Buy a more fuel-efficient car, drive more.
Abstract:
What do we know about the size of the “rebound effect,” the well-known phenomenon that improving energy efficiency may save less energy than expected due to a rebound of energy use? Is there any validity to the claims that energy efficiency improvements can actually lead to an increase in energy use (known as “backfire”)? This article clarifies what the rebound effect is, and provides a guide for economists and policymakers interested in its existence and magnitude. We discuss how some studies in the literature consider a rebound effect that results from a costless exogenous increase in energy efficiency, while others examine the effects of a specific energy efficiency policy—a distinction that leads to very different welfare and policy implications. We present the most reliable evidence available about the size of the energy efficiency rebound effect, and discuss situations where such estimation is extraordinarily difficult. With this in mind, we present a new way of thinking about the macroeconomic rebound effect. We conclude that overall, the existing research provides little support for the so-called backfire hypothesis. However, our understanding of the macroeconomic rebound effect remains limited, particularly as it relates to induced innovation and productivity growth.
Citation:
Gillingham, Kenneth, David S. Rapson, and Gernot Wagner. “The Rebound Effect and Energy Efficiency Policy.” Review of Environmental Economics and Policy 10 (1): 68-88 (Winter 2016). (Supplemental materials.)
Full text of working paper: “The Rebound Effect and Energy Efficiency Policy” (updated November 2, 2015).
Further reading:
For a brief summary of the main points, see: “Is energy efficiency a good thing even with rebound?“, published in full as part of a broader post on “Is There Room for Agreement on the Merits and Limits of Efficient Lighting” by Andrew Revkin on the DotEarth blog of The New York Times, and followed by “Another round on energy rebound.” For a shorter take, see our letter to the editor of The New York Times. Also see this Comment in Nature arguing that “The Rebound Effect is Overplayed.” For the latest entry into this never-ending debate, see: “LEDs meet the locavore.”