasons, we think it is prudent to revisit the ability of below-cost energy efficiency to decouple the economy from growing energy use and drive lasting reductions in climate-destabilizing greenhouse gases. While we should continue to pursue cost-effective energy efficiency measures improvements wherever they may be found, as we write in the report (p. 52):
"Efforts to reliably reduce greenhouse gas emissions or dependence on depleting fossil fuels would be prudent to avoid the risk of overreliance on energy efficiency measures. Such efforts should therefore focus primarily on shifting the means of energy production (rather than end use), relying on zero-carbon and renewable energy sources to diversify and decarbonize the global energy supply system."
A: While the term 'rebound effect' is generally used by energy economists to talk about rebounds after energy efficiency, the basic economic mechanisms - elasticity of demand and substitution, re-spending effects, and the contribution of productivity to economic growth - are well-understood economic phenomena relevant to improvements in the price or productivity of any factor of production, be it capital, materials, or labor.
Let's consider labor, for example. Economists would never assume that a 20% improvement in labor productivity - aka a "labor efficiency" improvement - would reduce overall demand for labor in the economy by 20%.
Everyone knows that improving labor productivity drives economic growth, creates new profitable ways to utilize labor, and overall generally increases employment at the macroeconomic scope, not decreases it.
Even 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, but even there, the net effects on demand for labor are far from linear and direct. Higher labor productivity lowers product costs and increase demand for those products and opens up new markets that weren't profitable before. It frees up money to re-invest in other areas of production, and it creates new jobs in other areas of business. Even at the firm level, a 20% improvement in labor productivity won't mean 20% of the company's staff is laid off.
Yet this is precisely the simplified, linear assumption that is routinely made in energy and climate forecasting and scenario planning. A 20% improvement in energy efficiency = a direct, 20% net reduction in energy demand, relative to business as usual.
"Rebound effects" are what energy economists call the same, common sense story we just went over for labor, when we're talking about energy productivity or efficiency rather than labor productivity.
The reality is that energy isn't different from labor, or materials, or capital, and a whole field of academic work has gone on - largely out of notice of mainstream energy analysis and policy making - to explore and illustrate how energy efficiency leads to a series of complex, non-linear response throughout the economy that drive a rebound in demand for energy services and thus a rebound in consumption of energy itself. Our "Energy Emergence" report surveys this evidence and presents key implications for climate mitigation efforts.
A: More or less, yes. This basic but somewhat paradoxical dynamic - that energy efficiency lowers the price of energy services, leading to a rebound in consumption of those services - was first thoroughly discussed by British Economist William Stanley Jevons in an 1865 book, The Coal Question. He famously wrote, "It is a confusion of ideas to suppose that the economical use of fuel is equivalent to diminished consumption. The very contrary is the truth."
Some people define this so-called "Jevons Paradox" more strictly, saying that the Paradox refers only to cases when the rebound effects triggered by efficiency measures drives more demand for energy than was originally saved by the efficiency improvements. That's a scenario known in the rebound literature as "backfire," a special kind of severe rebound effect that is greater than 100% of the initially expected energy savings. Backfire means improving energy efficiency actually increases energy demand overall, relative to what it would have been if the efficiency measures hadn't been pursued at all. This is precisely what Jevons observed when he noted that the much more efficient steam engine developed by James Watt led to a huge increase in coal consumption during the 19th century, rather than the conservation of Britain's dwindling coal resources.
However, the generalized dynamic Jevons observed: that efficiency lowers the cost of energy services, driving a rebound in demand for those services, not a direct linear reduction in demand or conservation of fuels, is equivalent to what energy economists now call "rebound effects."
A: No, not all energy efficiency measures trigger rebound effects. Rebound effects are concerned with the response to below-cost efficiency improvements. That's the "low-hanging fruit" we always hear about, the efficiency measures that pay back more in avoided energy use than they cost to install. These are also the ones "below zero" on the often-cited McKinsey and Co. greenhouse gas abatement cost curve seen below. Below-cost efficiency measures always reduce the implicit price of energy services - the useful work provided by energy consumption, be it heating a home, transporting people or goods some distance, powering a production facility, or lighting a work space - and thus always trigger a rebound in demand for those services (see the first question in this series above). It's not a question of whether efficiency measures that truly "pay for themselves" will trigger rebound - they will - the question is how large that rebound will be?
