There is a large expert consensus and strong evidence that below-cost energy efficiency measures drive a rebound in energy consumption that erodes much and in some cases all of the expected energy savings, concludes a new report by the Breakthrough Institute. "Energy Emergence: Rebound and Backfire as Emergent Phenomena" covers over 96 published journal articles and is one of the largest reviews of the peer-reviewed journal literature to date.

The findings of the new report are significant because governments have in recent years relied heavily on energy efficiency measures as a means to cut greenhouse gases. "I think we have to have a strong push toward energy efficiency," said President Obama recently. "We know that's the low-hanging fruit, we can save as much as 30 percent of our current energy usage without changing our quality of life." While there is robust evidence for rebound in academic peer-reviewed journals, it has largely been ignored by major analyses, including the widely cited 2009 McKinsey and Co. study on the cost of reducing greenhouse gases.

The idea that increased energy efficiency can increase energy consumption at the macro-economic level strikes many as a new idea, or paradoxical, but it was first observed in 1865 by British economist William Stanley Jevons, who pointed out that Watt's more efficient steam engine and other technical improvements that increased the efficiency of coal consumption actually increased rather than decreased demand for coal. More efficient engines, Jevons argued, would increase future coal consumption by lowering the effective price of energy, thus spurring greater demand and opening up useful and profitable new ways to utilize coal. Jevons was proven right, and the reality of what is today known as "Jevons Paradox" has long been uncontroversial among economists.

Economists have long observed that increasing the productivity of any single factor of production -- whether labor, capital, or energy -- increases demand for all of those factors. This is one of the basic dynamics of economic growth. Luddites who feared there would be fewer jobs with the emergence of weaving looms were proved wrong by lower price for woven clothing and demand that has skyrocketed (and continued to increase) ever since. And today, no economist would posit that an X% improvement in labor productivity would lead directly to an X% reduction in employment. In fact, the opposite is widely expected: labor productivity is a chief driver of economic growth and thus increases in employment overall. There is no evidence, the report points out, that energy is any different, as per capita energy consumption everywhere on earth continues to rise, even as economies become more efficient each year.

But the idea that energy efficiency technologies could reduce macro-economic energy demand re-emerged in the 1970s as a message of anti-nuclear activists, most prominently Amory Lovins, who asserted that greater energy efficiency would obviate the need for new power plants. But the notion was immediately challenged by economists, and over the last 30 years there has emerged a large body of literally dozens of analyses conducted by economists and others documenting significant rebound in a variety of cases.

In a 2007 study commissioned by the British government, the UK Energy Research Centre (UKERC) conducted a similarly large review of the literature and the evidence for rebound, and came to a similar conclusion as the Breakthrough Institute's "Energy Emergence" report. "Rebound effects have been neglected by both experts and policymakers -- for example, they do not feature in the recent Stern and IPCC reports or in the Government's Energy White Paper," the paper concluded. "This is a mistake. If we do not make sufficient allowance for rebound effects, we will overestimate the contribution that energy efficiency can make to reducing carbon emissions."

The expert consensus and empirical evidence that efficiency causes large rebounds and backfire is mostly unknown in the United States, where scholars of rebound are mostly unknown academics whereas prominent efficiency consultants, such as Amory Lovins, are major media personalities. The idea that efficiency is not only a "free lunch" but also one that "you get paid to eat," in Lovins' words, has long had strong appeal to American politicians, business consultants, and environmental advocates resisting new power plants.

But the belief that energy efficiency could reduce overall energy consumption has been belied by history. In 1984 Lovins told Business Week, "We will never get, we suspect, to a high enough price to justify building centralized thermal power plants again. That era is over." But between 1984 and 2000 the U.S. went from consuming 2,400 billion kilowatt-hours in 1984 to 4,000 billion kilowatt-hours in 2000. The new central station power plants built to meet this surge in demand were overwhelmingly fueled by coal and natural gas, significantly increasing U.S. greenhouse gas emissions.

Overall, the review of the literature concludes that rebound effects are significant and combine at an economy-wide level to erode much in and some cases all of the initially expected energy savings.

This means that energy and climate analysts and policymakers can no longer afford to assume that a simple, direct relationship exists between energy efficiency gains and declines in total energy consumption or greenhouse gas emissions.

"For every two steps forward we take with below cost efficiency, rebound effects mean we take one or more steps backwards, sometimes enough to completely erode the initial gains made," said Jesse Jenkins, the report's lead author.

The Breakthrough Institute points out that rebound effects could theoretically be mitigated by raising the price of energy, either through energy taxes or a carbon tax. Indeed, advocates of carbon pricing, such as Charles Komanoff of the Carbon Tax Center, point to energy rebound as reason to put in place carbon taxes.

