Energy Efficiency and the Rebound Effect

Order Code RL31188

CRS Report for Congress

Received through the CRS Web

Energy Efficiency and the Rebound Effect

November 19, 2001

(nae redacted)

Science and Technology Analyst

Resources, Science & Industry Division

Congressional Research Service ˜ The Library of Congress

Energy Efficiency and the Rebound Effect

Summary

Several measures in the 107th Congress seek to increase energy efficiency as a

means to decrease dependance on foreign oil, cut electricity demand and to curb both

air pollution and greenhouse gas emissions. However some claim that these measures

may not be as effective as projected because of the rebound effect.

By definition, increasing a device’s energy efficiency decreases its consumption

of energy. However, a simple projection may overestimate the energy savings unless

it accounts for the consumer’s response to lower costs. For example, a company that

doubles the efficiency of an electric home heating system projects that the cost of

operating this device should be cut in half. But now that it is cheaper to heat his

house, the consumer may choose to increase the setting on his thermostat. Instead

of saving the money and reducing the demand for electricity which the increased

efficiency would allow, the consumer may choose to spend some of the money saved

to live at a more comfortable temperature. This is an example of the rebound effect.

The rebound effect is defined as the difference between the projected and the

actual savings due to increased efficiency. It is a combination of three components:

direct effects, indirect effects, and market or dynamic effects. The home heating

example cited above is an example of the direct effect. An example of the indirect

effect is the consumer choosing to spend the savings from a more efficient home

heater to purchase another electric device such as a new hair dryer. The market or

dynamic effect occurs when a decrease in aggregate demand causes the energy price

to fall. This, in turn, makes new uses economically viable or increases the market

penetration of existing devices, driving up demand. An example of this is the

introduction of a more efficient coal burning engine used in the extraction of coal in

the mid-1880s. The new engine was predicted to reduce overall consumption;

however, its use greatly lowered the price of coal. Thus more people could afford to

use coal heat in their homes, which greatly increased demand.

The size of a rebound depends on many factors, including the type of device

being improved, energy prices, consumer income, and the overall state of the

economy. For typical consumer end-uses, the rebound usually ranges between 0%

and 40%. That is, the actual energy savings ranges from 60% to 100% of the

projected amount.

Policymakers may be able to more accurately gauge the realistic benefits of

proposed efficiency programs by accounting for the rebound effect. For instance,

some may consider it desirable compensate for the rebound effect by increasing

appliance efficiency or fuel economy standards even further than previously

suggested. Alternately, others may feel that a lower energy savings estimate means

reduced program cost effectiveness. A third choice would be to slightly lower

expectations of the proposed program.

How the rebound effect changes projected reductions in greenhouse gas

emissions is controversial, although it is generally agreed that increases in efficiency

will reduce emissions per unit of Gross Domestic Product.

Contents

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Interest and Role of Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

What is Energy Efficiency? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Definition of the Rebound Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Direct Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Indirect Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Market or Dynamic Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Theory Versus Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Factors Affecting Amount of Rebound . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Examples of Rebound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Space heating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Automobile fuel efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Lighting in rural India – an example of overshoot . . . . . . . . . . . . . . . . 9

Effects on Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

Energy Efficiency as a Means of Reducing Demand . . . . . . . . . . . . . . . . . 10

Energy Efficiency as a Means of Reducing Greenhouse Gas Emissions . . . 11

For Additional Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

List of Figures

Figure 1. Domestic Energy Use 1949-1999 and Projected Use at 1949

Use Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Figure 2. Energy Use per Dollar Gross Domestic Product . . . . . . . . . . . . . . . . . 3

List of Tables

Table 1. Measured Rebound Effects of Various Devices . . . . . . . . . . . . . . . . . . 6

Energy Efficiency and the Rebound Effect

Introduction

Interest and Role of Congress

Increasing efficiency offers the benefits of decreasing energy consumption,

reducing greenhouse gas emissions, and preserving the limited resources used for

producing energy while lowering energy bills for the consumer. Because of this

observation, some have suggested that increasing energy efficiency could reduce the

need for increased domestic production while lowering dependence on foreign oil.1

Several bills under consideration in the 107th Congress focus on increasing energy

efficiency as part of a comprehensive national energy policy, including H.R. 4, the

Securing America’s Future Energy Act; S. 389, the National Energy Security Act of

2001; S. 596, the Energy Security and Tax Incentive Policy Act of 2001; and S. 597,

the Comprehensive and Balanced Energy Policy Act of 2001. Parts of these bills

encourage greater energy efficiency through a variety of means, including tax

incentives, grants, efficiency standard mandates, and increased money for energy

efficiency research.

