Rebound effect (conservation)

The term rebound effect is used in conservation, energy economics and green marketing. It refers to the behavioral or other systemic responses to the introduction of new technologies, or other measures taken to reduce resource use. These responses tend to offset the beneficial effects of the new technology or other measure taken. While literature on the rebound effect generally focuses on energy consumption, the theory can be applied to the use of any natural resource. The rebound effect is generally expressed as a ratio of the lost environmental benefit to the expected environmental benefit, holding consumption constant.Harvard reference | Surname=Grub| Given=M.J.| Title=Energy efficiency and economic fallacies.| Journal=Energy Policy | Volume=18 | Year=1990 | Page=783-785 ] For instance, if a 10% improvement in vehicle fuel efficiency results in only a 4% drop in fuel use, there is a 60% rebound effect.

The full rebound effect can be distinguished as three different economic reactions:
*Direct rebound effect: Increased efficiency lowers the cost of consumption, and hence increases the consumption of that good because of the substitution effect.
*Indirect rebound effect: Through the income effect, decreased cost of the good enables increased household consumption of other goods and services, increasing the consumption of the resource embodied in those goods and services.
*Economy wide effects: New technology creates new production possibilities and increases economic growth.

In the example of improved vehicle fuel efficiency, the direct effect would the increased fuel use from more driving as driving becomes cheaper. The indirect effect would incorporate the increased consumption of other goods enabled by household cost savings from increased fuel efficiency. Since consumption of other goods increase, the embodied fuel used in the production of those goods would increase as well. Finally, the economy wide effect would include the long term effect of the increase in fuel efficiency on production and consumption of a whole range of goods and services throughout the economy, including any effects on economic growth rates.

There are three possible outcomes for the total rebound effect:
#The actual resource savings are higher than expected savings. The rebound effect is negative. This is unusual, and would only occur if the government imposes more efficient technologies that are also higher cost.
#The actual savings are less than expected savings. The rebound effect is between 0% and 100%. This is sometimes known as ‘take-back’, and is the most common result of empirical studies.
#The actual cost savings are negative. The rebound effect is higher than 100%. This situation is commonly known as Jevons paradox, and is sometimes referred to as ‘back-fire’.

The existence of the rebound effect is uncontroversial. However, debate continues as to the size and importance of the effect in real world situations.

History

The rebound effect was perhaps first described by William Stanley Jevons in his 1865 book "The Coal Question", where he observed that the invention in Britain of a more efficient steam engine meant that the use of coal became economically viable for many new uses. This ultimately lead to increased coal consumption. However, most contemporary authors credit Daniel Khazzoom for the re-emergence of the rebound effect in the research literature. Although Khazzoom did not use the term, he raised the idea that there is not a one-to-one correlation between gains in energy efficiency and reductions in energy use, because of the ‘price content’ of energy in the provision of the final consumer product.Harvard reference | Surname=Khazzoom| Given=daniel J.| Title=Economic implications for mandated efficiency in standards for household appliances.| Journal= The Energy Journal | Volume=1 | Year=1980 | Page=21-40 ] His study was based on energy efficiency gains in home appliances, but the principle applies throughout the economy. A commonly studied example is that of a more fuel-efficient car. Because each kilometre of travel becomes cheaper – as long as the price elasticity of demand for travel is not zero – there will be an increase in kilometres driven.