Nordhaus and Shellenberger noted in their statement, "Rebound and backfire could be mitigated through raising the price of energy. However, given the tight relationship between energy consumption and economic growth, climate mitigation must focus on cutting the relationship between energy consumption and emissions, which means moving to low-cost, zero-carbon energy sources."

Efficiency advocates have been challenged before on this issue and often attempt to distract attention away from how much rebound there is by saying things like, "nobody will vacuum more because their vacuum cleaner is more efficient," or "people won't drive their Prius much more because the cost of gas per mile is low." But this misses the big picture. At a macro- and global level, greater efficiency can signficantly increase overall energy consumption, in some cases by over 100 percent, which is known as "backfire."

While academics and efficiency advocates in the United States have largely ignored rebound effects and shunned a serious academic study of the subject, research into rebound mechanisms has progressed significantly in the last decade, much of it originating in Europe.

This growing body of evidence indicates that the highest "rebound" in energy use from efficiency occurs not at the consumer level but in the productive sectors of the economy (industry and commerce), which consume 2/3 of the energy used by the economy. A homeowner who makes his home more efficient may not increase the temperature that much simply because electricity is cheaper. But improving the efficiency of a steel plant may result in lower cost of steel, greater demand for steel, and also create greater economic growth -- all of which will drive significant rebound in energy use following efficiency improvements.

Notably, there has been a strong effort by the international community to help developing nations like China adopt more energy-efficient technology. While this is good for China's rapid economic growth, there is also strong evidence to suggest that rebound effects may be greatest in the developing world, where demand for energy services are far from saturated even at the consumer level, and where increases in the supply of energy and energy services are key drivers and enablers of economic growth. Efficiency efforts in rapidly developing nations will improve economic welfare, but may ultimately increase rather than decrease how much energy emerging economies like China would have used without the efficiency measures.

The Breakthrough Institute report title refers to the argument in the paper that rebound and backfire should be considered 'emergent phenomena,' meaning higher order effects resulting from the complex interaction of multifold individual components and the combination of multiple non-linear and reinforcing effects. In this way, energy demand rebound is similar to other emergent phenomenon, including anthropogenic climate change, evolution by natural selection, and economic growth.

Rebound effects work through clearly understood economic phenomenon. Efficiency measures reduce the price of the goods and services derived from energy, and economic actors respond in a variety of ways to changing prices:

First, they consume more of an energy service as it's price falls in order to increase production (at a business or industry) or improve their welfare (at a consumer level). A direct output/income effect.
Second, particularly among producers, economic actors will re-arrange the services and goods they consume to attain a given level of output or welfare by substituting now cheaper energy services for other goods and services (like materials, labor, or capital). A direct substitution effect
Third, any remaining savings in energy costs will be re-spent throughout the economy, increasing demand for goods and services that in turn rely on energy to provide. An indirect re-spending effect.
Fourth, the energy efficiency upgrades themselves requires energy to produce and install, offsetting some of the energy savings. An indirect embodied energy effect.
Fifth, at a macro-economic level, energy efficiency improves the productivity of the economy -- we get more output from a given level of energy inputs -- and productivity is a key driver of economic growth, which in turn drives up energy demand. A macroeconomic growth effect.
And a series of ripple effects occur throughout the economy as producers and consumers respond to changes in the relative price of various goods and services following widespread improvements in efficiency. Macroeconomic composition and market price effects.

The new report surveys the academic literature and evidence for the scale of each of these rebound mechanisms and discusses numerous methods of inquiry into the full scale of rebound effects at the global, economy-wide scope most pertinent to climate mitigation concerns.

Download the full report here.

Download a PowerPoint briefing on the report here

See Also:

Selected news coverage of "Energy Emergence"

Greenwire (E&E News): "Improved efficiency can be double-edged sword -- study" - 2/17/11
Guardian (UK): "Could the rebound effect undermine climate efforts?" - 2/22/11
Nature: "On the rebound" - 2/23/11
Scientific American / Green Grok (Duke University): "Energy Efficiency on the Rebound" - 3/3/11
New York Times: "When Energy Efficiency Sullies the Environment" - 3/7/11
Reason: "Energy Efficiency Can Make The Environment Worse Off" - 3/8/11
Times of India: "Not a waste of energy" and "Make energy cost more"
Making It (UNIDO Magazine): "Does energy efficiency lead to increased energy consumption?" - 6/16/11
Conservation Magazine: "The Efficiency Catch-22" - 9/11 (Fall Issue)

Energy Emergence: Rebound and Backfire as Emergent Phenomena

Feb 17, 2011