Some articles in the popular press have suggested, however, that efforts to

conserve energy by increasing efficiency will produce less than the expected results

because of the rebound effect.2 This effect (also referred to as the “take-back” or

“snap-back”) was first described in 1865 when Stanley Jevons observed that the

introduction of the new efficient steam engine initially decreased coal consumption

which led to a drop in the price of coal. This meant not only that more people could

afford to heat their homes with coal, but also that coal was now economically viable

for new uses, which ultimately greatly increased coal consumption.3 More recently,

analysts have focused on the rebound effect in the electricity and gasoline markets.

Analysts disagree on the presence and magnitude of this phenomenon and ongoing

1

For a thorough discussion of these topics, see CRS Reports RL30414, Global Climate

Change: The Role for Energy Efficiency, RS31033, Energy Efficiency and Renewable

Energy Fuel Equivalents to Potential Oil Production from the Arctic National Wildlife

Refuge (ANWR) and CRS Issue Brief IB10020 Energy Efficiency: Budget, Climate Change,

and Electricity Conservation Issues by (name redacted).

2

See K. Strassel. Conservation wastes money. Wall Street Journal. May 17, 2001. Eastern

Edition. p. A26; F. Pearce. Consuming myth. New Scientist. September 5, 1998. p. 18-19;

and J. Glassman, The conservation myth as the latest (sub)urban legend,

[http://www.TechCentralStation.com/NewsDesk.asp?FormMode=MainTerminalArticles&

ID=68]

3

W.S. Jevons. The coal question: can Britain survive? First published 1865, Republished

Macmillan, London 1906.

CRS-2

research continues to shape this debate. If a large rebound effect exists in these

markets, it might weaken arguments for increased efficiency requirements and

strengthen arguments to scale back government-supported efforts. This paper

describes the rebound effect, outlines the current thinking of experts in this field, and

discusses the possible energy policy ramifications of this effect.

What is Energy Efficiency?

Energy efficiency is the property of a device which describes how much energy

it requires to produce its product. For example, a typical incandescent lightbulb may

require 1 kilowatt-hour of electricity to stay lit for 10 hours. If a technological

change allows a new lightbulb to produce the same level of light for the same length

of time using only one-half kilowatt-hour, the new device is said to be twice as energy

efficient as the original device. The user of the new lightbulb would be expected to

use half the amount of electricity and to pay half the amount to operate the bulb

compared to the less efficient bulb. Although it is still using energy, because the new

bulb uses less, it is said to conserve energy. The consumer could also achieve the

same savings by leaving the less efficient bulb on for half as long. The reduction of

output to realize savings, as in this case, is an example of curtailment.4

Overall energy use in the United States, driven by economic and population

growth, has generally steadily increased throughout the nation’s history. However,

at least over the last several decades, total energy use has not risen as much as might

have been projected by the growth in Gross Domestic Product (GDP, see “projected”

in Figure 1). If energy had continued to be consumed at the same rate per dollar of

GDP as in 1949, the energy demand in 1999 would have been approximately 183

quadrillion British Thermal Units (Quad BTU) as opposed to the actual use of

approximately 97 Quad BTU. The amount of energy required to produce a dollar of

GDP has steadily decreased over this period (Figure 2). In 1949, the production of

the equivalent of a single 1996 dollar required nearly 21,000 BTU. By 1999, this

number had dropped to about 11,000 BTU. This is due to both structural changes in

the U.S. economy and great improvements in technology including energy efficiency.5

In spite of these changes, overall energy use has increased due to both increases in

population and energy use per person.6

4

For a more detailed discussion of energy efficiency, conservation and curtailment see CRS

Issue Brief IB10020, Energy Efficiency: Budget, Climate Change, and Electricity

Conservation Issues by (name redacted).