Not all energy efficiency measures are below cost though (the graphic above has arrows pointing to a couple of 'above-cost' efficiency measures, according to McKinsey: plug-in hybrid electric cars, and efficient building design for new buildings). While they incur an economic cost, these efficiency measures should not trigger rebound effects and may still prove effective at reducing energy demand. As we wrote in the report (p. 52):
There is no shortage of opportunities to improve energy efficiency that are not cost-neutral or below-cost. While these measures come with a price tag, in many cases the costs are reasonable and such efforts may be well justified given the long-term threat, economic and otherwise, that global climate change represents.
A: Technically, yes. Price-induced efficiency improvements, whether in response to exogenous energy price increases (changes not caused by policy that is) or successful policy efforts to price carbon emissions or impose energy taxes, should not be expected to result in significant rebound. However, as we write in the report (p. 53), "to fully avoid rebound effects, energy price increases must be sufficient to keep the final price of energy services constant despite improvements in energy efficiency, eliminating any net productivity gains from the efficiency measures." That is, in rough terms, if energy efficiency drives down the price of energy services by 30% or 50%, then energy prices would have to increase through carbon taxes or fees by an equivalent 30% or 50%.
Achievement of deep reductions in energy demand and associated carbon emissions through price induced efficiency will therefore require substantial and rising energy prices over time and sustained over the multi-decadal periods relevant to climate policy, such that rising energy prices keep pace with the improvements in energy productivity.
Furthermore, if revenues collected through carbon pricing, energy taxes, or other efforts to raise energy prices are reinvested into economically productive ends, macroeconomic rebound effects may result, so the precise use of revenues will determine the efficacy of these policies in curbing rebound.
As we conclude in the report:
"Thus, carbon pricing policies (e.g., carbon taxes or cap and trade systems) and energy taxes offer potential tools to mitigate some or all of the energy demand rebound resulting from efficiency improvement - although implementing such policies faces practical challenges and will invariably encounter the political difficulties inherent to policy efforts that seek to impose energy price increases that will result in loss of economic welfare (ignoring potential benefits of avoided economic externalities).
A: Dr. Koomey has done no such thing, as he clarifies in a post at his own blog here. Koomey writes, "It will take time to review the technical questions in the detail this issue deserves, so I'll hold off on stating any conclusions until that work is done."
Joseph Romm of Climate Progress has misrepresented Koomey's work, claiming that "Some of the nation's top energy experts have debunked" our report, linking to a memo from Koomey as his sole evidence. There has been no "debunking" of the the Breakthrough Institute report surveying that literature nor even a serious attempt to debunk it.
A more up to date and unedited compilation of the key emails in that dialog can be read here, if the reader cares to delve deeply into this discussion and see for themselves. Note that the discussion is ongoing.
No. Far from blaming below-cost efficiency for "evils" we praise it as good for economic growth and welfare. However, we do point out that it can increase energy consumption, and that efforts to reduce greenhouse gas emissions cannot rely, as many leading analysts to, on simplistic claims that energy efficiency results in direct energy consumption declines.
Steven Sorrell of the University of Sussex in England headed up a similarly comprehensive review of the evidence for rebound effects published by the UK Energy Research Center in 2007 and originally commissioned by the UK government. In reply to NRDC's David Goldstein and Ralph Cavanagh, he wrote:
"[T]he claim that the Breakthrough Institute "fails to back up its accusations with facts" is plain wrong. Their report is based upon a large volume of empirical evidence in the academic literature. I reviewed this a few years ago - [link] - and the Breakthrough report brings this up to date."
As Mr. Sorrell cautious, "[T]his topic [rebound effects] needs intelligent and careful research to help us understand it better, to improve the quantitative estimates, to reduce the uncertainties and to figure out what we can do in response. Simply dismissing it out of hand," as Goldstein and Cavanagh have tried to do, "will get us nowhere."
Do you have your own questions that aren't answered here? Please leave your question in the comments and we'll do our best to answer.
