The Rebound Effect: the Rebound Effect
S4134_cover 12/10/07 13:57 Page 1 The Rebound Effect: The Rebound Effect:
an assessment of the evidence for economy-wide nassmn fteeiec o cnm-ieeeg aig rmipoe nryefcec UK Energy Research Cen an assessment of the evidence for economy-wide energy savings from improved efficiency energy savings from improved energy efficiency
October 2007
UK ENERGY RESEARCH CENTRE
58 Prince’s Gate Exhibition Road London SW7 2PG tel: +44 (0)20 7594 1574 email: [email protected] www.ukerc.ac.uk
UK ENERGY RESEARCH CENTRE tre S4134_cover 12/10/07 13:57 Page 2
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency
A report produced by the Sussex Energy Group for the Technology and Policy Assessment function of the UK Energy Research Centre
Steve Sorrell
October 2007
ISBN 1-903144-0-35 S4134 12/10/07 13:56 Page i
Preface
This report has been produced by the UK Energy Research Centre’s Technology and Policy Assessment (TPA) function.
The TPA was set up to address key controversies in the energy field through comprehensive assessments of the current state of knowledge. It aims to provide authoritative reports that set high standards for rigour and transparency, while explaining results in a way that is both accessible to non-technical readers and useful to policymakers.
This report summarises the main conclusions from the TPA’s assessment of evidence for a rebound effect from improved energy efficiency. The subject of this assessment was chosen after extensive consultation with energy sector stakeholders and upon the recommendation of the TPA Advisory Group, which is comprised of independent experts from government, academia and the private sector. The assessment addresses the following question:
What is the evidence that improvements in energy efficiency will lead to economy-wide reductions in energy consumption?
The Summary Report seeks to present the main conclusions of this assessment in a relatively non-technical manner. The results of the full assessment are contained in five in-depth Technical Reports, as follows:
1. Evidence from evaluation studies
2. Evidence from econometric studies
3. Evidence from elasticity of substitution studies
4. Evidence from CGE modeling studies
5. Evidence from energy, productivity and economic growth studies
A shorter Supplementary Note provides a graphical analysis of rebound effects. All these reports are available to download from the UKERC website at: www.ukerc.ac.uk
The assessment was led by the Sussex Energy Group (SEG) at the University of Sussex,
with contributions from the Surrey Energy Economics Centre (SEEC) at the University of energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: Surrey, the Department of Economics at the University of Strathclyde and Imperial College. The assessment was overseen by a panel of experts and is extremely wide ranging, reviewing more than 500 studies and reports from around the world.
i S4134
12/10/07 ii The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency
13:56
Page
ii S4134 12/10/07 13:56 Page iii
About UKERC
The UK Energy Research Centre’s mission is to be the UK’s pre-eminent centre of research and source of authoritative information and leadership on sustainable energy systems. It undertakes world-class research addressing the whole-systems aspects of energy supply and use while developing and maintaining the means to enable cohesive research in energy. UKERC is funded by the UK Research Councils.
Acknowledgements This report has been written by Steve Sorrell (Sussex Energy Group, University of Sussex), but it is based upon the work of the full Project Team, which also includes: John Dimitropoulos (Sussex Energy Group); Lester Hunt and David Broadstock (Surrey Energy Economics Centre, University of Surrey); Grant Allan, Michelle Gilmartin, Peter McGregor, Kim Swales and Karen Turner (Fraser of Allander Institute and Department of Economics, University of Strathclyde); and Matt Sommerville and Dennis Anderson (ICEPT, Imperial College).
John Dimitropoulos played a central role throughout the project, making an invaluable contribution to all aspects of the research. Dennis Anderson provided two insightful papers that greatly improved our understanding of the economy-wide rebound effect. The remaining members of the Project Team co-authored one of the five Technical Reports that provide the foundation for this report (see Annex 2). While aspects of all their work have been incorporated into this report, individual members of the Project Team are not responsible for its contents.
We have benefited enormously during this project from our interactions with Harry Saunders (Decision Processes Inc). We are also grateful for the insightful comments received from our three peer reviewers, namely Manuel Frondel (ZEW), Karsten Neuhoff (University of Cambridge) and Jake Chapman. Valuable comments have also been received from Nick Eyre (Energy Savings Trust), Terry Barker (4CMR), Serban Scrieciu (4CMR), Blake Alcott, Len Brookes, John Feather and Gordon Mackerron, as well as from participants at the 29th IAEE International Conference (2006).
We are extremely grateful for the guidance, comments, patience and moral support offered by Jim Skea (UKERC Research Director), Rob Gross (Head of UKERC TPA function), Dennis Anderson (Senior Advisor, UKERC TPA) and Phil Heptonstall (UKERC TPA). Thanks also to Phil for copy editing.
Useful comments and advice have also been received from our Advisory Group, namely: Jim Skea (UKERC); Horace Herring (Open University); Hunter Danskin (DEFRA); Tina Dallman energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: (DEFRA); Ken Double (Energy Saving Trust); Lester Hunt (Surrey Energy Economics Centre); and Paolo Agnolucci (Policy Studies Institute).
This project has tried to summarise the work of hundreds of economists and analysts, many of whom understand these issues much better than ourselves. A particular debt is owed to Lorna Greening and David Greene for their previous synthesis of empirical work in this area (Greening and Greene, 1998).
The above individuals represent a range of views about the size of the economy-wide rebound effect and none of them are responsible for the content of this report. iii S4134
12/10/07 iv The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency
13:56
Page
iv S4134 12/10/07 13:56 Page v
Executive Summary
Most governments are seeking ways to improve energy efficiency in pursuit of their energy policy goals. The potential ‘energy savings’ from improved energy efficiency are commonly estimated using basic physical principles and engineering models. However, the energy savings that are realised in practice generally fall short of these engineering estimates. One explanation is that improvements in energy efficiency encourage greater use of the services (for example heat or mobility) which energy helps to provide. Behavioural responses such as these have come to be known as the energy efficiency “rebound effect”. While rebound effects vary widely in size, in some cases they may be sufficiently large to lead to an overall increase in energy consumption - an outcome that has been termed ‘backfire’. There is some evidence to suggest that improvements in the energy efficiency of certain ‘pervasive’ technologies such as steam engines and electric motors have contributed to backfire in the past.
Rebound effects are very difficult to quantify, and their size and importance under different circumstances is hotly disputed. Also, rebound effects operate through a variety of different mechanisms and lack of clarity about these has led to persistent confusion. In general, rebound effects have been neglected when assessing the potential impact of energy efficiency policies. A key conclusion of this report is that rebound effects are of sufficient importance to merit explicit treatment. Failure to take account of rebound effects could contribute to shortfalls in the achievement of energy and climate policy goals.
This report analyses the nature, operation and importance of rebound effects and provides a comprehensive review of the available evidence on this topic, together with closely related issues, such as the link between energy consumption and economic growth. It assesses the strengths and weaknesses of the evidence base, clarifies the underlying disputes and highlights the implications for energy and climate policy. The key message is that promoting energy efficiency remains an effective way of reducing energy consumption and carbon emissions. But more explicit treatment of rebound effects is needed to assess the contribution that energy efficiency can realistically make.
Defining the rebound effect
• Many energy efficiency improvements do not reduce energy consumption by the amount predicted by simple engineering models. Such improvements make energy services cheaper, so consumption of those services increases. For example, since fuel- efficient vehicles make travel cheaper, consumers may choose to drive further and/or energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: more often, thereby offsetting some of the energy savings achieved. Similarly, if a factory uses energy more efficiently it becomes more profitable encouraging further investment and greater levels of output. This is termed the direct rebound effect.
• Even if consumption of energy services remains unchanged, there are reasons why energy savings across the economy may be less than simple calculations suggest. For example, drivers of fuel-efficient cars may spend the money saved buying petrol on other energy-intensive goods and services, such as an overseas flight. Similarly, any
v S4134 12/10/07 13:56 Page vi
reductions in energy demand will translate into lower energy prices which encourage increased energy consumption. These mechanisms are collectively known as indirect rebound effects. The sum of direct and indirect rebound effects represents the economy-wide rebound effect. Rebound effects are normally expressed as a percentage of the expected energy savings from an energy efficiency improvement, so a rebound effect of 20% means that only 80% of the expected energy savings are achieved.
• Disputes over the magnitude of rebound effects arise in part from lack of clarity about definitions. Energy efficiency can be measured in a variety of ways, for example using physical indicators (tonnes of coal per tonne of steel) or economic ones (energy per unit of output measured in £). Energy efficiency can also be measured at different levels, for example for an individual manufacturing process, a factory, a company, a sector or even the economy as a whole. Estimates of the rebound effect therefore depend upon the indicators chosen and the level of analysis.
• Improvements in energy efficiency are often associated with improvements in the productivity of capital, labour and materials. More efficient use of these other inputs will tend to amplify the rebound effect.
Estimating the rebound effect
• The available evidence for all types of rebound effect is far from comprehensive. The evidence is better for direct effects than for indirect effects, but even this focuses on a small number of consumer energy services, such as home heating and personal transportation, within developed countries. Both direct and indirect effects appear to vary widely between different technologies, sectors and income groups and in most cases they cannot be quantified with much confidence. However the evidence does not suggest that improvements in energy efficiency routinely lead to economy-wide increases in energy consumption. At the same time the evidence suggests that economy-wide rebound effects will be at least 10% and often higher. Rebound effects therefore need to be factored into policy assessments.
• For household heating, household cooling and personal automotive transport in developed countries, the direct rebound effect is likely to be less than 30% and may
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: be closer to 10% for transport. Direct rebound effects for these energy services are likely to decline in the future as demand saturates. Improvements in energy efficiency should therefore achieve 70% or more of the reduction in energy consumption projected using engineering principles. However, indirect effects mean that the economy-wide reduction in energy consumption will be less.
• Direct rebound effects are likely to be smaller where energy forms a relatively small proportion of total costs and has little influence on operating decisions. The use of electricity in electronic appliances is a good example. However, these effects have only
vi S4134
12/10/07 • • • • Rebound orbackfire?
which capital,labourormaterialsisused. account theamplifyingeffectofany associatedimprovements intheefficiencywith expected energysavings willbeachieved). Moreover, theseestimatesdonot take into economy-wide reboundeffectsmay frequentlyexceed 50%(i.e.lessthanhalfofthe confidence canbeplacedintheavailable estimates,several studiessuggestthat upon thesectorwhereenergyefficiencyimprovement takes place.Whilelittle results demonstrate thattheeconomy-wide reboundeffectvaries widelydepending effects, buttherearefewpublishedstudiesandthesehave anumberofflaws.The Energy-economic modelscanbeusedtoestimateindirectandeconomy-wide rebound may exceed unity. by thelimitedempiricalevidenceavailable. Insomecases,thedirectreboundeffect countries wheredemandforenergyservicesisfarfromsaturated. Thisissupported developing countries.Rebound effectsmay beexpectedtolargerindeveloping There arevery fewstudiesofreboundeffectsfromenergyefficiencyimprovements in household income. uncertainties, forexampleaboutthelinkbetweendirectreboundeffectsand been studiedover relatively limitedtimeperiods.Therearealsosomeimportant historically increasedenergy intensity;c)energymay play amoreimportantrolein substituting otherinputs forenergyisrelatively limited; b)muchtechnicalchangehas together, the evidencereviewedinthisreportsuggests that:a)thescopefor between energyconsumptionandeconomic growthappearsfarstronger. Taken sources areweightedbytheirrelative ‘quality’oreconomicproductivity, thecoupling ‘decouple’ energyconsumptionfromeconomic growth.However oncedifferentenergy change hasimproved theefficiencywithwhichenergy isusedandtherebyhelpedto slowly thantheeconomy asawhole.Fromthis,itisgenerally concludedthattechnical In developed countries,energy useasconventionally measuredhasgrownmore than theyhave received todate. arguments andevidenceusedtodefendthepostulate deserve moreseriousattention K-B ‘hypothesis’ cannotbeconsideredtohave been verified. Nevertheless, the number offlawshave beenfoundwithboththetheoreticalandempiricalevidence, empirical evidenceforthepostulateisindirect,suggestive andambiguous.Sincea such astheassumptionthateconomicresourcesareallocatedefficiently. Similarly, the favour ofthepostulaterelyuponstylisedmodels that have anumberoflimitations, energy andclimatepolicyifitwerecorrect.However, thetheoreticalargumentsin improvements (‘backfire’).Thisprovocative claimwouldhave seriousimplicationsfor economy-wide energyconsumptionabove whatitwouldbewithoutthose change, costeffective energyefficiencyimprovements willinevitablyincrease The so-called‘Khazzoom-Brookes (K-B) postulate’claimsthat,ifenergypricesdonot 13:56
Page
vii vii The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page viii
economic growth than is conventionally assumed; and d) economy-wide rebound effects may be larger than is conventionally assumed.
