Rebound effects
Efficiency increase oftentimes reduces product or service costs, which can in turn ramp up consumption (due to reduced prices), thus partly canceling out the original savings. This is known as the rebound effect.
What is the rebound effect?
Sustainable resource use necessitates efficient use of energy, raw materials and water. Increased efficiency allows products to be manufactured and services to be performed using fewer resources, and often at a lower cost. This in turn influences purchasing behaviour and product use.
For example, if car prices drop due to efficiency increase, car purchasers are more likely to opt for a larger model the next time they buy a car. A car that’s less of a gas guzzler engenders lower per-mile fuel costs, and this usually influences driving behaviour: people tend to use their car more often, drive longer distances, and use mass transit or bicycles less than would otherwise be the case. Hence technically feasible efficiency optimization is often not achieved by virtue of the products in question being used more frequently or more intensively.
Apart from this direct rebound effect (direct changes in product use), other environmentally relevant changes in consumer demand can also occur. For example, the fuel costs saved by car owners might be used instead for air travel (indirect rebound), thus partly negating the energy savings.
How large is the rebound effect?
The results of statistical rebound effect projections hinge on the methods used and the effects factored into the calculations. It is particularly difficult to differentiate rebound effects versus effects attributable to economic growth or those occasioned by structural change. Hence such projections vary widely from one study to another. The nature of the products or services being used is also a significant factor. Hence activities such as daily commuting for which time is a limiting factor are subject to a weaker cost rebound effect than are activities that are less time dependent such as flying to Hawaii for vacation. Market saturation also plays an important role, as is evidenced by the fact that rebound effects are far smaller in affluent countries than in developing countries, where pent-up consumer demand tends to be greater.
The direct rebound effect for space-heating use can be anywhere from 10 to 30 percent, while the rebound effect occasioned by greater vehicle fuel efficiency is only around 20 percent. Time is also a far more limiting factor than cost. A certain saturation effect has been observed for lighting, for which the rebound effect ranges up to 20 percent. In other words, the actual energy savings for the aforesaid elements may be up to 25 percent lower than the projected technically feasible savings. However, the scope of any given rebound effect hinges on specific conditions and can be reduced through the use of suitable instruments (see below).
If indirect rebound effects are factored in, it is probable that an even larger portion of efficiency gains would be negated. In some cases, the savings effect may even backfire – although this happens only rarely and is associated with the impact of growth and structural change and hence cannot be regarded as a genuine rebound effect.
Rebound effects and environmental policy
Efficiency optimization is a key strategic instrument for reducing resource use. Thus improved energy efficiency, along with expanded use of renewable energy, is one of the lynchpins of the German government’s Energiewende program, which involves transitioning the German economy from non-sustainable to sustainable energy resources. In mapping out this social and economic sea change, policymakers need to bear in mind that the rebound effect undermines resource use reductions. If policymakers fail to take such rebound effects into consideration, the target resource use reductions may fall short of expectations, and environmental and resource objectives will not be met.
Hence resource policy instruments should specifically address the ramifications of such rebound effects. This can be done, for example, by setting product energy efficiency standards high enough so that the target energy use reductions will be achieved despite rebound effects. Such effects can also be nipped in the bud if cost reductions attributable to efficiency optimization are neutralized through environmental taxes or by setting absolute upper limits through instruments such as fishing quotas for example. Such limits could also be set for emissions (as with EU emissions trading), with the goal of mitigating the rebound effect.