Khazzoom's thesis was criticized heavily by Michael Grubb Harvard reference | Surname=Grub| Given=M.J.| Title=Energy efficiency and economic fallacies.| Journal=Energy Policy | Volume=18 | Year=1990 | Page=783-785 ] and Amory LovinsHarvard reference | Surname=Lovins| Given=Amory B.| coauthors = J.Henly, H. Ruderman, M.D.Levine |Title=Energy saving resulting from the adoption of more efficient appliances: another view; a follow up.| Journal=The Energy Journal | Volume=9 | Year=1988 | Page=155 ] who dismissed any disconnection between energy efficiency improvements on a micro level, and a reduction of energy consumption at a macro level. Developing Khazzoom's idea further, and prompting heated debate in the Energy Policy journal at that time, Len Brookes wrote of the fallacies in the energy efficient solution to greenhouse gas emissions.Harvard reference | Surname=Brookes| Given=L.| Title=The greenhouse effect: the fallacies in the energy efficient solution.| Journal=Energy Policy | Volume=18 | Year=1990 | Page=199-201 ] His analysis showed that any economically justified improvements in energy efficiency would in fact stimulate economic growth and total energy use. For improvements in energy efficiency to contribute to a reduction in economy-wide energy consumption, the improvement must come at a greater economic cost. Commenting in regard to efficiency advocates, he concludes that: "The present high profile of the topic seems to owe more to the current tide of green fervor than to sober consideration of the facts, and the validity and cost of solutions."

In 1992, economist Harry Saunders coined the phrase ‘Khazzoom-Brookes Postulate’ to describe the idea that energy efficiency gains paradoxically result in increases in energy use (the modern day equivalent of Jevons paradox). He modeled energy efficiency gains using a variety of neo-classical growth models, and showed that the postulate is true over a wide range of assumptions.Harvard reference | Surname=Saunders| Given=Harry| Title=The Khazzom-Brookes Postulate and Neoclassical Growth.| Journal=Energy Journal | Volume=13 | Year=1992 | Page=131-148 ] Some of the more pertinent points from his concluding remarks include:
*"In the absence of efficiency gains, energy use will grow in lock step with economic growth (energy intensity will stay fixed) when energy prices are fixed.
*Energy efficiency gains can increase energy consumption by two means: by making energy appear effectively cheaper than other inputs; and by increasing economic growth, which pulls up energy use.
*These results, while by no means proving the Khazzoom-Brookes postulate, call for prudent energy analysts and policy makers to pause a long moment before dismissing it".

This work provided a theoretical grounding for empirical studies and played an important role in framing the problem of the rebound effect. It also reinforced an emerging ideological divide between energy economists on the extent of the yet to be named effect. The two tightly held positions are:
*Improvements in energy efficiency enable growth which was otherwise impossible without the improvement, and as such, efficiency improvements will always back-fire in the long term.
*Improvements in efficiency may result in a small take-back. However, even in the long term, efficiency improvements usually result in an overall energy savings.

Even though many studies have been undertaken in the last decade, neither position has yet claimed a consensus view in the academic literature. Economists tend to the first position, but most governments, businesses, and environmental groups adhere to the second position, advocating radical increases in the efficient use of energy as the primary means for reducing energy use (and greenhouse gas emissions to alleviate the impacts of climate change). However, if the first position more accurately reflects economic reality, current efficiency improvements may not reduce energy demand, and may in fact hinder efforts to reduce oil and coal consumption, and greenhouse gas emissions.

Direct and indirect effects from efficiency

For cost reducing resource efficiency, distinguishing between direct and indirect effects is shown in Figure 1 below. The horizontal axis shows units of consumption of the targets good (which could be for example clothes washing, and measured in terms of kilograms of clean clothes) with consumption of all other goods and services on the vertical axis. An economical technology change that enables each unit of washing to be produced with less electricity results in a reduction of the price per unit of washing. This shifts the household budget line rightwards. The result is a substitution effect because of the decreased relative price, but also an income effect due to the increased real income. The substitution effect increases consumption of washing from Q¬1 to QS, and the income effect from QS to Q2. The total increase in consumption of washing from Q¬1 to Q2 and the resulting increase in electricity consumption is the direct effect. The indirect effect comprises the increase in other consumption, from O1 to O2. The scale of each of these effects depends on the elasticity of demand for each of the goods, and the embodied resource or externality associated with each good. A parallel effect will happen for cost saving efficient technologies for producers, where output and substitution effects will occur.

