Does Efficiency Present a Catch-22?

Writing for Conservation Magazine, reporter John Carey spotlights an ongoing debate over "rebound effects" simmering amongst academic and energy policy making communities. "The Efficiency Catch-22" notes that as economies and consumers become more efficient, demand for the services we derive from energy rebounds, eroding some or even all of the initially expected energy reductions.

As Carey writes:

Now, new studies .. are again suggesting that modern efforts to improve energy efficiency could lead to big rebound effects; they're touching a nerve and prompting debate in energy and climate circles. Governments and think tanks have launched studies of the paradox, and stories in the New Yorker and New York Times have even suggested that energy efficiency, far from being a savior, could actually be bad for the environment. "The stakes are actually pretty high," says Roland Geyer, professor of industrial ecology at the University of California, Santa Barbara, and coauthor of a recent review of the rebound literature.

Dr. Geyer is right: the stakes are quite high.

As Breakthrough Institute documents in our comprehensive review of the academic literature on energy efficiency and rebound effects, "Energy Emergence" (February 2011), most climate mitigation strategies and national energy policies assume that significant gains can be made in reducing greenhouse gas emissions and national energy imports at little to no cost or even positive economic gain, chiefly by pursuing "below-cost" energy efficiency measures -- improvements that more than pay for themselves through energy savings over time. The International Energy Agency, for example, counsels global policy makers that energy efficiency can accomplish more than half (58 percent) of all global greenhouse gas emissions reductions needed by 2050 in order to put the world on track to a stable climate (see image at right).

Yet rebound effects mean that for every two steps forward we take towards climate mitigation via below-cost efficiency measures, we take one or more steps backwards through rebound effects. And conventional climate mitigation scenarios, including the IEA's and IPCC's, ignore or incompletely and improperly consider rebound effects in their analysis.

If we follow such a course, and ignore rebound effects, the globe will be dangerously over-reliant on energy efficiency to reduce greenhouse gas emissions. Even if rebound effects erode just one-third to one-half of the initially expected savings, the globe could fall 20 to 30 percent short of needed emissions cuts, if the IEA's mitigation plan is followed. Further, such a shortfall means the time available to devise additional remedies is reduced, increasing the urgency of the clean energy supply-side challenge.

Quoting the core conclusions of our "Energy Emergence" report, Carey writes:

"The bottom line: "Rebounds are real and significant, with the potential to erode much (and in some cases all) of the reductions in energy consumption from efficiency improvements."

If true, big rebounds pose a big problem for those advocating rapid efficiency improvements as a way to solve climate and energy problems. Efficiency advocates have "overstated the potential" of energy savings, says Roger Pielke, Jr., a University of Colorado political scientist and a senior fellow at the Breakthrough Institute. To ensure energy security and combat climate change by reducing greenhouse-gas emissions, he believes, governments will need to go far beyond just improving efficiency--they will also need to vastly increase supplies of clean energy. "In the end, what matters most is energy supply," he says, "not efficiency."

... But that's not what most governments are pushing. U.S. Energy Secretary Steven Chu, for instance, says that energy efficiency can bring major, inexpensive reductions in carbon emissions. "It is an extremely seductive message, which politicians love, that we can get gains through efficiency at little cost," says Harry Saunders, a Danville, California, business consultant who has been researching and modeling the rebound effect on his own time for two decades. But it's also wrong, he argues. As U.K. economist Leonard Brookes puts it: "There isn't a free lunch."

(Note that Pielke, Jr. and Saunders are both Senior Fellows at the Breakthrough Institute)

Efficiency Advocates Continue to Ignore Where Rebounds are Largest

In his article, Carey gives a pretty fair treatment of this complex and evolving issue. Yet he also gives plenty of "air time" to several long-time efficiency proponents, such as Amory Lovins, who has for decades counseled that rebound effects are insignificant and should be pretty much ignored by policy makers.

These advocates are finally beginning to deal with the accumulated academic research and evidence supporting significant rebound effects, and as ACEEE's Skip Laitner notes in the article, "It seems like this issue comes up every decade or so, but this time it has some staying power and needs to be dealt with."

Unfortunately, Carey also appears to trust Lovins when he reports that "direct rebounds are relatively small." Relatively is the key word there.

Citing an excellent review of the topic by the UK's Steven Sorrell, Carey writes, "direct rebounds are typically less than 30 percent--meaning that efficiency improvements still net a solid 70-percent gain." Carey then quotes common arguments from efficiency advocates that "Smaller rebounds make sense when you think about human behavior, many researchers argue. For example, will you really drive that new Prius a lot more than your old SUV? Probably not."

This is the frame that efficiency advocates work very hard to keep coming back to: consider end-use energy services, like transportation or home heating, in rich-world contexts. The hope is that if we keep focusing on such context, we will see that rebound effects are really quite small after all, and can either be safely ignored or, at worst, addressed through minor adjustments.