• If improvements in energy efficiency are associated with improvements in the efficiency with which other inputs such as capital, labour and materials are used, then it is quite possible that energy consumption may increase as the K-B postulate suggests. However, since the link between the efficiency with which energy and other inputs is used depends on individual technologies and circumstances, there is no a priori reason to believe that ‘backfire’ is an inevitable outcome in all cases.
• The debate over the K-B postulate would benefit from clearer distinctions between different types of energy efficiency improvement. For example, the K-B postulate seems more likely to hold for improvements associated with pervasive ‘general- purpose technologies’, particularly when these are adopted by producers rather than final consumers and when the improvements occur at an early stage of development and diffusion. Steam engines provide a good illustration from the 19th-century, while electric motors provide a comparable illustration from the early 20th century. The opportunities offered by these technologies have such significant effects on innovation, productivity and economic growth that economy-wide energy consumption is increased over the long-term. Such technologies are generally taken up enthusiastically by the market and are rarely associated with purposeful public policy.
• In contrast, the K-B postulate seems less likely to hold for dedicated energy efficiency technologies such as thermal insulation, particularly when these are used by consumers or when they play a subsidiary role in economic production. These technologies have smaller effects on productivity and economic growth, with the result that economy-wide energy consumption is likely to be reduced.
Policy implications
1. The potential contribution of energy efficiency policies needs to be reappraised.
• Energy efficiency may be encouraged through policies that raise energy prices, such as carbon taxes, or through non-price policies such as building regulations. Both should continue to play an important role in energy and climate policy. However, many The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: official and independent appraisals of such policies have undoubtedly overstated the contribution of non-price policies to reducing energy consumption and carbon emissions.
• It would be wrong to assume that, in the absence of evidence, rebound effects are so small that they can be disregarded. Under some circumstances (e.g. energy efficient technologies that significantly improve the productivity of energy intensive industries) economy-wide rebound effects may exceed 50% and could potentially increase energy consumption in the long-term. In other circumstances (e.g. energy efficiency
viii S4134
12/10/07 • • Reboundeffectsmaybemitigatedthroughcarbon/energypricing– 3. • • Reboundeffectsshouldbetakenintoaccountwhendevelopingand 2. •
offset muchoftheenergysavings. Apolicymixisrequired. policies toaddressmarket barriersmay beinsufficient,sincereboundeffectscould could have adverse impactsonincomedistributionandcompetitiveness. Similarly, numerous barrierstotheinnovation anddiffusionoflowcarbon technologiesand Carbon/energy pricingmay beinsufficientonitsown, since itwillnotovercome the reduced. emissions fromincreasing.Itneedstoincrease morerapidly ifemissionsaretobe accommodate bothincomegrowthandreboundeffects,simplytoprevent carbon improves. Carbon/energypricingneedstoincreaseover timeatarate sufficientto the costofenergyservicesremainsrelatively constantwhileenergyefficiency Carbon/energy pricingcanreducedirectandindirectreboundeffectsbyensuringthat whether implementedthroughtaxationoranemissionstradingscheme realisation ofwiderbenefitstothemarket sense tofocuspolicyon‘dedicated’energyefficienttechnologies,leaving the these opportunitiesneedtobeclearlyunderstoodandquantified.Itmay make more may beassociated withlargereboundeffects.Hence,theimplicationsofencouraging ‘Win-win’ opportunitiesthatreducecapitalandlabourcostsaswellenergy prices. expected tobelarge,theremay beagreaterneedforpoliciesthatincreaseenergy these estimatestotargetpoliciesmoreeffectively. Wherereboundeffectsare should bescopeforincludingestimatedeffectswithinpolicyappraisals andusing groups. Whilethesedifferencescannotbequantifiedwithmuchconfidence,there Rebound effectsvary widelybetweendifferenttechnologies,sectors andincome targeting energyefficiencypolicy previously assumed. may not,however, reduceenergyconsumptionandcarbonemissionsbyasmuch opportunities shouldincreaserealincomeandcontributetoeconomicgrowth.They market andorganisationalfailurescanbe overcome, theencouragement ofthese effective andwillremainsoeven whenreboundeffectsareallowedfor. Provided efficiency policies.However, many energyefficiencyopportunitiesarehighlycost- Taking reboundeffectsintoaccountwillreducetheapparenteffectiveness ofenergy to besmaller. Butinnocircumstancesaretheylikely tobezero. improvements inconsumerelectronicgoods)economy-wide reboundeffectsarelikely 13:56
Page
ix ix The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page x
Glossary
AEEI Autonomous Energy Efficiency Improvements
AES Allen-Urzwa Elasticity of Substitution
CES Constant Elasticity of Substitution
CGE Computable General Equilibrium
CPE Cross Price Elasticity
DEFRA Department for the Environment, Food and Rural Affairs
EBPP Evidence Based Policy and Practice
GDP Gross Domestic Product
GPT General Purpose Technologies
GWh Gigawatt Hour
IAEE International Association for Energy Economics
IEA International Energy Agency
K-B Khazzoom-Brookes
kW Kilowatt - a measure of power, one thousand W
kWh Kilowatt hours - a measure of energy, one kW of power provided for one hour
MES Morishima Elasticity of Substitution
MRTS Marginal Rate of Technical Substitution
OECD Organisation for Economic Cooperation and Development
SUV Sport Utility Vehicle
TFP Total Factor Productivity
TPA UKERC Technology and Policy Assessment function
UKERC UK Energy Research Centre The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: ZEW Zentrum für Europäische Wirtschaftsforschung, Mannheim
4CMR Cambridge Centre for Climate Change Mitigation Research
x S4134 12/10/07 13:56 Page xi
Contents
1. Introduction ...... 1 1.1 Context and rationale ...... 1 1.2 How the assessment was conducted ...... 6 1.3 Report structure...... 9 2. What is energy efficiency?...... 11 2.1 Energy efficiency and energy savings...... 11 2.2 Multiple definitions ...... 12 2.3 Unacknowledged implications...... 15 2.4 Summary ...... 17 3. The evidence for direct rebound effects ...... 19 3.1 Understanding the direct rebound effect...... 19 3.2 Estimating direct rebound effects from evaluation studies...... 22 3.3 Estimating direct rebound effects from econometric studies ...... 26 3.4 Direct rebound effects for private automotive transport...... 30 3.5 Direct rebound effects for other consumer energy services ...... 32 3.6 Sources of bias in estimates of the direct rebound effect ...... 37 3.7 Summary ...... 38 4. The evidence for indirect and economy-wide rebound effects ...... 41 4.1 Embodied energy – the limits to substitution ...... 41 4.2 Secondary effects...... 43 4.3 Evidence for limits to substitution...... 45 4.4 Evidence for secondary effects ...... 48 4.5 Evidence for economy-wide effects from general equilibrium models .... 51 4.6 Evidence for economy-wide effects from macro-econometric models.... 57 4.7 Summary ...... 59 5. The evidence for ‘backfire’...... 61 5.1 Historical perspectives ...... 62 5.2 Energy productivity and economic growth...... 64 5.3 Energy productivity and production theory...... 71 5.4 Substitution between energy and capital ...... 73 5.5 Energy productivity and ecological economics ...... 77 5.6 Implications...... 83 5.7 Summary ...... 84
6. Conclusions, research needs and policy implications...... 87 energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: 6.1 Conclusions ...... 87 6.2 Research needs...... 89 6.3 Policy implications ...... 92 References...... 95 Annex 1: Project team, expert group and contributors...... 107 Annex 2: Technical and Supplementary Reports...... 108
xi S4134 xii The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency 12/10/07
13:56
Page
xii S4134 12/10/07 13:56 Page 1
1. Introduction
The UKERC Technology and Policy These rebound effects could have far- Assessment (TPA) function was set up to reaching implications for energy and address key controversies in the energy climate policy, both in the UK and globally. field through comprehensive assessments While cost-effective improvements in of the current state of knowledge. It aims energy efficiency should improve welfare to provide authoritative reports that set and benefit the economy, they could in high standards for rigour and some cases provide an ineffective or even transparency, while explaining results in a a counterproductive means of tackling way that is both accessible to non- climate change. However, it does not technical readers and useful to necessarily follow that all improvements policymakers. This latest report addresses in energy efficiency will increase overall the following question: energy consumption or in particular that the improvements induced by policy What is the evidence that measures will do so. improvements in energy efficiency will lead to economy-wide reductions The nature, operation and importance of in energy consumption? rebound effects are the focus of a long- running dispute within energy economics. On the micro level, the question is 1.1 Context and rationale whether improvements in the technical efficiency of energy use can be expected To achieve reductions in carbon to reduce energy consumption by the emissions, most governments are seeking amount predicted by simple engineering ways to improve energy efficiency calculations. For example, will a 20% throughout the economy. It is generally improvement in the fuel efficiency of assumed that such improvements will passenger cars lead to a corresponding reduce overall energy consumption, at 20% reduction in motor-fuel consumption least compared to a scenario in which for personal automotive travel? Economic such improvements are not made. But a theory suggests that it will not. Since range of mechanisms, commonly grouped energy efficiency improvements reduce under the heading of rebound effects may the marginal cost of energy services such reduce the size of the ‘energy savings’ as travel, the consumption of those achieved. Indeed, there is some evidence services may be expected to increase. For to suggest that the introduction of certain example, since the cost per mile of driving types of energy efficient technology in the is cheaper, consumers may choose to The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: past has contributed to an overall drive further and/or more often. This increase in energy demand – an outcome increased consumption of energy services that has been termed ‘backfire’. This may be expected to offset some of the appears to apply in particular to pervasive predicted reduction in energy new technologies, such as steam engines consumption. in the 19th century, that raise overall This so-called direct rebound effect was economic productivity as well as first brought to the attention of energy improving energy efficiency. economists by Daniel Khazzoom (1980)
1 S4134 12/10/07 13:56 Page 2
and has since been the focus of much a number of forms that are briefly research (Greening, et al., 2000). But outlined in Box 1.1. Both direct and even if the direct rebound effect is zero for indirect rebound effects apply equally to a particular energy service (e.g. even if energy efficiency improvements by consumers choose not to drive any further consumers, such as the purchase of a in their fuel efficient car), there are a more fuel efficient car, and energy number of other reasons why the efficiency improvements by producers, economy-wide reduction in energy such as the use of energy efficient motors consumption may be less than simple in machine tools. calculations suggest. For example, the As shown in Box 1.2, the overall or money saved on motor-fuel consumption economy-wide rebound effect from an may be spent on other goods and services energy efficiency improvement represents that also require energy to provide. These the sum of these direct and indirect so-called indirect rebound effects can take effects. It is normally expressed as a
Box 1.1 Indirect rebound effects
• The equipment used to improve energy efficiency (e.g. thermal insulation) will itself require energy to manufacture and install and this ‘embodied’ energy consumption will offset some of the energy savings achieved.