Estimation of the scale of direct effects on residential electricity, heating and motor fuel consumption has been common motivation for research of rebound effects.cite web|url = http://www.ukerc.ac.uk/Downloads/PDF/07/0710ReboundEffect/0710ReboundEffectReport.pdf | title = The rebound effect: An assessment of the evidence for economy-wide energy savings from improved energy efficiency| authors = Steven Sorrell | Date = 2007 | publisher= UK Energy Research Centre| accessdate=2008-09-23] Evaluation and econometric methods are the two approaches generally employed in estimating the size of this effect. Evaluation methods rely on quasi-experimental studies and measure the before and after changes to energy consumption from the implementation of energy efficient technology, while econometric methods utilise elasticities to estimate the likely effects from changes in the effective price of energy services.

Economy wide effects

Technological improvements that increase efficiency may result in economy wide effects that paradoxically increases resource use. In particular, this would happen if resource efficiency enables an expansion of production in the economy, and an increase in the rate of economic growth. For example, for the case of energy use, more efficient technology is equivalent to a lower price for energy resources. It is well known that changes in energy costs have a large impact on economic growth rates. In the 1970's higher petroleum prices led to stagflation, in the 1990's lower petroleum prices contributed to higher growth. An improvement in energy efficiency has the same effect as lower fuel prices, and leads to faster economic growth. Economists generally believe that especially for the particular case of energy use, more efficient technologies lead to increased use, because of this growth effect.

To model the scale of this effect, economist use computational general equilibrium (CGE) models. While CGE methodology is by no means perfect, results indicate that economy wide rebound effects are likely to be very high, with estimates above 100% rather common. One simple CGE model has been made available online for use by economists. cite web|url = http://www.bepress.com/bejeap/topics/vol5/iss1/art15/| title = A Calculator for Energy Consumption Changes Arising from New Technologies| authors = Harry Sauders | Date = 2005 | publisher= The Berkeley Electronic Press| accessdate=2008-09-23]

Indirect effects from conservation

For conservation measures, indirect effects closely approximate the total economy wide effect. Conservation measures constitute a change in consumption patterns away from particular targeted goods towards other goods. Figure 2 below shows that a change in preference of a household results in a new consumption pattern that has less of the target good (QT to QT`), and more of all other goods (QO to QO`). The resource consumption or externalities embodied in this other consumption is the indirect effect.

Although a persuasive view has prevailed that indirect effects with respect to energy and greenhouse emissions should be very small due to energy directly comprising only a small component of household expenditure, this view is gradually being eroded.Harvard reference | Surname=Schipper| Given=Lee |coauthors=Michael Grubb| Title=On the rebound? Feedback between energy intensities and energy uses in IEA countries| Journal=Energy Policy| Volume=28 | Year=2000 | Page=367-388] Many recent studies based on life-cycle analysis show the energy consumed indirectly by households is often higher than consumed directly through electricity, gas, and motor fuel, and is a growing proportion.Harvard reference | Surname=Vringer| Given=Kees |coauthors=Kornelis Blok| Title=Long-term trends and direct and indirect household energy intensities: A factor in dematerialisation?| Journal=Energy Policy| Volume=28 | Year=2000 | Page=713-727] Harvard reference | Surname=Vringer| Given=Kees |coauthors=Theo Aalbers, Kornelis Blok| Title=Household energy requirement and value patterns.| Journal=Energy Policy| Volume=35 | Year=2007 | Page=553-556] Harvard reference | Surname=Lenzen| Given=Manfred |coauthors=Christopher Dey| Title=Economic, energy and greenhouse emissions impacts of some consumer choice, technology and government outlay options| Journal=Energy Economics| Volume=24 | Year=2002 | Page=377-403] This is evident in the results of recent studies that indicate indirect effects from household conservation can range from 10% to 200% depending on the scenario, with higher indirect rebounds from diet changes aiming to reduce food miles.Harvard reference | Surname=Alfredsson| Given=E.| Title="Green" consumption--no solution for climate change| Journal=Energy | Volume=29 | Year=2004 | Page=513-524]