5

U.S. Dept. of Energy. Energy Efficiency in the U.S. Economy Energy Conservation Trends

Understanding the Factors Affecting Energy Conservation Gains and Their Implications for

Policy Development. DOE/PO-0034. Washington D.C., April 1995.

6

U.S. Dept. of Energy. Annual Energy Review 2000. DOE/EIA-0384.Washington D.C.,

2000. p. 38.

CRS-3

Figure 1. Domestic Energy Use 1949-1999 and

Projected Use at 1949 Use Rates

200

Energy Use (Quad BTU)

175

projected

150

125

100

75

50

actual

25

0

'50

'55

'60

'65

'70

'75

'80

'85

'90

'95

'99

Year

Source: Adapted from Annual Energy Review 2000, DOE/EIA-0384(2000) p. 38

Figure 2. Energy Use per Dollar Gross Domestic Product

Thousand BTU per 1996 Dollar

25

20

15

10

5

0

'50

'55

'60

'65

'70

'75

'80

'85

Year

Source: Adapted from Annual Energy Review 2000, DOE/EIA-0384 p. 38

'90

'95

'99

CRS-4

Definition of the Rebound Effect

The rebound effect is most simply defined as the difference between the

projected and the actual energy consumption following an increase in energy

efficiency. The projections can be made by simply calculating the difference in energy

required by the new device and the less efficient one to meet a fixed level of service

(e.g. amount of heat supplied). However, the actual amount of energy used also

depends on possible consumer or market responses to the lower costs. To account

for these changes, analysts use empirical studies and complex economic models. The

rebound effect consists of direct, indirect, and market or dynamic components that

can happen following the installation of more energy efficient equipment.

Direct Effects

Following the installation of a more energy efficient device, a consumer might

choose to use more of the service instead of realizing all of the potential cost savings.

In the previously introduced lightbulb example, the owner of a more efficient bulb

might choose to leave the light on longer if that adds to his utility since it is cheaper

to operate than the old one.

A more commonly cited hypothetical example of the direct rebound effect is that

of a person living in a cool climate who takes advantage of a tax incentive to purchase

a more efficient home heating system. Since the new system costs less to operate, the

user might choose to keep his energy bill constant but live in a warmer house by

setting the thermostat higher. In this case, the rebound effect completely erases the

energy savings expected from the increase in efficiency. The savings were converted

into an increase in comfort rather than a decrease in energy consumption.

Another oft-cited hypothetical example is that the owner of a highly fuel efficient

car may be more likely to drive further than owners of less efficient vehicles. Instead

of realizing the cost savings at the gasoline pump, the owner may realize the savings

as increased pleasure driving or by choosing to live in a community that requires a

longer commute. In this case, the direct rebound effect is unlikely to completely erase

the energy savings, since driving consumes time as well as fuel. For example,

consider a person who trades-in a sports utility vehicle for a hybrid gasoline-electric

car. This person is unlikely to choose to live four or five times further away from

work because of time constraints. A similar argument can be made for the

consumer’s pleasure driving.

In general, direct rebound effects are limited since a person will only leave a light

on for so long, increase the thermostat setting so high, or drive so far. Factors other

than cost often dictate energy use by individuals.

Indirect Effects

A consumer who saved money as a result of increased energy efficiency of one

device may choose to buy other consumer goods which use the same energy resource.

For example, a person with a more efficient air conditioner could spend the money

saved on a hair dryer or some electronic equipment.

CRS-5

As is the case with direct effects, indirect effects could theoretically erase all the

projected energy savings but are unlikely to cause an overshoot; i.e. an increase in

efficiency is unlikely to cause an increase in energy demand through direct or indirect

rebounds. For example, a person who was sufficiently constrained by his energy

budget to limit the use of the less efficient device is likely to use the new devices only

up to the same budget constraints.