• Consumers may use the cost savings from energy efficiency improvements to purchase other goods and services which themselves require energy to provide. For example, the cost savings from a more energy efficient central heating system may be put towards an overseas holiday.
• Producers may use the cost savings from energy efficiency improvements to increase output, thereby increasing consumption of capital, labour and materials inputs which themselves require energy to provide. If the energy efficiency improvements are sector wide, they may lead to lower product prices, increased consumption of the relevant products and further increases in energy consumption.
• Cost-effective energy efficiency improvements will increase the overall productivity of the economy, thereby encouraging economic growth. The increased consumption of goods and services may in turn drive up energy consumption.
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: • Large-scale reductions in energy demand may translate into lower energy prices which will encourage energy consumption to increase. The reduction in energy prices will also increase real income, thereby encouraging investment and generating an extra stimulus to aggregate output and energy use.
• Both the energy efficiency improvements and the associated reductions in energy prices will reduce the price of energy intensive goods and services to a greater extent than non-energy intensive goods and services, thereby encouraging consumer demand to shift towards the former.
2 S4134
12/10/07 net savings. savings areentirelyoffset,leadingtozero 100% meansthattheexpectedenergy improvement. Hence,areboundeffectof savings fromanenergyefficiency less thanisconventionally assumed. energy efficiencyimprovements willbe implication isthattheenergy‘saved’ from difficult. Nevertheless, the general particular instanceisthereforevery economy-wide rebound effectinany another. Estimatingthemagnitudeof of energyefficiencyimprovement to likely tovary inimportancefromonetype complex, mutuallyinterdependentand different mechanismsthatareindividually represents theneteffectofanumber The economy-wide reboundeffect effect thatishardesttoestimate. that ismostrelevant, butthisisalsothe term effectonglobalenergyconsumption climate changeperspective, itisthelong- technology andbehaviour adjusts.Froma in importanceover timeasmarkets, effects may alsobeexpectedtoincrease international energyprices.Rebound through changesintrade patternsand may alsobeeffectsinothercountries relation toanationaleconomy, but there rebound effectisnormallydefinedin national economy). Theeconomy-wide boundary short, mediumorlongterm)and relation toparticular Rebound effectsneedtobedefinedin percentage ofthe treats itasahypothesis andseeks outtestableimplications. self-evident orsupportedbyempirical evidence.ButsincemostcommentatorsdonotaccepttheK-B postulate, thisassessment 3 Thetermpostulateindicatesa starting assumptionfromwhichotherstatementsarelogicallyderived. Itdoesnothave tobe Paradox’ (Alcott,2005). effect. Brookes, incontrast, isastrong advocate ofthepostulateatamacroeconomiclevel. Analternative termis‘Jevons 2 The‘Jevons-Brookes postulate’wouldbe amoreaccurate term,sinceKhazzoom’s workfocusesentirelyonthedirectrebound direct reboundeffect;andINDrepresents theincreaseinenergyconsumptionresultingfrom indirect reboundeffects. improvement withouttakingreboundeffectsintoaccount; DIRrepresentstheincreaseinenergyconsumptionresulting fromthe 1 Thismay beexpressedas,where ENGrepresentstheexpectedenergysavings fromaparticularenergy efficiency
13:56
(e.g. household,firm,sector, 1 Page
3 expected time frame system energy (e.g. confusion. and shroudedincontroversy and importance, thetopiciswidelyneglected climate change.Butdespiteitspotential implications forglobaleffortstoaddress rebound effectcouldhave important commonly assumed.Ineithercase,the reducing energyconsumptionthanis efficiency policieslesseffective in described above couldstillmake energy incorrect, thevarious mechanisms Alternatively, even ifthepostulatewere alike wouldbeturnedontheirhead. policymakers, businessandlay people assumptions ofenergyanalysts, carbon emissions.Theconventional neither reduceenergyconsumptionnor used topromoteenergyefficiencymay It wouldimplythatmany ofthepolicies have deeplytroublingpolicyimplications. If itwerecorrect,theK-B postulatewould without thesegains’(Saunders,1992). consumption abovewhatitwouldbe efficiency gainswillincreaseenergy ‘with fixedrealenergyprices, states that: its originalformulation,theK-B postulate been closelyassociatedwiththisidea. Brookes andDanielKhazzoom) whohave two contemporary economists(Len ‘Khazzoom-Brookes (K-B) postulate’, after has subsequentlybecomeknownasthe Stanley Jevons, aslongago1865.It forward bytheBritisheconomist,William reduce energyconsumptionwas firstput improvements willincreaserather than The viewthatenergyefficiency 2 In 3 3 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134
12/10/07 4 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency
13:56 Box 1.2Classifyingreboundeffects appears unlikely in practice. conservation’), although this to benegative (‘super economy-wide rebound effect theoretically possibleforthe increased consumption.Itis that service,rather than to reducedconsumptionof effect forconsumersmay lead ‘inferior good’, theincome if anenergyserviceis may benegative. For example, circumstance toanotherandinsomecasesindividualcomponentsofthereboundeffect the b) the A diagrammatic representationofthisclassification scheme isprovided below(seealso )the a) It isalsohelpfultodecomposetheindirectreboundeffectinto: )an b) )a a) Similarly, thedirectreboundeffectforproducersmay bedecomposedinto: )an b) )a a) rebound effectinto: For energyefficiencyimprovements byconsumers,itishelpfultodecomposethedirect The economy-wide reboundeffectrepresentsthesumofdirectandindirecteffects.
thermal insulation;and energy efficiencyimprovement, suchastheenergyrequiredtoproduceandinstall improvement, whichincludethemechanismslistedinBox 1.1. all inputs,includingtheenergyservice. allows ahigherlevel ofoutputtobeproduced-therebyincreasingconsumption capital, labourandmaterialsinproducingaconstantlevel ofoutput;and consumption ofallgoodsandservices,includingtheenergyservice. efficiency improvement allowsahigherlevel ofutilitytobeachieved byincreasing constant level of‘utility’, orconsumersatisfaction;and substitutes fortheconsumptionofothergoodsandserviceswhilemaintaininga Supplementary Note Page substitution effect substitution effect output effect income effect, embodied energy secondary effects
4 , wherebythecostsavings fromtheenergyefficiencyimprovement whereby theincreaseinrealincomeachieved bytheenergy , wherebythecheaperenergyservicesubstitutesforuseof ). Therelative size ofeacheffectmay vary widelyfromone , wherebyconsumptionofthe(cheaper)energyservice , orindirectenergyconsumptionrequiredto that resultasa ‘Engineering’ estimate of savings energy consequence Economy- rebound effect wide Actual energysavings rebound Indirect rebound Direct effect effect of theenergyefficiency Secondary effects Embodied energy Income /output Substitution achieve effect effect the S4134
12/10/07 with thisfundamentalissue,appearingto Government havesofarfailedtoengage reductions inoverallenergydemand.The stubbornly refusedtobetranslatedinto at themacroeconomiclevelhave years improvementsin’energyintensity‘ plausible explanationofwhyinrecent while notproven,offersatleasta “….the KhazzoomBrookespostulate, Science andTechnology commentedthat: House ofLordsSelectCommitteeon (IPCC, 2007).Criticisingthisstance,the divided onthemagnitudeofthiseffect Change simplynotesthattheliterature is the Intergovernmental Panel onClimate while theFourth AssessmentReport from rebound effectsaltogether(Stern,2007), economics ofclimatechangeoverlooks For example,theSternReview ofthe efficiency potentialsbyenergyanalysts. independent estimatesofenergy energy modellingstudiesandto measures. Muchthesameappliesto the potentialindirecteffectsforall measures aregenerally ignored,asare effects forotherenergyefficiency (DEFRA, 2007).Butthedirectrebound rather thanreducedenergyconsumption taken ashigherinternaltemperatures expected thatsomeofthebenefitswillbe insulation ofhouseholds,whereitis is UKpolicytoimprove thethermal efficiency improvements. Arare exception the potentialenergysavings fromenergy universally ignoredinofficialanalysesof Rebound effectstendtobealmost than theown-priceelasticityofdemand withrespecttototalcosts. costs. Ifenergyformsasmallproportion oftotalcosts,theelasticitydemandwithrespectto energy pricesshouldbeless 6 Thepriceofaservicedependsupon thetotalcostofproviding thatservice,whichincludescapital, labour, materialsande than one. Demand issaidtobeinelasticwhen theown-priceelasticityislessthanoneinabsolutevalue, andelasticwhenitisgreater demanded totherelative change inprice,holdingotherfactorsconstant.Inmostcases, the own-priceelasticityisnegative. 5 Theown-priceelasticityofdemandforagoodorserviceis the ratio oftherelative (orpercentage)changein quantity second, toreduceoverall energydemandtherate ofimprovement would needtobegreaterthantherate ofGDPgrowth. 4 Thisisstrictlyincorrect.First,theK-B postulatecouldexplainarelatively slowrate ofimprovement inenergyintensity;
13:56
Page
5 2000). Lovins, 1998;Schipper andGrubb, those services(Lovins, forms asmallshareofthetotalcosts most casesandbecauseenergytypically those servicesappearstobeinelastic services, largelybecausethedemandfor minor importanceformostenergy Some arguethatreboundeffectsareof both individuallyandincombination. over how importanttheseeffectsare- efficiency improvements, thereisdispute reduce theenergysavings fromenergy direct andindirectreboundeffectsmay While energyeconomistsrecognisethat 2006) micro- andmacroeconomiceffects.”(HoL, rely insteadonananalogybetween the economy operates may beindispute. fundamental assumptionsregardinghow varying interpretations; orthird, and inconclusive tobeopen towidely may besufficientlysparse,ambiguous the empiricalevidenceforreboundeffects the relevant systemboundaries;second, definitions ofassociatedissuessuchas rebound effect,togetherwithdifferent may beusing differentdefinitionsofthe one ofthreethings:first,differentauthors be anempiricalquestion.Thissuggests widely diverging viewsonwhatappearsto and experiencedanalyststoholdsuch At firstsight,itappearsoddforcompetent efficiency (Brookes, 2000;Herring,2006). the energysavings fromimproved energy sufficiently importanttocompletelyoffset 4 6 Others arguethattheyare et al ., 1988; nergy 5 and in 5 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 6
In practice, all of these factors appear to arrangement due to implicit price changes be relevant. The empirical evidence for and hence to a large rebound direct rebound effects is very patchy, effect..….For the engineer, instead, the mainly focused on a limited number of world consists of a set of given consumer energy services such as technologies or activities, which personal automotive transport and almost determine demand in which relative wholly confined to OECD economies. shares are fixed. Any increase in the Quantitative estimates of indirect and productivity of one factor affects only that economy-wide rebound effects are rare, factor and hence there is no rebound leaving authors such as Brookes (2000) to effect.” (Birol and Keppler, 2000) rely on an eclectic mix of theoretical Rebound effects could therefore be of argument, anecdotal examples and considerable importance, but they are ‘suggestive’ evidence from econometric widely ignored by policy makers and their analysis and economic history. Much of magnitude is greatly disputed, even this evidence rests upon theoretical among economists who understand the assumptions and methodological mechanisms involved. An assessment of approaches that are both highly technical the state of knowledge in this area should and openly contested. There is also therefore make a valuable contribution to confusion, misunderstanding and contemporary policy debates. At the same disagreement over basic definitional time, the diversity and ambiguity of the issues such as the meaning of evidence base makes such an assessment ‘improvements in energy efficiency’. The challenging to conduct. result is that commentators talk past one another, with disagreements originating in part because different people are talking about different things. For example, some 1.2 How the assessment commentators appear to equate ‘the’ was conducted rebound effect solely with the direct effect, and thereby ignore the indirect This assessment is one in a series being effects that are the primary concern of carried out by the Technology and Policy economists such as Jevons. In particular, Assessment (TPA) function of the UK there appears to be a divergence between Energy Research Centre (UKERC). The the world views of ‘economists’ and selection of the rebound effect as a topic ‘engineers’: followed wide ranging consultation with
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: stakeholders, together with advice from “For the economist the world is an open the TPA Advisory Group. The Group noted field in which different factors of the persistence of controversy about the production and different consumption rebound effect, the existence of widely goods have to be constantly re-combined diverging views on the topic and the in the most profitable fashion in response mismatch between the potential to their prices and marginal productivities. importance of the topic and the An efficiency increase in one factor apparently limited research devoted to it. immediately leads to a complete re- It also emphasised the importance of