Unfortunately, it's not that simple. End-use consumer energy use in rich nations is actually the least interesting and smallest part of the global economy when it comes to energy use and it happens to be precisely where total rebounds are likely to be smallest.

Dr. Saunders and I actually make precisely this case in a recent column published by the UN Industrial Development Organization's magazine Making It, cautioning, "rebounds are generally smallest in exactly the situations that have received the most research to date: for improvements in the efficiency of end-use consumer energy services in wealthy, developed economies."

Here, relatively wealthy consumers already fully enjoy most energy services, or come close to it. A consumer may gain little utility, for example, from heating his or her home above a comfortable room temperature, even if the efficiency of home heating improves. Direct rebounds may indeed be on the order of just 10-30 percent, with additional indirect rebounds bringing the total to somewhere on the order of one-quarter to one-third or initial savings.

Before moving on to consider the real drivers of global energy use -- productive sectors and emerging economies -- let's consider the climate implications of this "small" rebound in end-use consumer sectors of rich-world economies: if rebounds as a whole averaged "just" 33 percent for efficiency improvements across the entire global economy and global policy makers followed the mitigation strategy outlined by the IEA (discussed above), the world would still fall nearly 20 percent short of necessary mid-century emissions reductions.

When talking about billions of metric tons of CO2 or terawatts of energy, falling 20 percent short is hardly a "small" or "insignificant" issue. That's a larger share of emissions reductions than the IEA envisions from any single low-carbon energy source (see the figure above)!

More importantly, as Dr. Saunders and I write:

...the consumption of end-use services in the world's wealthy nations is far from indicative of broader trends across the global economy. In fact, the largest rebound effects are typically found elsewhere: in the productive sectors of the economy that consume the bulk of energy in any nation, and in the world's emerging economies, home to the vast majority of future energy demand growth.

In contrast to conditions in wealthy nations, demand for energy services is far from saturated throughout the developing world. After all, roughly one-third of the global population still lacks sufficient access to even basic modern energy services.

While very few studies have carefully examined rebound dynamics in developing economies, those that have find direct rebound effects alone to be on the order of 40-80% for end-use consumer energy services, such as lighting and cooking fuel -- more than twice as large as the equivalent rebounds found in wealthier nations.

Furthermore, expanding access to modern energy services is also a principal driver of development outcomes. Whether such services are provided by burning more fuels, burning them more efficiently, or both (the most likely scenario), the outcome is the same: greater economic activity and expanding welfare, which in turn demands more energy.

Saunders and I thus warn:

Energy analysts must therefore be very careful in generalizing experiences or intuitions about rebound effects in rich, developed nations to the larger bulk of the global population living in developing economies. The shadow of Jevons' Paradox still looms large over much of the developing world.

...Far more study of rebound effects for efficiency improvements in producing sectors (e.g. industry, commerce, and agriculture) is also warranted, given the fact that roughly two-thirds of global energy is consumed in the production and transportation of goods and services, and the refining, processing, and delivery of energy to end-uses.

The literature to date indicates that direct rebound effects are also much larger in the productive sectors than in end-uses -- on the order of 20-70% for these sectors, at least within a United States context -- with additional rebound due to indirect and macroeconomic effects.

We Ignore Rebound At Our (Climate) Peril

What this means is that policy makers can no longer trust the advice of efficiency advocates who counsel them to ignore rebound effects.

Ultimately, Mr. Carey concludes his piece with a similar same notion. "For the moment," Carey writes, "the rekindled rebound debate is illuminating the complexity of solving energy and climate problems--and showing that it is hard to view efficiency as a completely free lunch."

Indeed, from a climate perspective, that lunch may cost us quite a lot -- that is, if we fail to drive the rapid decarbonization of global energy supplies.

As Dr. Saunders and I write for UNIDO:

A continued failure to accurately and rigorously account for rebound effects risks an over-reliance on the ability of efficiency to deliver lasting reductions in energy use and greenhouse gas emissions. Without a greater emphasis on the other key climate mitigation lever at our disposal - the de-carbonization of global energy supplies through the deployment and improvement of low-carbon energy sources - the global community will fall dangerously short of climate mitigation goals.

At the end of the day, global decarbonization efforts hinge on the ability to develop clean, cheap, and massively scalable energy sources, a challenge altogether different from the pursuit of "low-hanging fruit" energy efficiency gains.

Such efforts are by no means mutually exclusive to the pursuit of energy efficiency. But we'd better get straight about how much "climate work" each lever can do. Fail to fully account for rebound, and we could come up dangerously short of global climate goals.


Energy efficiency and rebound effect resources:

• An introductory FAQ to the Rebound Effect
• Making It: "Does energy efficiency lead to increased energy consumption?"
• "Energy Emergence: Rebound and Backfire as Emergent Phenomena" - Comprehensive review of the literature - report overview; full report (pdf).
• "Why Energy Efficiency Does Not Decrease Energy Consumption" - an introduction to the empirical evidence for rebounds and backfire by Dr Harry Saunders