Market or Dynamic Effects

Direct and indirect effects result from a change in behavior of the consumer. In

contrast, market or dynamic effects arise from a change in the behavior of the market.

For example, an improvement in the energy efficiency of a device could be large

enough to significantly decrease the demand for a resource, leading to a lower market

price, making new uses for that resource economically viable.

An example of this type of effect was the first example of rebound observed by

Jevons in the British coal trade 1800s.7 The introduction of a more efficient coalfired water pumping engine made coal mining much more productive. Coal mines

were now burning much less coal themselves to produce coal. This greatly decreased

the price of coal, which allowed more people to use coal to heat their homes, which

in turn greatly increased the demand for coal. In many ways this may be parallel to

the recent large increase in the efficiency of combustion turbines that some believe

has been a principal reason for the growth in demand for natural gas for electricity

generation.

Theory Versus Practice

Under certain circumstances, the rebound effect could actually turn an increase

in efficiency into an increase in consumption. However, this has only happened in

very special cases such as in some developing countries or in new markets such as the

coal market of the mid-1800s. In mature markets, it is generally accepted that

although real, the rebound effect is limited.8 One recent survey of seventy-five

empirical studies found the size of the rebound effect for typical electric end-use

equipment to be between 0% and 40%.9 That is, the actual decrease in energy use can

range from 60% to 100% of the projected amount (see Table 1).

Most studies generally are not designed to include the market or dynamic effects

because they are very difficult to measure. There have been few attempts to measure

these market effects, leaving their magnitude open for debate among analysts. For

example, Leonard Brookes argues that this type of rebound is very large and has

7

See Jevons, 1905 or for a summary using modern economic language see L. Brookes Energy

efficiency fallacies revisited. Energy Policy. June 2000. Vol 28. No. 6-7. p. 359.

8

L. Schipper. On the rebound: the interaction of energy efficiency, energy use and economic

activity. An introduction. Energy Policy. June 2000. Vol 28. No. 6-7. pp. 351-353.

9

Ibid. p. 353 and L. Greening D. Greene and C. Difiglio, Energy efficiency and consumption

– the rebound effect – a survey. Energy Policy. June 2000. Vol 28. No. 6-7. p. 398.

CRS-6

permitted the population growth and ever-increasing energy demands that have

occurred since the early 19th century.10 Others strongly disagree, suggesting exactly

the opposite, that the increasing population and higher living standards drive the

increase in energy demand. Furthermore, they argue, without the past efficiency

improvements, demand would much greater (see “projected” in Figure 1).11

Table 1. Measured Rebound Effects of Various Devices

End-Use Device Category

Size of Rebound a

Space Heating

10 - 30%

Space Cooling

0 - 50%

Water Heating

10 - 40%

Residential Lighting

5 - 12%

Home Appliances

0%

Automobiles

10 - 30%

Source: Adapted from L. Greening et al., Energy efficiency and consumption – the rebound effect

– a survey. Energy Policy. June 2000. Vol 28. No. 6-7. p. 398.

a

These studies generally excluded market rebound effects.

The few attempts to project market effects suggest that in the domestic

marketplace even large increases in the efficiency of the entire economy would

produce only a small to moderate rebound.12 For example, one of the higher estimates

was found by the U. S. Department of Energy (DOE). The DOE model predicted

that a 6.7% increase in the overall energy efficiency of the U.S. domestic economy

between 1995 and 2015 would produce a 5.5% decrease in demand; i.e. a market

rebound about 18%.13 It is interesting to note that in this model, the increase in

efficiency would also produce an increase in GDP of about one-half percent by 2015.

Factors Affecting Amount of Rebound

10

L. Brookes, p. 359

11

L. Schipper and M. Grubb, On the rebound? Feedback between energy intensities and

energy uses in IEA countries. Energy Policy. June 2000. Vol 28. No. 6-7. pp. 367-399.

12

13

L. Greening et al., p. 398.

A. Kydes, Sensitivity of energy intensity in U.S. energy markets to technological change

and adoption. Issues in Midterm Analysis and Forecasting. DOE/EIA 060797. U.S. Dept of

Energy, Washington DC. pp. 1-42.