6 S4134
12/10/07 Box 1.3OverviewoftheTPAapproach synthesising thisevidence(Sorrelland evidence baseandsetouttheoptionsfor effect, identifiedthesize andnatureofthe the definitionandnatureofrebound began withaScopingNotethatclarified Following thismodel,theassessment in medicineandotherfields(seeBox 1.3). systematic review general approachwas informedbythe findings inanaccessiblemanner. The knowledge onthisissueandtoexplainthe thorough reviewofthecurrentstate effects. Instead,itistoprovide a undertake newresearchonrebound The objective ofthisassessmentisnotto this study. effects. ThisledtheUKERCtoundertake including theindirectandeconomy-wide addressing reboundeffects‘intheround’, • • • • • • • • • The processcarriedoutforeachassessmentincludes thefollowingcomponents: technique. inspired bytheseapproaches,butisnotboundtoany narrowlydefinedmethodor some policyareas(Sorrell,2007).TheUKERChasthereforesetupaprocessthatis techniques andtheapproachhasbeencriticisedforexcessive methodologicalrigidityin energy policypresentsanumberofchallengesfortheapplicationsystematicreview research, encourage higherresearchstandardsandidentifygaps.However, provide morerobustevidence forpolicymakers andpractitioners, avoid duplicationof data andsystematicreviewsofquantitative andqualitative evidence.Theseaspireto as EvidenceBasedPolicy andPractice (EBPP),includingmeta-analyses ofquantitative The TPA approachtoassessmentseekslearnfromarange oftechniquesreferredto
Peer reviewoffinaldraft. Expert feedbackoninitial drafts. Synthesis, reviewanddrafting. Categorisation andassessmentofevidence. Systematic searches oftheevidencebase. Stakeholder consultation. Convening anExpertGroupwithadiversity ofopinionandperspective. Establishment ofaprojectteamwithdiversity ofexpertise. Publication ofScopingNoteandAssessmentProtocol. 13:56
Page
7 techniques prominent that theassessmentshouldupdateand and Dimitropoulos,2005a)whichclarified set outinanAssessmentProtocol(Sorrell evidence. Theagreedapproachwas then to begiven todifferentsourcesof assessment, includingtherelative weight appropriate scopeandfocusofthe a seriesofrecommendationsonthe circulated tokey stakeholders. Thisledto established andtheScopingNote An AdvisoryGroupfortheprojectwas 2007). questions intheenergyfield(Sorrell, that iscommontomany policy-relevant techniques difficulttoapply–afeature conventional systematicreview theoretical issueswas foundtomake the it isembeddedincomplexandcontested the evidencebaseandextenttowhich Dimitropoulos, 2005b).Thediversity of 7 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 8
extend a previous literature review by production theory, neoclassical growth Greening et al. (2000), place greater theory, ecological economics, emphasis on indirect and economy-wide decomposition analysis, and input- effects and focus in particular on clarifying output analysis. the underlying conceptual frameworks The first two categories of evidence relate and identifying the reasons for the widely to direct rebound effects while the diverging views. Since disputes over the remainder relate to economy-wide rebound effect involve some highly rebound effects. The last category is technical concepts from economic theory especially diverse and has received the and econometric practice, much emphasis greatest amount of attention. While the has been placed on clarifying these project began with systematic literature concepts and making them accessible to a searches using keyword such as ‘rebound non-technical audience. effect’, the final assessment incorporates The assessment was organised around a much broader range of evidence, five broad categories of evidence, as reviewing more than 500 studies from follows: around the world. The full results of the assessment are reported in five in-depth • Evaluation studies: micro-level Technical Reports, namely: evaluations of the impact of specific energy efficiency improvements on • Technical Report 1: Evidence from the demand for energy or energy evaluation studies services; • Technical Report 2: Evidence from • Econometric studies: use of econometric studies secondary data sources to estimate • Technical Report 3: Evidence from the elasticity of the demand for elasticity of substitution studies energy or energy services at different levels of aggregation; • Technical Report 4: Evidence from CGE modeling studies • Elasticity of substitution studies: estimates of the elasticity of • Technical Report 5: Evidence from substitution between energy and energy, productivity and economic capital at different levels of growth studies aggregation; In addition, a shorter Supplementary Note • Computable general equilibrium provides a graphical analysis of rebound
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: modelling studies: estimates of effects. All these reports are available to economy-wide rebound effects from download from the UKERC website. computable general equilibrium (CGE) models of the macroeconomy; and The present report summarises the main conclusions of the assessment and • Energy, productivity and economic identifies policy implications and priorities growth studies: a range of evidence for further research. considered in some way relevant to the K-B postulate, including studies from economic history, neoclassical
8 S4134
12/10/07 methodological weaknesses,makingit subject toanumberofimportant This evidencebaseisbothsmalland quantitative estimatesof theseeffects. results ofanumberstudiesthatprovide rebound effectsandsummarisesthe operation ofindirectandeconomy-wide Section 4describesthenatureand both isweak. producers, buttheempiricalevidencefor energy efficiencyimprovements by larger indeveloping countriesandfor countries. Directreboundeffectsmay be consumer energyservicesindeveloped low tomoderate (i.e.<30%)formost that directreboundeffectsappeartobe of consumerenergyservices.Itconcludes magnitude oftheseeffectsforanumber summarises theevidenceregarding operation ofdirectreboundeffectsand Section 3describesthenatureand definitions. part fromconfusionover thesebasic the magnitudeofreboundeffectsresultin the effect.Itisarguedthatdisputesover choices fortheestimatedmagnitudeof effect andtheimplicationsofthose dependent variables fortherebound choices available fortheindependentand definitions ofenergyefficiency, the Section 2describesthedifferent The reportisstructuredasfollows: 1.3 Reportstructure
13:56
Page
9 implications. highlights someimportantpolicy identifies themainresearchneedsand conclusions fromtheassessment, Finally, Section6summarisesthekey broader question. satisfactory resolutionofthismuch postulate may hingeinpartona resolution ofthedebateover theK-B economics. Itisarguedthatsatisfactory alternative perspective ofecological and comparesconventional viewswiththe therefore focusesonthisbroaderissue assumed. Muchofthediscussion economic growththanisconventionally that energyplays amoreimportantrolein for theK-B postulate hingesontheclaim argument ofthissectionisthatthecase analysis ofproductivitytrends.Acore economic historyandeconometric fields asneoclassicalgrowththeory, postulate andistaken fromsuchdiverse provides indirectsupportfortheK-B the evidencediscussedinthissection quantitative estimatesofreboundeffects, and HarrySaunders.Insteadofproviding on theworkofW.S. Jevons, LenBrookes the K-B postulate,focusinginparticular Section 5summarisestheevidencefor frequently exceed 50%. that economy-wide reboundeffectsmay However, theavailable studiessuggest difficult todraw any general conclusions. 9 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134
10 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency 12/10/07
13:56
Page
10 S4134
12/10/07 • • • is farfromstraightforward, since: estimating thesize ofany ‘energysavings’ these energysavings (Box 1.2).However, rebound effectmay reducethesize of been withoutthoseimprovements. The consumption belowwhereitwouldhave generally assumedtoreduceenergy Energy efficiencyimprovements are energy savings 2.1 Energyefficiencyand effects. for theestimatedmagnitudeofrebound generally unacknowledgedimplications definitional issueshave importantbut and usefuloutputs.Itarguesthatthese different ways ofmeasuringenergyinputs definitions ofenergyefficiencyandthe This sectionintroducesthedifferent 2. Whatisenergyefficiency?
of causalitymay run inreverse -with variables. Inparticular, thedirection technical, economic and policy may beinfluencedbyavariety of externally byanexperimenterand energy efficiencyisnotcontrolled uncertain; and efficiency improvement willalways be estimated ‘savings’ fromenergy ‘counterfactual’ scenario),sothe improvement (theso-called without theenergyefficiency consumption ‘wouldhave been’ observe whatenergy we can’t confounding variables; likely tobemediatedby a hostof change inenergyconsumptionis energy efficiencyandasubsequent relationship betweenachangein controlled experiments,sothe real-world economiesdonotpermit 13:56
Page
11 upon theparticularchoices thataremade. of thereboundeffectare likely todepend regarding themagnitude andimportance study toanother. Theconclusionsdrawn consideration canvary widelyfromone consumption andthetimeframe under measures ofenergyefficiencyand appropriate systemboundariesfor The definitionofinputsandoutputs,the provide. services whichalsorequireenergyto costs may bespentonothergoodsand For example,themoneysaved onheating systems, suchastheeconomy asawhole. for energyconsumptionwithinbroader attention tobepaidtheconsequences accounting ofreboundeffectsrequires of gasusedtoheatahouse.Butfull condensing boilermay reducetheamount For example,theinstallationofa reduce theenergyusedbythatsystem. Improvements inenergyefficiencymay ‘energy intensity’. inverse ofbothmeasures istermed use theterm‘energyproductivity’. The in economictermsitismorecommonto be used,butwhenoutputsaremeasured terms, thetermenergyefficiencytendsto measured inthermodynamicorphysical outputs aremeasured.When ‘useful’ isdefinedandhowinputs energy efficiencywilldependuponhow economy. Inallcases,themeasure of process, afirm,sectororanentire (e.g. aboiler),building,anindustrial be anindividualenergyconversion device for asystem.Thesysteminquestionmay ratio of‘useful’outputstoenergyinputs Energy efficiencymay bedefinedasthe changes inenergyefficiency. (whatever theircause)leadingto changes inenergyconsumption 11
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 12
2.2 Multiple definitions exergy basis than a heat unit of oil or natural gas. Also, unlike energy, exergy is The most basic definition of energy ‘consumed’ in conversion processes. efficiency derives from the first-law of The notion of exergy leads to a second thermodynamics and measures the ratio definition of energy efficiency, based upon of ‘useful’ energy outputs to the heat the second law of thermodynamics. This content, or calorific value of fuel inputs. A ‘second-law’ measure is frequently conventional lightbulb, for example, has a smaller than the first-law efficiency, first-law efficiency of only 6%, since 6% suggesting a greater potential for of the heat content of energy inputs are improvement. For example, the first-law converted to light energy and the efficiency of electric resistance space remainder is lost as ‘waste’ heat (Berndt, heating may exceed 99%, but this falls to 1978; Patterson, 1996). But the first-law around 5% when a second-law definition efficiency of a process depends upon how is used (Rosen, 2004). The difference ‘useful’ is defined. When waste heat and arises because resistance heating other losses are taken into account, the converts high exergy electricity to low first-law efficiency becomes 100%, since exergy space heat. Second-law measures energy is not ‘used up’ but is merely are preferable since they focus attention transformed from ‘available’ to less what needs to be conserved - namely available forms. exergy rather than energy per se (Berndt, Although widely used, first-law efficiency 1978). measures are misleading because they do For most purposes, it is simpler to not take into account the availability of measure useful energy outputs in terms of energy inputs and outputs, or their ability physical indicators for the relevant energy to perform useful work7 (Berndt, 1978). service, rather than heat content or For example, energy in the form of high- exergy. For example, a suitable output pressure steam can perform more useful measure for personal transportation by work than the same amount of energy in private car could be vehicle kilometres. A the form of low temperature heat. The physical measure of energy efficiency thermodynamic concept of exergy would then be vehicle kilometres per litre provides a general measure of the ability of motor fuel. to perform useful work and may be applied to both the inputs and outputs of Physical measures may be applied at the conversion processes (Wall, 2004). The
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: level of individual energy conversion exergy content of an energy carrier may devices, but are more commonly applied therefore be different from its heat at higher levels of aggregation, such as a content, although both are measured in household, an industrial process, an kWh (kilowatt hours). For example, a heat individual firm or an individual sector. In unit of electricity will be ranked higher on each case, changes in physical measures
7 ‘Work’ may be broadly defined as an increase in the kinetic, potential, physical or chemical energy of a subsystem that is located within a larger system in which energy - according to the first-law - is always conserved (Ayres, et al., 2003).
