Understanding Energy Efficiency Rebound: Interview with Karen Turner

Dr. Karen Turner is a Senior Lecturer in the Department of Economics at the University of Strathclyde, Scotland. Her main research interests include economy-environment modelling, regional economics, input-output analysis and regional computable general equilibrium modelling.

How did you get interested in rebound?

I was building models to deal with energy and environmental questions. I ran energy efficiency simulations to see how the model would behave, and I started to find energy consumption falling then rising again in response to greater efficiency. One of my coauthors presented it at a conference and someone said, "Oh, that's rebound!" We didn't know rebound existed as a phenomenon until then.

Why should policymakers care about rebound?

Mostly for climate policy reasons. Rebound implies that when you're setting targets to reduce carbon emissions, you might not get the one-for-one reduction you may expect. So if you are counting on energy efficiency for 10 percent of your emissions reductions, and initiate a proportionate efficiency improvement but there is 50 percent rebound, you would only get 5 percent emissions reductions, not 10. So if policymakers are trying to use EE to achieve a particular goal, they should account for rebound so they can achieve those emissions reductions in a different way or compensate with a bigger efficiency improvement.

But what if there is backfire, or rebound greater than 100 percent?

If you get backfire then more energy efficiency would actually cause a greater increase in your emissions. That would mean you'd have to address the problem in a different way, like imposing taxes, which is something economists often don't like to do unless no better solution is available as they may have other unanticipated and distortive effects.

Is it fair to say that rebound effects get larger over time as they contribute to growth?

The argument that rebound will get bigger over time comes from the argument that the economy takes time to adjust. As the economy grows, so does rebound.

I published some research that countered this notion. We found that in some cases rebound is less over time. For example, as Scottish energy providers face reduced demand for energy, they will have less revenue, lower return to capital and thus less incentive to re-invest.

But isn't that only in wealthy countries where energy demand may be relatively flat?

Yes, in a developing country where there is a large amount of unmet demand, it's likely that a stimulus in demand will create sufficient demand-driven rebound that revenues and returns to energy suppliers won’t fall. What I was talking is where there is local energy supply and capacity and there may be a negative impact on energy sector revenues as demand and perhaps also local prices fall. For example, in Scotland we have our own oil refining capacity and price at the pumps for petrol and diesel.

How would you describe evolution of rebound scholarship?

There are two key problem areas in my view. First, to date there has been insufficient focus on the response of energy suppliers to changing demands for their outputs as efficiency increases. Second, direct rebound research has been very focused on the consumer end of things while economy-wide rebound research has focussed on industrial energy efficiency. I think there needs to be more care in distinguishing between energy efficiency improvements at the consumption side — household electricity, appliances, etc. — from efficiency improvements in industry, or production. Too often those two things are conflated.

Why does that concern you?

The effects are very different. Say you increase the energy efficiency of a household. You might expect to see energy demand go up and you might expect to see households spending the money saved on other things. So, on the one hand you might get more consumption, but that would push up prices and in turn make a nation's exports less competitive. This could potentially crowd out domestic sector employment at the expense of meeting increasing exports, rather than domestic demand.

What are some of the policy implications?

There has been discussion of using taxes to address rebound by reducing demand for energy. But if household electricity demand has increased, you might end up taxing things where the prices are going up anyway!

What about efficiency in the productive sector?

In the productive sector below-cost efficiency gains would be a less ambiguous positive thing. A factory would be able to reduce the cost of production, lower prices, increase exports, and increase profits. This equates to productivity rather than demand-driven economic growth.

I think it's worth noting that the economist Stanley Jevons, an early rebound theorist, wrote, "I speak here not of domestic use of coal." What he meant was that his arguments with respect to backfire applied to energy efficiency improvements in the production sector but not at the household level.

Efficiency improvements in the production sector might lead to increased household incomes (through increased employment and/or wages as production activity expands), but the rebound doesn't originate from a household energy improvement.

It sounds like you're saying that it's incorrect to speak of a single "rebound effect" because there are always many different kinds of rebound effects, with different implications for policy.

Right. At the very least you have to separate household rebound from industrial rebound. And you have to acknowledge that different households in different countries will behave very differently.

What do you make of the IEA's claim that the rebound effect is nine percent?

I don't know how they can say that. IEA is clearly pushing for energy efficiency, and is making the argument that energy efficiency is leading to economic growth. But to make that argument you have to accept that there will be a trade-off in terms of energy savings (and between growth and possible contraction in different areas of the economy). Moreover, the forces driving the economic and rebound impacts of increased energy efficiency will be different in different countries for different types of policies and efficiency improvements.

If we had 100 percent zero carbon energy would anybody care about rebound?

I don't think so. It's not a bad thing to increase the efficiency of anything. It's like labor productivity. You employ more people as you get richer from productivity improvements. So long as you can supply enough of it, rising energy consumption is not a problem so long as it does not add to damaging greenhouse gas emissions.

At the EU level, energy efficiency is associated with meeting greenhouse gas emission reduction targets. But the EU’s focus is territorial, and there has been evidence that as EU emissions have declines, we’ve been shifting emissions to developing countries.

Is efficiency a free lunch — or even one you are paid to eat?

Introducing efficiency improvements is not a free lunch. You have to promote new technologies. You have to invest in R&D for new technologies and work at increasing efficiency. I think policymakers are looking at energy efficiency as double dividend (economic benefits coupled with environmental benefits, or decoupling of economic growth and environmental damage). You can see why it's appealing.