CRS-7

As evident from Table 1, not only does the size or presence of a rebound depend

on the broad end-use category but there can be a large variation within categories as

well. This reflects the large number of factors that can contribute to the presence and

size of a rebound.14

The principal factor in determining the presence and size of a direct rebound is

the existence of unmet demand. The larger the degree of unmet demand, the more

likely there is to be direct rebound effect. For example, there is more likely to be a

rebound effect when increasing furnace efficiency in poorly insulated homes in cold

climates than in well insulated homes in mild climates.15 In the absence of unmet

demand, the direct rebound effect may be zero, although indirect and dynamic

rebounds may exist.

Cost of operation of the device may play an important role in determining if there

is unmet demand. If the energy cost of operating a particular device plays a negligible

role in determining the consumer’s utility bill, there may be little or no rebound effect.

For example, if a new toaster uses half the energy of the old one, the consumer might

be unlikely to make more toast than previously, since it is unlikely that the cost of

operating the toaster was restraining its use. In contrast, in climates in which the

heating bill contributes a large portion of a consumer’s energy budget, cost may be

restricting use. In this case, a large increase in efficiency may result in the consumer

using some of the savings to increase comfort.

A related factor is the contribution of energy costs to the total cost of operation

of the device. For example, the cost of operating a furnace is largely determined by

the cost of energy, whereas, in the toaster example, the cost of operation also relies

to a large degree on the cost of bread. Therefore, even if there was an unmet demand

for toast, the rebound may be smaller for a more efficient toaster than for a similarly

improved furnace.

In a slightly different manner than with direct rebounds, unmet demand also plays

a role in determining the presence and size of indirect and market rebounds. For

example, a consumer may not have any unmet demand for furnace use, but the

reduction of the consumer’s energy budget allows the use of other energy-using

devices to meet an unmet demand elsewhere in their energy budget. This would

produce an indirect rebound effect. A market effect could be produced if the

consumer used the savings to purchase other devices to satisfy previously

unrecognized demands. For example, the savings on energy may allow a family to

purchase a VCR or computer which had not been considered under their previous

budget constraints. On the other hand, it may allow a family to replace another old

energy consuming product with a more efficient one.

Because of the importance of unmet demand in determining the presence and

size of a rebound, large rebounds are more likely to occur under conditions where

14

15

L. Greening et al., pp. 389-401.

G. Milne and B. Boardman, Making cold homes warmer: the effect of energy efficiency

improvements in low-income homes. Energy Policy. June 2000. Vol 28. No. 6-7. pp.411424.

CRS-8

large degrees of unmet demand exists, such as in low-income countries and among

low-income consumers in wealthy countries.16 To use the example of home heating

in a cold climate, energy costs are more likely to restrain heater use by low-income

families than by more wealthy families. This would likely lead to a larger rebound in

the low-income family since they have a larger unmet demand than the wealthy family.

Other factors that can play a role in the presence or size of a rebound include the

state of the economy and state of the energy market. Market or dynamic effects are

more likely to occur in developing economies since they will tend to have high levels

of unmet demand. As seen in the coal market in the 1800s, in emerging energy

markets, small efficiency increases in either production or distribution can lead to

decreases in price that may lead to large increases in market penetration and demand.

Examples of Rebound

Space heating. Because the majority of residential energy used is for space

heating (51% in the U.S. in 1997)17, many studies have looked for the rebound effect

in this sector. These studies vary in which device was examined (e.g. better insulation

or more efficient heaters) as well as geographic location. The studies generally found

that the amount of the rebound effect depended on the unmet demand for heating

before the improvements were made. This section describes the findings of two

representative peer-reviewed studies that found evidence of a rebound.

In Great Britain, a study examining the results of sixteen energy conservation

programs between 1971 and 1992 found that the amount of the rebound was directly

related to the average temperature inside the home before the improvements.18 These

improvements typically doubled the heating efficiency of the house through various

means such as draft proofing and adding attic or wall insulation. The authors found

that in homes with an initial average temperature of 57º F, not uncommon in lowincome families, there was a rebound effect as high as 50%. On the other hand in

higher income homes with initial temperature of 68º F there was no rebound effect.