12 S4134
12/10/07 costs associatedwithother inputssuchas since itdoesnottake intoaccountthe energy efficiencyisan inappropriate goal Whichever measureisused, maximising outputs ofenergyconversion systems. in agenericsensetorefertheuseful follows, theterm outputs arebeingmeasured.Inwhat essential toclarifyhowtheinputsand efficiency andenergyproductivity, itis Hence, whenusingthetermsenergy consumption withinanationaleconomy. of GDPtototalprimaryenergy of energyefficiencyisthereforetheratio furthest fromathermodynamicmeasure of aggregation.Theindicatorthatis the useofsuchindicatorsathigherlevels that couldinfluencetheindicatorasdoes indicators increasesthenumberoffactors The move fromphysical toeconomic Gigawatt hours(GWh)of energy input. measured intermsofvalue addedper brewing anddairysectorscanbe example, theenergyefficiencyofboth can becompared(Patterson, 1996).For the energyefficiencyofdifferentsectors indicator ofthe By replacingthenumerator withan inappropriate. physical measureofenergyefficiency making anaggregateeconomy-wide one typeofenergyservicetoanother, to vary fromonesectortoanotherand Appropriate physical indicatorsarelikely kilometres perlitreofmotor-fuel. efficiency thatisbaseduponpassenger will changeaphysical measureofenergy example, changesinvehicle loadfactors efficiency ofconversion devices.For improvements inthethermodynamic may resultfromfactorsotherthan
13:56
Page economic
13 useful work value ofoutput, will beused efficiency improvements are likely tobe output. Also, many (if notmost)energy this contributestothegrowth ineconomic change areofparticularinterest,since change. Theconsequencesoftechnical from eithersubstitutionortechnical classify suchimprovements asderiving improvement, althoughmoststudies relation toeachtypeofenergyefficiency Rebound effectsmay bedefinedin price energyefficiencypolicies. frequently bestimulatedthroughnon- total factorproductivityandmay This typeofimprovement alsoimproves ‘optimal’ combinationofinputs(Box 2.1). technologies tomove closertoan since theyrepresenttheuseofexisting described as‘overcoming inefficiency’, efficiency improvements may bebetter use ofallrelevant inputs.Many energy that theproducerismakingfullyefficient misleading, however, sinceitassumes 2.1). Thisdistinctionispotentially occur inresponsetosuchchanges(Box prices, whilethelatterareassumedto independently ofchangesinrelative conventionally assumedtooccur not (‘substitution’).Theformerare (‘technical change’),andthosethatare improvements intotalfactorproductivity categories: thosethatareassociatedwith These areconventionally dividedintotwo the bestuseofalleconomicresources. effect arethosethatconsistentwith are ofmostrelevance totherebound The energyefficiencyimprovements that national economy. inputs areusedbyafirm,sectoror measure oftheefficiencywithwhichall total factorproductivity therefore moreconcernedwithimproving capital andlabour. Economistsare (TFP), whichisa 13
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134
14 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency 12/10/07
13:56 Box 2.1Typesofenergyefficiencyimprovement ‘frontier’ -indicated by the‘overcoming‘frontier’ inefficiency’arrowinthediagram. to moreefficientcombinations, whilestillremainingwithintheproduction function combinations. Muchinvestment may bebetterrepresentedasamove fromlessefficient efficient combinationoffactorinputs,butinpractice firmsmay userelatively inefficient this process(Grubb, prices andmuchcontemporary researchisconcernedwithimproving understandingof Second, technicalchangeisnotautonomous butisinfluencedbychangesinrelative existing techniquetoanother, butin practice thisrequiresinvestment andwilltake time. be misleading.First,thenotionofsubstitution impliesa‘frictionless’move fromone In practice, theconventional distinction betweensubstitutionandtechnicalchangecan response toachangeinrelative prices.Thismay requireinvestment intechnologiesthat those inputs. given level ofoutput.The‘optimal’combinationdepends upontherelative pricesof represents thedifferentpossiblecombinationofinputsthatmay beusedtoproducea current stateoftechnology(seediagram). ofaproductionfunction An‘isoquant’ of output(Y)obtainablefromtheflowenergy(E)andotherinputs(X),given the In neoclassicaleconomics,aproductionfunctionrepresentsthemaximumpossibleflow desirable sinceitoccurswithoutany reductionineconomicoutput. assumed tooccurindependentlyofany changeinrelative pricesandisconsidered total factorproductivitymay resultfrom of outputwillhave increased.Incontrast, improvements inbothenergyproductivityand But ifthepricesofotherinputsareunchangedtotalcostproducingagiven level For example,thermalinsulationmay reducetheconsumptionofgasforspaceheating. productivity) ofasystemthroughthe Increases inenergypricesmay leadtoimprovements inenergyefficiency(or Other inputs-X
Page
14 Y Substitution Y et al ., 2002).Third, the productionfunctionrepresentsmost change Technical may berepresented amovement Overcoming inefficiency substitution Energy -E Substitution technical change of capitalorlabourinputsforenergy. of inputs. produced fromalowerlevel the samelevel ofoutputtobe isoquant totheleft,allowing organisation that technologies andmethodsof development ofnew technical change technologies. Incontrast, from asetofexisting are assumedtobechosen efficient motors),butthese different ways (e.g.energy- can combineinputsin . Thisisconventionally along an isoquantin refers tothe shift the S4134
12/10/07 implications 2.3 Unacknowledged Sanstad, economic models(Löschel,2002; an importantparameter inmany energy- holding relative pricesconstant,whichis growth ofenergyefficiencyover time, to (butnotthesameas)rate of bias intechnicalchangeiscloselyrelated technical changedoesthereverse. This other inputs,while‘energy-using’ proportionately morethantheshareof share ofenergyinthevalue ofoutputby saving’ technicalchangereducesthe of someinputsmorethanothers.‘Energy- amount and‘biased’, ifitreducestheuse reduces theuseofallinputsbyanequal Technical changeissaidtobe‘neutral’ ifit energy efficiency. result oftargetedeffortstoimprove total factorproductivity, rather thanthe the by-product ofattemptstoimprove improvements inthenumber oflitres come intoplay. For example, responsible fortherebound effectfailto boundaries, ifseveral ofthemechanisms efficiency applicabletowidersystem energy efficiency, ormeasuresofenergy improvements in only translate intocomparable processes. Butsuchimprovements will conversion devicesorindustrial thermodynamic efficiency effect isimprovements inthe independent variable fortherebound commentators assumethattherelevant is notoftenrecognised.Many issues forestimatesofthereboundeffect The importanceofthesedefinitional
13:56 et al
Page ., 2006).
15 different of individual measures of economic measureof energy efficiency of reboundeffects is aphysical or for many theoretical andempiricalstudies For thisreason,theindependentvariable changes effectsis,atbest,challenging. economy-wide effects ofsuchmicro-level However, measuring orestimatingthe be economy-wide energyconsumption. motor, whilethedependentvariable could be theenergyefficiencyofanelectric example, theindependentvariable could should beaswidepossible.For dependent variable (energyconsumption) while thesystemboundaryfor efficiency) shouldberelatively narrow, the independentvariable (energy rebound effects,thesystemboundaryfor world. To capturethefullrange of the relevant systemboundaryisthewhole efficiency toreducingcarbonemissions, assessing thecontributionofenergy other countries.For thepurposeof thereby changingenergyconsumptionin patterns andinternationalenergyprices, improvements may alsoaffecttrade national economy. Butenergyefficiency boundary isnormallytaken asthe K-B postulatethe relevant system in anenergyefficienttechnology. For the savings foranindividualfirmthatinvests expected tobelessthantheenergy manufacturing asawholemay be example, theenergysavings for variable (energyconsumption).For of thesystemboundaryfordependent increase over timeandwiththewidening Rebound effectsmay beexpectedto changes inaverage vehicle loadfactors. kilometre iftherearenoassociated number oflitresusedperpassenger translate intoimprovements inthe used pervehicle kilometrewillonly 15
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134
16 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency 12/10/07
13:56 the useofoneadditionalheatunit ofenergyinput. 8 Themarginalproductofanenergy inputintoaproductionprocessisthemarginalincreasein value ofoutputproducedby distortions, therelative priceperkilowatt the absenceofsignificantmarket energy isput(Cleveland, on, togetherwiththeusetowhich storage, safety, flexibilityofuseandso including cleanliness,ameanabilityto different energytypes,withothers determine theeconomicproductivityof is onlyoneofseveral factorsthat to performusefulwork.Thelatter, inturn, ‘quality’ ofeachenergytype,ortheability heat content,butthisneglectsthe different energytypesaccordingtotheir common approachistoaggregate energy inputarecombined.Themost will dependuponhowdifferenttypesof Aggregate measuresofenergyefficiency efficient conversion devices. the diffusionofmorethermodynamically to becausedsolely(oreven mainly)by measures ofenergyefficiencyareunlikely improvements inmoreaggregate effects willbeoverlooked. Also, variable, theselower-level rebound sector istaken astheindependent effects. Butiftheenergyintensityof than itwouldbeintheabsenceofsuch intensity ofthatsectorisreducedbyless sector, withtheresultthatenergy may leadtoreboundeffectswithinthat electric motorsintheengineeringsector improvements intheenergyefficiencyof system boundaries.For example, energy efficiencyappropriatetonarrower physical orthermodynamicmeasuresof effects resultingfromimprovements in may overlook the‘lower-level’ rebound of anindustrialsector. Butsuchstudies boundaries –suchastheenergyefficiency that isapplicabletorelatively widesystem
Page
16 et al. , 2000).In Cleveland, supposed (Hong,1983;Zarnikau, 1999; improving moreslowlythaniscommonly energy efficiencyarefoundtobe accounted for, aggregatemeasuresof when the‘quality’ofenergyinputsare productivities (Berndt,1978).Ingeneral, energy typesofdifferentmarginal have devisedmethodsforaggregating Using dataonrelative prices,economists the growthinprimaryenergy countries todecoupleGDPgrowthfrom improvements have allowedOECD structural changeand‘energyefficiency’ commonly assumedthatacombinationof misleading conclusions.For example,itis Failure toallowforthiscanlead input (Kaufmann, 1992). obtained fromthesameheatcontentof amount ofutilityoreconomicoutput electricity), therebyincreasingthe fuels byhighquality(notably includes thesubstitutionoflowquality thermodynamic efficiency, butalso confined toimprovements in technical progressinenergyuseisnot This differencedemonstrates that increased by7%(Zarnikau, energy consumptionisfoundtohave increasing useofelectricity),percapita for changesinenergyquality(notablythe to 1991,butwhenadjustmentsaremade decreased by20%over theperiod1970 consumption intheUSresidentialsector a thermalinputbasis,per-capita energy 1994). marginal productivities(Kaufmann, provide abroadindicationoftheirrelative hour ofdifferentenergycarrierscan 8 et al ., 2000).For example,on et al ., 1996). S4134
12/10/07 However, itisboth difficultandmisleading estimated reboundeffectmay besmaller. energy efficiencyimprovement, thenthe impact isattributedspecificallytothe larger. Conversely, ifonlyaportionofthis economy-wide) reboundeffect may be then theestimated(direct,indirector as theappropriatedependentvariable, new energy-efficient technologyistaken full reduction inenergycosts.Hence,ifthe capital andlabourcoststhatexceed the components andachieve savings in and tear, extendthelifetimeofsystem energy efficientmotorscanreducewear for example,showhowtheinstallationof providing both.Pye andMcKane (1998), inputs, withnewtechnologiesfrequently improvements intheproductivityofother but aretypicallyassociatedwithbroader energy efficiencyrarely occurinisolation Also, improvements inany measureof associated witheachmay bedifferent. efficiency, butthereboundeffects change aggregatemeasuresofenergy conversion devicesmay beexpectedto the thermodynamicefficiencyof Both fuelswitchingandimprovements in any decouplingmay easilybeoverstated. improved thermodynamicefficiencyto partly illusory, butthecontributionof Hence, notonlymay such‘decoupling’be al (Hong, 1983;Stern,1993;Cleveland, be closelycoupledtothegrowthinGDP growth inenergyconsumptionisshownto their relative marginalproductivities,the However, ifenergyinputsareweighted by consumption (Geller, of GDPthanintheearly1970s(Geller, 9 Ifenergyismeasuredinterms ofheatcontent,majorOECDcountriesusedonethirdlessprimary energytogenerate aunit ., 2000;SternandCleveland, 2004).