Income level variation

Research has shown that the direct rebound effects for energy services is lower at high income levels, due to less price sensitivity. Studies have found that own-price elasticity of gas consumption by UK households was two times greater for households in the lowest income decile when compared to the highest decile. Studies have also observed higher rebounds in low-income houses for improvements in heating technology.Harvard reference | Surname=Baker| Given=Paul| coauthors=Richard Blundell, John Micklewright |Title=Modelling household energy expenditures using micro data. |Journal=Economic Journal | Volume=99 | Year=1989 | Page=720-738 ] Harvard reference | Surname=Milne| Given=Geoffrey|coauthors=Brenda Boardman| Title=Making cold homes warmer: the effect of energy efficiency improvements in low-income homes A report to the Energy Action Grants Agency Charitable Trust. | Journal=Energy Policy| Volume=28 | Year=2000 | Page=411-424 ] Evaluation methods have also been used to assess the scale of rebound effects from efficient heating installations in lower income homes in the United Kingdom. This research found that direct effects are close to 100% in many cases.Harvard reference | Surname=Hong| Given=Sung|coauthors=Tadj Oreszczyn, Ian Ridley| Title=The impact of energy efficient refurbishment on the space heating fuel consumption in English dwellings| Journal=Energy and Buildings| Volume=38 | Year=2006 | Page=1171-1181] High income households in developed countries are likely to set the temperature at the optimum comfort level, regardless of the cost – therefore any cost reduction does not result in increased heating, for it was already optimal. But low-income households are more price sensitive, and have made thermal sacrifices due to the cost of heating. In this case, a high direct rebound is likely. This analogy can be extended to most household energy consumption.

The size of the rebound effect is likely to be different in developing countries. A study was undertaken in rural India to evaluate the impact of an alternative energy scheme.Harvard reference | Surname=Roy| Given=Joyashree | Title=The rebound effect: some empirical evidence from India| Journal=Energy Policy| Volume=28 | Year=2000 | Page=433-438] Households where given solar powered lighting in an attempt to reduce the use of kerosene for lighting to zero expect for seasons with insufficient sunshine. The scheme was also designed to encourage a future willingness to pay for efficient lighting. The results were surprising, with high direct rebounds between 50-80%, and total direct and indirect rebound above 100%. Because the new lighting source was essentially zero cost, operating hours for lighting went up from an average of 2 to 6 per day, with new lighting consisting of a combination of both the no-cost solar lamps and also kerosene lamps. Also, more cooking was undertaken which enabled an increased trade of food with neighboring villages.

Rebounds with respect to time

The individual opportunity cost of time is not often considered. Hence, often overlooked in the rebound effect literature is the rebound effect with respect to savings in time.Harvard reference | Surname=Binswanger| Given=Mathias| Title=Technological progress and sustainable development: what about the rebound effect?.| Journal=Energy Journal | Volume=13 | Year=1992 | Page=131-148 ] Harvard reference | Surname=Jalas| Given=Mikko| Title=A time use perspective on the materials intensity of consumption. | Journal=Ecological Economics| Volume=41 | Year=2002 | Page=101-123 ] Faster modes of transport are a classic example. Since the time cost forms a major part of the total cost of commuter transport, faster modes will reduce real costs, but will also encourage longer commuting distances. While important, it is almost impossible to estimate empirically the scale of such effects due to the subjective nature of the value of time. Time saved can either me directed towards work or leisure. Labour time saved at work due to the increased labour productivity is likely to be spent on further labour time at higher productive rates. For leisure time saving, this may simply encourage people to diversify their leisure interests to fill their generally fixed period of leisure time.

Notes

ee also

*Efficient energy use