They found that although some low-income consumers increased the setting on the

thermostat, many did not change the thermostat but chose to heat additional rooms

of their houses.

In a much broader analysis of the space heating sectors in many different

countries, another study showed that although home heating efficiency greatly

improved between the early 1970s and the mid 1990s, energy demand for home

16

L. Schipper, On the rebound: the interaction of energy efficiency, energy use and

economic activity. An introduction. Energy Policy. June 2000. Vol 28. No. 6-7. p. 353.

17

Energy Information Administration, A look at residential energy consumption in 1997.

DOE/EIA-0632. U.S. Dept. of Energy, Washington DC, p. 9.

18

G. Milne and B. Boardman, Making cold homes warmer: the effect of energy efficiency

improvements in low-income homes. Energy Policy. June 2000. Vol 28. No. 6-7. pp. 411424.

CRS-9

heating outpaced GDP growth in Great Britain and Japan.19 In contrast, in most other

countries examined, including the United States, the demand for home heating energy

decreased in relation to GDP growth, suggesting little or no sector-wide rebound.

The authors attribute the differences to the very high degree of unmet heating demand

in both Great Britain and Japan in the early 1970s.

Many other studies find similar results, with some noting other factors in the

presence and size of rebound including household income, geographic location, type

of improvement (e.g. better insulation or better heaters), and the presence of elderly

or children in the home.

Automobile fuel efficiency. In recent years there has been much debate

concerning calls to increase the Corporate Average Fuel Economy (CAFE) standards

for motor vehicles.20 Most of the economic studies have found that a 10% to 30%

rebound followed a 10% increase in fuel efficiency.21 In other words, instead of fuel

consumption dropping 10% following a 10% improvement in fuel efficiency,

consumption only dropped by 7% to 9% because of the rebound effect. One of the

most thorough studies recently made use of the massive amount of information on

domestic car use compiled by the U.S. Department of Energy and the U.S. Energy

Information Administration.22 The study found that the long-term direct rebound

associated with increasing domestic fuel efficiency is likely 20%. This figure, based

on the assumption that the improvements came at a cost to the consumer, could rise

to 30% if there was no added cost.

Lighting in rural India – an example of overshoot. As discussed above,

in theory it is possible for an increase in efficiency to produce an increase in the

demand for an energy resource. However, in practice this has been very rare.

One example is found in a recent examination of a pilot program in nonelectrified rural Indian villages that provided solar powered lanterns to homes to use

instead of their kerosene lamps.23 One of the main aims of the program was to reduce

the use of kerosene to near zero except during the seasons when there was insufficient

sunshine to charge the solar lanterns.

The researchers found that because of the much brighter light generated by the

new lamps, the families increased the number of hours lighting was used by two to

19

L. Schipper and M. Grubb, p. 371.

20

For review of this issue please see CRS Issue Brief IB90122: Automobile and Light Truck

Fuel Economy: Is CAFE Up to Standards? by Robert Bamburger.

21

L. Greening et al., p. 398.

22

D. Greene, J. Kahn and R. Gibson, An econometric analysis of the elasticity of vehicle

travel with respect to fuel cost per mile using RTEC survey data. Oak Ridge National Lab

ORNL-6950. March 1999. U.S. Dept of Energy. Washington DC. This complex economic

model included independent variables for fuel efficiency (milage) and fuel cost, so that it could

distinguish the effect changes to either had on vehicle miles traveled.

23

J. Roy, The rebound effect: some empirical evidence from India. Energy Policy. June

2000. Vol 28. No. 6-7. pp. 433-438.

CRS-10

three times. The families became accustomed to brighter light for longer periods of

time, which caused an increase in demand for kerosene during the seasons when the

solar lanterns could not fully meet the new lighting demand. Furthermore, the

reduction of the cost of lighting allowed many families to switch from traditional,

labor intensive cooking fuels (e.g. firewood and animal dung) to kerosene. These

changes in lifestyle eventually produced, in some villages, a doubling of the demand

for kerosene.