impact onenergyconsumptionofa 13:56
Page
17 et al et al ., 2006). ., 2006). et 9 • • • 2.4 Summary assessment. overlooked pointisamajorthemeofthis overall energydemand.Thisfrequently new, energy-efficient alone. Whatmattersforpolicyishowa an improvement inenergyefficiency to isolatetheimpactonenergydemandof system boundaries. efficiency appropriatetonarrower thermodynamic measuresofenergy from improvements inphysical or overlook thereboundeffectsresulting system boundaries.Butthesemay efficiency applicabletorelatively wide economic measuresofenergy of reboundeffectsemploy physical or Many theoreticalandempiricalstudies rebound effectstobecaptured. boundaries allowagreaterrange of boundaries. However, widersystem measured foravariety ofsystem consumption, whichmay alsobe rebound effectisachangeinenergy The dependentvariable forthe different ways. the term‘energyefficiency’in may arise ifcommentatorsinterpret objectives ofthestudy, difficulties appropriate choicedependsuponthe of thereboundeffect.While independent variable foranestimate these may formanappropriate system boundariesandany oneof a variety ofways foravariety of Energy efficiencymay bemeasuredin technology affects 17
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 18
• Many theoretical and empirical studies importance of organisational and aggregate different types of energy market failures in contributing to carrier on the basis of their thermal inefficiencies as well as the role of content, thereby neglecting relative prices in stimulating technical differences in energy quality. This may change. lead such studies to overlook the • Energy efficiency improvements by contribution of changes in fuel mix to producers may often be associated changes in aggregate measures of with improvements in the productivity energy efficiency. If energy inputs are of capital, labour and materials weighted by their relative marginal inputs. Similarly, energy efficiency productivities, the historical growth in improvements by consumers may energy consumption appears to be often save costs on more than energy closely coupled to the growth in GDP. alone. This needs to be allowed for • Economists are primarily interested in when estimating rebound effects, as energy efficiency improvements that does any associated changes in fuel are consistent with the best use of all mix. Failure to do so may lead to economic resources. These are rebound effects being underestimated commonly categorised as either price- and to the potential for decoupling induced substitution or technical between energy consumption and change, but this neglects the economic output to be overestimated. The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect:
18 S4134 12/10/07 13:56 Page 19
3. The evidence for direct rebound effects
This section summarises the empirical 3.1 Understanding the evidence for direct rebound effects, focusing in particular on energy services direct rebound effect in the household sector, since this is Direct rebound effects relate to individual where the bulk of the research has been energy services, such as heating, lighting undertaken. A full examination of this and refrigeration and are confined to the evidence is contained in Technical Report energy required to provide that service. 1 and Technical Report 2. Improved energy efficiency will decrease Section 3.1 describes the operation of the the marginal cost of supplying that service direct rebound effect, highlighting some and should therefore lead to an increase key issues concerning the measurement in consumption of the service. For of this effect and the conditions under example, consumers may choose to drive which it may be expected to be larger or further following the purchase of energy smaller. The Supplementary Note contains efficient car because the price per a simple graphical analysis of rebound kilometre has fallen. The resulting effects that complements the discussion increase in energy service consumption in this section. will tend to offset the expected reduction Section 3.2 describes one approach to in energy consumption provided by the estimating direct rebound effects that use energy efficiency improvement. quasi-experimental methodologies As shown in Box 1.2, the direct rebound adopted from the field of policy effect for consumers may be decomposed evaluation. It then summarises the results into a substitution effect, whereby of a limited number of studies that use consumption of the (cheaper) energy this approach to estimate direct rebound service substitutes for the consumption of effects from energy efficiency improvements in space heating. other goods and services while maintaining a constant level of ‘utility’; Section 3.3 describes an alternative and and an income effect, whereby the more commonly used approach to increase in real income achieved by the estimating direct rebound effects that energy efficiency improvement allows uses econometric analysis of secondary increased consumption of the energy data sources to estimate the elasticity of service. In a similar manner, the direct demand for either useful work or energy rebound effect for producers may be consumption. Sections 3.4 and 3.5 decomposed into a substitution effect and summarise the results of a number of
an output effect (see Supplementary energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: studies that use this approach to estimate Note). Also, for most energy services, the direct rebound effects for personal direct rebound effect may be expected to automotive transport, household heating increase over time as markets, and a limited number of other consumer technologies and behaviours adjust. For energy services. Section 3.6 discusses a number of potential sources of bias with example, energy efficiency improvements this approach that may lead the direct may lower production costs for a firm, but rebound effect to be overestimated. it may take time for the firm to increase Section 3.7 concludes. output and market share.
19 S4134 12/10/07 13:56 Page 20
Energy services are provided through a the average utilisation of the refrigerator combination of capital equipment, labour, stock (measured in hours/year) but could materials and energy. An essential feature lead to a long-term increase in both the of an energy service is the useful work number of refrigerators and their average obtained which, as shown in Section 2, size (since the cost per cubic metre of may be measured by a variety of ways. refrigeration has fallen). Over the very For example, the useful work from long-term, the lower cost of energy passenger cars may be measured in services may contribute to fundamental vehicle kilometres, passenger kilometres changes in technologies, infrastructures or (rather unconventionally) in tonne and lifestyles - such as a shift towards kilometres. Energy services may also car-based commuting and increasing have broader attributes that may be distances between residential, workplace combined with useful work in a variety of and retail locations. But as the time ways. For example, all cars deliver horizon extends, the effect of such passenger kilometres, but they may vary changes on the demand for the energy widely in terms of features such as speed, service (as well as the demand for other comfort, acceleration and prestige. goods and services) becomes increasingly Consumers and producers may therefore difficult to separate from the effect of make trade-offs between useful work and income growth and other factors. other attributes of an energy service; The estimated size of the direct rebound between energy, capital and other market effect depends upon how useful work and goods in the production of an energy hence energy efficiency is defined. For service; and between different types of example, the majority of estimates of the energy service. direct rebound effect for personal By reducing the marginal cost of useful automotive transport measure useful work, energy efficiency improvements work in terms of vehicle kilometres may, over time, lead to an increase in the travelled, which is sometimes number of energy conversion devices, decomposed into the product of the their average size, their average number of vehicles and the mean distance utilisation and/or their average load travelled per vehicle per year (Greene, et factor. For example, people may buy more al., 1999b; Small and Van Dender, 2005). cars, buy larger cars, drive them further Energy efficiency is then defined as and/or share them less. Similarly, people vehicle kilometres per litre of fuel and may buy more washing machines, buy rebound effects are measured as The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: larger machines, use them more increases in distance driven. But this frequently and/or reduce the size of the overlooks any changes in mean vehicle average load. The relative importance of size and weight as a result of energy these variables may be expected to vary efficiency improvements (e.g. more widely between different energy services SUVs), as well as any decrease in average and over time. For example, technological vehicle load factor (e.g. less car sharing). improvements in the energy efficiency of If energy efficiency was measured instead new refrigerators are unlikely to increase as tonne kilometres per litre of fuel,
20 S4134
12/10/07 (Boardman andMilne,2000). consumption ofmany energyservices are furtherfromsatiationintheir among lowincomegroups,sincethese direct reboundeffectswillbehigher comfort. Oneimportantimplicationisthat approach themaximumlevel forthermal whole-house indoortemperatures systems shoulddeclinerapidly once energy efficiencyofhouseholdheating rebound effectsfromimprovements inthe rebound effect.For example,direct utility) shouldreducethesize ofany direct effects (technically, decliningmarginal energy serviceincreases,saturation But astheconsumptionofaparticular those costsare‘visible’totheconsumer. services share ofenergyinthetotalcost may beexpected tobeproportionalthe The magnitudeofdirectreboundeffects the movement ofpeople. upon themovement ofmassrather than measure ofenergyefficiency, byfocusing also moves closertoathermodynamic service intothemeasureofusefulwork.It classified asattributesoftheenergy incorporates somefeaturesnormally capacity, thisapproacheffectively such ascomfort,safetyandcarrying vehicle weightprovides aproxy forfactors per vehicle peryear. To theextentthat weight andthemeandistancetravelled the numberofvehicles, themeanvehicle may bedecomposedintotheproductof increase intonnekilometresdriven, which rebound effectswouldshowupasan the demandforconsumerenergy servicesmorepriceelastic. display technologiesoffertheopportunitytoimprove theinformationavailable toconsumers, andthiscouldpotentiallymake to thatofreceivingasinglemonthly billfromthesupermarket for‘food’. Recent developments insmartmetering and electroni 11 For example,Kempton andMontgomery(1982) have comparedtheinformation value oftheaverage householdenergybill total costbyonly5%.Inpractice, improvements inenergyefficiencymay themselves becostly. total costsoftheenergyserviceby25%.Butifonlyaccounts for10%oftotalcosts,doublingenergyefficiencywillr 10 For example,ifenergyaccountsfor50%ofthetotalcostanservice,doublingefficiencywillreduce
13:56 10 , aswelltheextenttowhich
Page
21 11 rebound effectmay beconstrained bythe or othercosts,certaintypesofdirect are notassociatedwithchangesincapital Even ifenergyefficiency improvements income. time andfallenintotalcostrelative to both improved inenergyefficiencyover many typesofequipmentappear tohave to have ahigherutilisation.Inpractice, purchased, suchdevicesmay beexpected conversion devices.However, once increase inthenumberandcapacityof improvements shouldnotencourage an efficient alternatives, becausesuch equipment ismoreexpensive thanless effects may besmallerifenergyefficient affected. For example,directrebound depend uponhowothercostsare the size ofthedirectreboundeffectwill reduce theenergycostofservices, While energyefficiencyimprovements consumers (Roy, 2000). saturation effectsamongexisting contexts, offsettoonlyalimitedextentby possibility oflargereboundsinthese developing countriespointstothe ‘marginal consumers’(Wirl,1997)in first time.Theabundanceofsuch purchase portableair-conditioners forthe conditioners may encourage consumersto in theenergyefficiencyofhomeair- that service.For example,improvements previously unableorunwillingtopurchase the service,orfromconsumerswhowere may derive fromexistingconsumersof Increases indemandforanenergyservice educe c 21
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 22
real or opportunity costs associated with have changed the demand for useful work increasing demand. Two examples are the which needs to be controlled for. opportunity cost of space (e.g. increasing Since it can be very difficult to measure refrigerator size may not be the best use useful work for many energy services of available space) and the opportunity (Box 3.1), an alternative approach is to cost of time (e.g. driving longer distances measure the change in energy may not be the best use of available consumption for that service following an time). However, space constraints may energy efficiency improvement. But to become less important over time if estimate direct rebound effects, this technological improvements reduce the needs to be compared with a average size of conversion devices per counterfactual scenario for energy unit of output or if rising incomes lead to consumption that has at least two sources an increase in average living space (e.g. of error, namely: a) the energy compare refrigerator sizes in the US and consumption that would have occurred the UK) (Wilson and Boehland, 2005). In without the energy efficiency contrast, the opportunity cost of time improvement; and b) the energy should increase with rising incomes. As consumption that would have occurred with energy price elasticities, therefore, following the energy efficiency the direct rebound effect for a particular improvement had there been no energy service may be expected to vary behavioural change. The first of these over time and to be influenced by income gives an estimate of the energy savings and other variables. from the energy efficiency improvement, while the second isolates the rebound effect. Estimates for the latter can be 3.2 Estimating direct derived from engineering models, but rebound effects from these frequently require data on the circumstances of individual installations evaluation studies and are prone to error. One approach to estimating the direct Both these approaches are analogous to rebound effect is to measure the change the policy evaluation strategies employed in demand for useful work following an in areas such as health and labour energy efficiency improvement: for economics, but these appear to be example, measuring the change in
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: relatively rare in the energy field owing in internal temperatures following the part to measurement difficulties (Frondel installation of a fuel-efficient boiler. The and Schmidt, 2005). There are relatively demand for useful work before the energy few published studies and nearly all of efficiency improvement could be taken as these studies focus on consumer energy an estimate for what demand ‘would have services. Nadel (1993) reports the results been’ in the absence of the improvement. of a number of evaluation studies by US However, various other factors may also utilities, which suggest direct rebound
22 S4134
12/10/07 contributing tolowstatisticalpower; weaknesses include:smallsamplesizes Train, 1994).Othermethodological this, theyarerarely used(Berry, 1983; techniques areavailable tocontrolfor assigned (Hartman,1988).While participate rather beingrandomly selection bias,sincehouseholdschooseto 2005). Also, several studiesaresubjectto (Meyer, 1995;FrondelandSchmidt, evaluation strategy andprone tobias confounding variables. Thisistheweakest group orexplicitlycontrollingfor comparisons, withouttheuseofacontrol using simplebeforeandafter studies isrelatively poor, withthemajority methodological qualityofmostthese mostly withintheUSorUK.The household anddifferentincomegroups, improvements fordifferenttypesof to studyarange ofenergyefficiency These studiesuseavariety ofapproaches studies ofhouseholdheating. Instead, wesummarisetheresultsof15 short-term andmethodologicallyweak. studies, whichappeartobesmall-scale, We have notbeenabletoaccessthese with inconclusive resultsforrefrigeration. approximately zero forwater heating, effects of10%orlessforlightingand to beswitchedbackon(Milneand Boardman,2000). around thehouse,reducesrate atwhichahousecoolsdownwhentheheatingis offanddelays thetimeatwhichit needs even iftheheatingcontrols remainunchanged.Thisisbecauseinsulationcontributestoa moreeven distributionofwarmth 13 For example,dailyaverage householdtemperatures willgenerally increasefollowing improvements inthermalinsulation, 12 Thepowerofastatisticaltestistheprobabilitythatwill rejectafalsenullhypothesis. households receivingdifferenttypesof and betweenstudies(e.g.participating relevant independentvariable bothwithin with estimates;largevariation inthe failure topresenttheerrorassociated high variance inresults andafrequent
13:56
Page
23 12 back, withtheremainderbeingdueto shortfall may beduetotemperature take- 2006). and otherfactors(SandersPhillipson, with theremainderbeingduetophysical take-back isduetobehavioural change, Typically, onlyaportionoftemperature • • • distinguish between: For householdheating,itishelpfulto different studies. difficulties incomparingtheresultsof of confidenceintheresultsandcreate on. Theseweaknessesreducethedegree variations inbehavioural response;andso behavioural changesorseasonal month) tocaptureeitherlong-term periods thataretooshort(e.g.one combinations ofmeasures);monitoring energy efficiencymeasure,or opening windows). other variables bytheuser(e.g. adjustments ofheatingcontrolsand temperature thatderives from proportion ofchangeininternal behavourial change improvement; and following theenergyefficiency the changeininternaltemperature temperature take-back the basisofengineeringestimates; consumption andthoseexpectedon between actualsavings inenergy shortfall 13 Similarly, onlyaportion of , representingthedifference , representingthe , representing 23
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 24
poor engineering estimates of potential different terms for the above concepts as savings, inadequate performance of well as the same term for different equipment, deficiencies in installation and concepts. The UK government uses the so on.14 Hence, behavioural change is term ‘comfort factor’ to refer to the one, but not the only (or necessarily the shortfall from household insulation most important) explanation of improvements, but it could be misleading temperature take-back and the latter is to equate this with the direct rebound one, but not the only explanation of effect. shortfall. Several studies misleadingly The results from evaluation studies of equate shortfall with behavioural change household heating are difficult to compare and fail to specify the relevant owing to different approaches, uncertainties. inconsistent methodologies and different Direct rebound effects are normally definitions of both the dependent and interpreted as a behavioural response to independent variables. Some studies lower energy service prices and hence report temperature take-back, some may be best approximated by the report shortfall and some make an behavioural change identified above. But estimate of behavioural change. it may be misleading to interpret this Without exception, the studies change solely as a rational response to demonstrate a clear shortfall in energy lower heating costs, partly because savings due to space heating efficiency energy efficiency improvements measures. The absolute magnitude of this frequently change other variables (e.g. difference varies between studies, but is airflow) that also encourage behavioural generally between 10% and 50% of responses. Also, measures of temperature expected savings. In some studies a take-back may be difficult to translate into larger shortfall was found – for example, estimates of shortfall because of a non- an evaluation of a UK programme for low linear and household-specific relationship income households found that the between energy consumption and internal introduction of a more efficient heating temperature. system had no impact on reducing fuel Measurement of behavioural responses consumption (Hong, et al., 2006). requires thermostat settings to be However, overall percent shortfall is highly monitored directly, which is neither contingent on the accuracy of the straightforward nor common. Instead, engineering models, and attempts to The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: most studies monitor internal calibrate these models to specific temperatures and/or energy consumption household conditions generally result in a and focus upon temperature take-back lower shortfall. The studies use a wide and/or shortfall, which are frequently range of variables to explain shortfall, but more relevant to public policy. only initial energy consumption and the Unfortunately, different studies using age of the home consistently influence the
14 For example, Hong et al. (2006) report the results of thermal camera imaging of houses following insulation improvements, which showed that 20% of the cavity wall area was missing insulation as well as 13% of the loft area.
24 S4134 12/10/07 13:56 Page 25
Box 3.1 Measurement issues for the direct rebound effect
Measurement difficulties make estimation of direct rebound effects problematic at best and impossible at worst. For many energy services, the relevant data is simply unavailable, while for others the data must either be estimated or is subject to considerable error.
Measurement of useful work is extremely problematic, which partly explains why the empirical literature is largely confined to passenger transport, household heating and household cooling where suitable proxies are available. Aggregate measures of useful work are only available for a subset of energy services (e.g. vehicle kilometres for passenger transport), while disaggregate measures may require expensive monitoring of individual firms or households. In the case of household heating, a number of studies have monitored thermostat settings or internal temperatures for individual households (Greening and Greene, 1998). But to assess the full benefits of the efficiency improvement, the temperature change in each room of the building would need to be measured, while controlling for outside temperature, changes in occupancy and other factors. In addition, internal temperature is only one of the determinants of thermal comfort, with others including activity levels, air velocity, relative humidity and the mean radiant temperature of the surrounding surfaces (Fanger, 1970; Frey and Labay, 1988). Failure to take these into account could lead to biased estimates of the direct rebound effect (Friedman, 1987; Greening and Greene, 1998).
Data on the energy consumption for individual consumer energy services is rarely available, except when those services are sub-metered as part of an evaluation exercise. Data on total household energy consumption may be relatively accurate, but techniques such as ‘conditional demand analysis’ are required to estimate the proportion going to lighting, water heating, cooking and so on (Parti and Parti, 1980). Problems may even arise in well-studied areas such as personal automotive transport, where there is uncertainty over the proportion of total petrol and diesel consumption attributable to passenger cars, as well as the distance travelled by different types of vehicle (Schipper, et al., 1993).
If data on both energy consumption and useful work is available, system-wide energy efficiencies can be estimated. Alternatively, the demand for useful work could be estimated from data on energy consumption and system-wide energy efficiency. But the latter is difficult to obtain, subject to inaccuracy and (depending upon the system boundary) frequently dependent upon variables other than the thermodynamic efficiency of conversion devices.
Empirical studies are more informative if the demand for useful work can be decomposed into the product of the number, capacity and utilisation of the relevant energy conversion devices, but
usually this data is unavailable or subject to error. For example, several studies of personal energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: automotive transport combine data on the number of vehicles, the distance driven, total energy consumption and average fuel efficiency that have not been independently and accurately determined. (Schipper, et al., 1993). Also, the available data on useful work may not reflect the full range of direct rebound effects.
Measurement difficulties also apply to exogenous variables that affect the demand for energy, useful work or energy efficiency, such as demographic and geographical factors. Omission of such variables could lead to bias if they are correlated with the dependent or independent variables, while inclusion of such variables could lead to error if they are measured or estimated inaccurately.