This example emphasizes the role of unmet demand in determining a rebound as

well as the special circumstances required for an increase in efficiency to produce an

increase in demand.

Effects on Policy

Energy Efficiency as a Means of Reducing Demand

As noted above, there has been much debate on the role that governmentsupported increases in energy efficiency – through incentives and/or mandates –

should play in the development of national energy policy. Although some analysts

have argued that rebounds will erase most or all of the decreases in demand created

by such increases in efficiency, as seen above, the best empirical information now

available suggests that in the domestic electricity and gasoline markets, increases in

efficiency will decrease demand.

Because many factors determine whether there is a significant rebound, it may

be impossible to predict its presence or size, a priori. However, previous studies

suggest that some consumer end-uses are more likely to have a rebound and provide

some indication of its potential size. For example, as seen in Table 1, increasing the

energy efficiency of home appliances (“white goods”) is likely to have a smaller

rebound than increasing the efficiency of space heating.

In objectively evaluating the impact of a proposed increase in energy efficiency,

it may be helpful for policymakers to know if the proponents of efficiency programs

have included potential rebound effects in their projections. Similarly, policymakers

may find it helpful to evaluate the claims of large rebounds predicted by opponents

of programs to increase efficiency.

If previous studies have suggested that a significant rebound is likely to occur

under a particular program, policymakers may find it desirable to account for its

presence. For instance, some may consider it desirable to increase appliance

efficiency or fuel economy standards even further than originally suggested to

compensate for the predicted rebound effect. On the other hand, some policymakers

may feel that the likely energy savings have been reduced to a point that makes the

proposed program no longer cost effective. Another choice could be to keep the

same program but slightly lower expectations of the projected energy savings.

CRS-11

If a rebound is projected, this may complicate interpretation of legislation written

with specific savings goals. For example, the language of H. R. 4 instructs the

Secretary of Transportation to establish

“... average fuel economy standards for automobiles (except passenger

automobiles) manufactured in model years 2004 through 2010 that are calculated

to ensure that the aggregate amount of gasoline projected to be used in those model

years by automobiles to which the standards apply is at least 5 billion gallons less

than the aggregate amount of gasoline that would be used in those model years by

such automobiles [under the 2002 standards]....”

Because previous studies strongly suggest that there will be a rebound between 10%

and 30%, some policymakers might find it useful to explicitly instruct the Secretary

of Transportation to take the likely rebound effect into account when calculating the

average fuel economy required to save the five billion gallons of gasoline.

It is important to remember that losses in energy savings due to the rebound

effect are generally associated with gains in quality of life of the consumer. That is,

the owner of a more efficient heater can choose to live in a warmer house or spend

the energy cost savings on some other consumer good. This observation leads some

to argue that the ultimate goal should be increasing overall economic efficiency rather

than just focusing on increasing energy efficiency.24

Energy Efficiency as a Means of Reducing Greenhouse Gas

Emissions

The rebound effect can increase the difficulty of projecting the reduction in

greenhouse emissions from an improvement in energy efficiency. For example, a

consumer who saves money on his heating bill may spend it on another carbonintensive activity. Alternatively, the money could be spent on a less carbon-intensive

activity.

Both the believers in very large rebounds and their critics agree that increases in

efficiency are unlikely to be enough to meet calls for large reductions in greenhouse

gas production, but for different reasons. Believers in large rebounds predict that

since increases in efficiency will increase consumption, they will also lead to increases

in greenhouse gas emissions.25 Those who believe in small rebounds agree with the

majority of studies that suggest that increases in energy efficiency have a large

potential to reduce greenhouse gas emissions,26 but in the absence of additional

24

L. Brookes, p. 362.

25

L. Brookes, pp. 359-365.

26

For a thorough discussion of the role for energy efficiency in reducing greenhouse gas

emissions see CRS Issue Brief IB10020, Energy Efficiency: Budget, Oil Conservation, and

Electricity Conservation Issues and CRS Report RL30414, Global Climate Change: the Role

for Energy Efficiency by (name redacted).

CRS-12

measures efficiency improvements may be insufficient to reach Kyoto Protocol goals,

especially in the face of relatively cheap energy and economic growth.27

Both groups agree that increases in efficiency will decrease greenhouse gas

emissions per unit of GDP. However, there is disagreement over whether the

government should support efficiency programs as a major strategy for reducing

emissions.28 Believers in large rebounds argue that since increases in efficiency are

likely to increase the output of greenhouse gases, government efforts in this area are

misdirected.29 On the other hand, believers in small rebounds argue that since

governments tend to support the growth in GDP, it is only reasonable that they also

support efforts to minimize the concomitant increase in greenhouse gas emissions.30

They also point to the many studies that credit government-supported efficiency

programs with decreases in energy demand. For example, at least 25% of the energy

saved by more efficient appliances is attributed to increased government-mandated

standards.31 Similarly, the Green Lights program, an EPA sponsored voluntary

participation program, is credited with forestalling the production of 5 billion pounds

of carbon dioxide emissions and 17 million pounds of nitrogen oxide emissions

between 1991 and 1996.32

27

L. Schipper, p. 351, L. Greening et al., p. 399, C. Sanne, Dealing with environmental

savings in a dynamical economy – how to stop chasing your tail in the pursuit of

sustainability. Energy Policy. June 2000. Vol 28. No. 6-7. pp. 487-495.

28

L. Schipper, p. 351, L. Brookes, p. 359, C. Sanne, pp. 487-495.

29

L. Brookes, p. 359.

30

L. Schipper, p. 351, C. Sanne, 487-495.

31

L. Schipper et al., Energy Efficiency and Human Activity: Past Trends, Future Prospects.

Cambridge University Press. Cambridge, England. 1992. p. 214.

32

R. Howarth et al., The economics of energy efficiency: insights from voluntary

participation programs. Energy Policy. June 2000. Vol 28. No. 6-7. p. 479.

CRS-13

For Additional Reading

Energy Policy, On the Rebound: The Interaction of Energy Efficiency, Energy Use

and Economic Activity. June 2000. Vol 28. No. 6-7. pp.351-500, L. Schipper,

ed.

U. S. Dept. of Energy, An Econometric Analysis of the Elasticity of Vehicle Travel

with Respect to Fuel Cost Per Mile Using RTEC Survey Data. Oak Ridge

National Lab, ORNL-6950. March 1999. U.S. Dept of Energy. Washington DC.

CRS Report RL30414, Global Climate Change: The Role for Energy Efficiency, by

(name redacted).

CRS Issue Brief IB10020, Energy Efficiency: Budget, Oil Conservation, and

Electricity Conservation Issues, by (name redacted).

CRS Report RL31049, Energy in 2001: Crisis Again? by Carl Behrens.

CRS Issue Brief IB90122, Automobile and Light Truck Fuel Economy: Is CAFE Up

to Standards? by (name redacted).

EveryCRSReport.com

The Congressional Research Service (CRS) is a federal legislative branch agency, housed inside the

Library of Congress, charged with providing the United States Congress non-partisan advice on

issues that may come before Congress.

EveryCRSReport.com republishes CRS reports that are available to all Congressional staff. The

reports are not classified, and Members of Congress routinely make individual reports available to

the public.

Prior to our republication, we redacted names, phone numbers and email addresses of analysts

who produced the reports. We also added this page to the report. We have not intentionally made

any other changes to any report published on EveryCRSReport.com.

CRS reports, as a work of the United States government, are not subject to copyright protection in

the United States. Any CRS report may be reproduced and distributed in its entirety without

permission from CRS. However, as a CRS report may include copyrighted images or material from a

third party, you may need to obtain permission of the copyright holder if you wish to copy or

otherwise use copyrighted material.

Information in a CRS report should not be relied upon for purposes other than public

understanding of information that has been provided by CRS to members of Congress in

connection with CRS' institutional role.

EveryCRSReport.com is not a government website and is not affiliated with CRS. We do not claim

copyright on any CRS report we have republished.