25 S4134 12/10/07 13:56 Page 26
extent to which predicted savings are temperatures appear to be lower than in likely to be achieved. the US, but have been increasing over recent years irrespective of the energy Some positive temperature take-back was efficiency measures installed. observed in most studies; however it was frequently small and not always In summary, the evaluation studies statistically significant. Take-back suggest that standard engineering models appeared to average between ~0.4ºC and may overestimate the energy savings 0.8ºC. Of this, approximately half was from energy efficiency improvements in estimated to be accounted for by the household heating systems by up to one physical characteristics of the house and half – and potentially by more than this the remainder by behavioural change. In for low income households. However, homes with higher temperature take- temperature take-back only accounts for back, the physical contribution remains a portion of this shortfall and behavioural the same and the behavioural contribution change only accounts for a portion of the increases. This take-back is not trivial: a take-back. This suggests that the direct 1ºC increase in internal temperature may rebound effect for this energy service increase the energy consumption for should typically be less than 30%. space heating by 10% or more. Rebound effects may be expected to decrease over time as average internal Only a subset of the studies that measure temperatures increase. temperature take-back provide estimates of the effect on energy savings and those that do vary widely, partly as a consequence of the different metrics used 3.3 Estimating direct to present the effect. The likelihood of rebound effects from observing temperature take-back appears to be negatively correlated with income, econometric studies as well as internal household The ‘evaluation’ approach to estimating temperatures prior to the efficiency the direct rebound effect requires data to measure. However, these two explanatory be collected on the demand for energy or variables are likely to be correlated. As useful work both before and after an pre-intervention room temperatures energy efficiency improvement. This approach 21ºC the magnitudes of ‘program focused’ approach is relatively temperature take-back decreases owing uncommon. Instead, most studies rely The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: to saturation effects. upon secondary data sources, frequently Estimates of temperature take-back collected for other purposes that include appear comparable between US and UK information on the demand for energy, studies, with most showing a relatively useful work and/or energy efficiency. This small temperature increase for the data can take a number of forms (e.g. average home and higher temperature cross-sectional, time-series) and apply to increases for homes with low initial different levels of aggregation (e.g. temperatures. UK average indoor household, region, country). Such studies
26 S4134
12/10/07 elasticities: from oneof direct reboundeffectmay beestimated Depending upondataavailability, the provide estimatesoflong-runelasticities. Cross-sectional dataisusuallyassumedto long-run elasticitieswhereitisvariable. devices isassumedtobefixed, aswell elasticities, wherethestockofconversion estimate canbemadeofshortrun If time-seriesdataisavailable, an another, holdingothervariables constant. variable followingapercentagechangein meaning thepercentagechangeinone improvement (i.e.(E2)=0). unchanged followinganenergyefficiency when thedemandforusefulworkremains saving from engineeringcalculations consumption willonlyequalthepredicted 2 that: (E1)=(E2)-1( certain assumptions,itcanbeshown measure ofthereboundeffect.Under (E2) isgenerally taken asadirect theelasticityofdemandforuseful E2 theelasticityofdemandfor E1 techniques toestimate typically useavariety ofeconometric that (E2)>1and(E1)>0. 15a Underthesecircumstances, (E1)=-1. Apositive reboundeffectimpliesthat(E2)>0and 0>(E1)>-1,whilebackfireimplies motor-fuel withrespecttothepriceofmotor-fuel. elasticity ofthedemandforvehicle kilometreswith respecttothepriceofmotor-fuel; and(E5)theelasticityof demand kilometres perlitre;(E3)theelasticity ofthedemandforvehicle kilometreswithrespect to thecostperkilometre;(E4) passenger cars)withrespecttokilometresperlitre(E2)theelasticity ofthedemandforvehicle kilometreswithrespectto In thecaseofpersonalautomotive transport, theycouldcorrespondto:(E1)theelasticityofdemandformotor-fuel (for 15 Therationale fortheuseoftheseelasticities,and therelationshipbetweenthem,isexplainedindetailTechnical Repo effect fromoneofthree majority ofstudiesestimatetherebound But insteadofusing(E1)or(E2),the ). Theactualsaving inenergy
work withrespecttoenergyefficiency efficiency energy withrespectto 13:56
15 Page
27 two energyefficiency see TechnicalReport price 15a elasticities elasticities: , (E2) shouldprovide thebest In principle,estimatesofeither(E1)or accurate thantheformer. tends tobebothmoreavailable andmore demand forenergy. Again,thelatter of (E1)and(E5)requiredataonthe demand forusefulwork,whileestimates (E2) (E3)and(E4)requiredataonthe than theformer. Similarly, estimatesof both moreavailable andmoreaccurate prices. Generally, thelattertendstobe (E4) and(E5)requiredataonenergy energy service,whileestimatesof(E3) data onenergyefficiencyfortherelevant Estimates of(E1)(E2)and(E3)require energy efficiency. change followinganimprovement in why thedemandforusefulworkmay Section 3.2andignorestheotherreasons behavioural responsesidentifiedin the directreboundeffectto elasticities inthisway implicitlyequates approximation to(E2).Theuseofprice of (E3),(E4)or(E5)canbetaken asan Under certainassumptions,thenegative theelasticityofdemandfor E5 theelasticityofdemandforuseful E4 theelasticityofdemandforuseful E3 energy energy withrespecttothepriceof energy work withrespecttothepriceof useful work work withrespecttothepriceof rt 2. for 27
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 28
approximation to the direct rebound flawed, but the extent to which this leads effect. However, most data sets provide to biased estimates of the direct rebound only limited variation in energy efficiency, effect may vary widely from one energy with the result that estimates of (E1) and service to another and between the short (E2) have a large variance. This is another and long term. reason why estimates of (E1) and (E2) are Under certain assumptions, the own-price relatively rare. elasticity of energy demand (E5) can be In contrast, (E3) generally provides shown to provide an upper bound for the significantly greater variation in the direct rebound effect (see Technical independent variable. This is because the Report 2). As a result, the voluminous price of useful work depends upon the literature on energy price elasticities may ratio of energy prices to energy efficiency be used to place some bounds on the and most data sets include considerable likely magnitude of the direct rebound cross-sectional or longitudinal variation in effect for different energy services in energy prices. In principle, rational different sectors. This was the approach consumers should respond in the same taken by Khazzoom (1980), who pointed way to a decrease in energy prices as they to evidence that the long-run own-price do to an improvement in energy efficiency elasticity of energy demand for water (and vice versa), since these should have heating, space heating and cooking an identical effect on the price of useful exceeded (minus) unity in some work. However, there may be a number of circumstances, implying that energy reasons why this ‘symmetry’ assumption efficiency improvements for these does not hold (see below). If so, services could lead to backfire (Taylor, et estimates of the direct rebound effect that al., 1977). However, reviews of this are based upon (E3) could be biased. literature generally suggest that energy demand is inelastic in the majority of In many cases, data on energy efficiency sectors in OECD countries (i.e. ) (Dahl and is either unavailable or inaccurate. In Sterner, 1991; Dahl, 1993; 1994; Espey, these circumstances, (E4) and (E5) allow 1998; Graham and Glaister, 2002; Hanley, the direct rebound effect to be estimated et al., 2002; Espey and Espey, 2004). solely from data on energy prices. But these are only valid if: first, consumers As an illustration, the upper bound for the respond in the same way to a decrease in direct rebound effect for personal energy prices as they do to an automotive transport can be estimated
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: improvement in energy efficiency (and from Hanley et al’s (2002) meta- vice versa); and second, energy efficiency analysis16 of 51 empirical estimates of the is unaffected by changes in energy prices. long-run own-price elasticity of motor-fuel Both these assumptions are likely to be demand (E5). Taking the mean values,
16 A meta-analysis combines the results of several empirical studies that provide comparable quantitative estimates of a particular variable, such as the own-price elasticity of energy demand for a particular sector. In energy economics, a common approach is to use the estimated elasticities as the dependent variable in a multiple regression analysis that seeks to explain the variation in the results in terms of factors such as model structure (Bergh and Button, 1999).
28 S4134
12/10/07 service of64%. run directreboundeffectforthisenergy this suggestsanupperboundforthelong- have lessscopeforchangingequipmentsuchasheatingsystems over thelong term(Poyer and Williams,1992). household energydemandincreases withincome.Also, low incomehouseholdsoftenlive inrentedaccommodation andhence the lowestincomedecilethanfor topincomedecile.However, Nesbakken (1999)foundthatthepriceelasticityofNorwegian conditional uponapplianceownership, the own-priceelasticityofgasconsumptionbyUKhouseholdswas twotimeslargerfor 18 Priceelasticitiesarefrequently foundtobehigheramonglowincomegroups.For example,Baker The correspondingmeanvalue fortheshortrunis25%. bound ofbetween0and181%.Thispartlyreflectsthewiderange ofcountries andtimeperiodonwhichtheestimatesarebased. 17 However, themean values disguisealargevariance intheresultsandusingfullrange ofestimatessuggestsanupper consumption. Butmany householdsuse more thantwothirdsofhouseholdfuel example, sincethistypicallyaccountsfor relevant forhousehold heating,for consumption may belarge.Thisis that dominatefuelorelectricity rebound effectfortheenergyservices versa). Itmay alsosuggestthatthedirect to largedirectreboundeffects(andvice electricity usebythehouseholdwilllead in the‘overall’ efficiencyoffuelor demand may suggestthatimprovements large own-priceforfuelorelectricity electricity consumption.Inthiscase,a energy services,suchhouseholdfuelor demand derives fromacollectionof when (asismorecommon)themeasured such asrefrigeration. Theyarelessuseful demand relatestoasingleenergyservice, demand aremostusefulwhenthe effects, own-priceelasticitiesforenergy For thepurposeofestimatingrebound being overestimated. (E5) may leadtothedirectreboundeffect and showstheextenttowhichuseof vehicle fuelefficiencyover thelongterm fuel priceshave asignificantinfluenceon difference betweenthetwosuggeststhat only 30%(Hanley, smaller long-rundirectreboundeffectof the priceofmotor-fuel (E4)suggesta travelled byprivate carswithrespectto estimates oftheelasticitydistance
13:56
Page
17 29 For comparison,three et al ., 2002).The fuel andelectricitydemandarelessthan that own-priceelasticitiesofhousehold Khazzoom (1980),theevidencesuggests al and Blundell,1991;Ferrer-i-Carbonell, price elasticitythanforelectricity(Baker robust, butgenerally suggestsalower elasticities ismorevariable andless and Espey, 2004).Evidenceonfuelprice for thelong-termeffectof80-85%(Espey combined of20-35%andanupperbound for allhouseholdelectricityservices bound fortheshort-term reboundeffect than 120estimatessuggestsanupper the resultsofameta-analysis ofmore methodological approach.For electricity, of householdincome particular countryand/orregion,thelevel energy carrier, thetypeofhousehold, household energydemandvary withthe Estimates oftheown-priceelasticity is inelastic,suchapossibilitydisguised. but ifoverall householdelectricitydemand possibility oflargedirectreboundeffects- refrigeration iselastic–suggestingthe is possiblethattheenergydemandfor for otherenergyservices.For example,it the own-priceelasticityofenergydemand such aggregatedatacouldunderestimate fuel useforheating.At thesametime, overestimate theown-priceelasticityof price elasticityforfuelconsumptioncould carriers. Inthesecircumstancestheown- substitution betweendifferentenergy and theremay alsobescopeforlong-term more thanoneenergycarrierforheating ., 2002).Overall, andcontrary to et al 18 . (1989)foundthat, and the et 29
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 30
unity and hence that energy efficiency to be relatively price elastic. Econometric improvements are unlikely to lead to evidence for other consumer energy backfire (at least, not from direct rebound services is very limited, while that for effects alone). producers is almost non-existent. The evidence base also exhibits a notable Whatever their origin, estimates of price geographical bias, with the majority of elasticities should be treated with great studies referring to the United States and caution. Aside from the difficulties of with very few studies of energy services in estimation, behavioural responses are developing countries. contingent upon technical, institutional, policy and demographic factors that vary Our review of the empirical literature in widely between different groups and over this area is therefore largely confined to time. Demand responses are known to studies that estimate (E1), (E2) or (E3). vary with the level of prices, the origin of These vary widely in terms of type of price changes (e.g. exogenous versus data, model structure, functional form and policy induced), expectations of future estimation techniques, which complicates prices, government fiscal policy (e.g. the comparison of results. Given this recycling of carbon tax revenues), diversity and the limited number of saturation effects and other factors studies available we have not conducted a (Barker, et al., 1995). The past is not formal meta-analysis, but have instead necessarily a good guide to the future in summarised key results and identified this area, and it is possible that the very possible sources of error. The result of this long-run response to price changes may survey are summarised in the next two exceed those found in empirical studies sections. that rely upon data from relatively short time periods.
Instead of relying upon contested 3.4 Direct rebound effects estimates of (E5), more accurate for private automotive information on the magnitude of direct rebound effects may be obtained from transport studies that directly estimate (E3). By far the best studied area for the direct However, data is only available on rebound effect is personal transport by relevant measures of useful work for a private car. Most studies refer to the US, subset of energy services. As a which is important since fuel prices, fuel The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: consequence, the reliable evidence base efficiencies and residential densities are for the direct rebound effect is largely lower than in Europe, car ownership levels focused on personal automotive are higher and there is less scope for transportation, household heating and switching to alternative transport modes. space cooling, where proxy measures of useful work are most readily available. Studies estimating (E1), (E2) or (E3) vary These energy services form a significant considerably in terms of the data used component of household energy demand and specifications employed. Most studies in OECD countries and may be expected use aggregate data which can capture
30 S4134
12/10/07 rebound effectof gives abestguessforthelong-rundirect Schipper’s (1997)cross-countrystudy number ofobservations. Johanssonand rebound effect,owingtothegreater robust basisforestimatesofthedirect Aggregate paneldata (Greene, 1992;Jones,1993). the issuefromthistypeofdataalone points available makes itdifficulttosettle specification thelimitednumberofdata disagreement over theappropriate between automotive transport tobesomewhere direct reboundeffectforpersonal cross-sectional dataestimatethelong-run Studies usingaggregatetime-seriesand and distancetravelled pervehicle. driver, distancetravelled perhousehold per capita,distancetravelled perlicensed total distancetravelled, distancetravelled measure forusefulworkvaries between difficult togeneralise. Therelevant studies produceresultsthataremore difficulties, however, whiledisaggregate studies facenumerousmeasurement behaviour atthemicrolevel. Aggregate survey datacanbetterdescribeindividual efficiency standards,whilehousehold long-term effectsondemandsuchasfuel maintenance andtyrecosts. rebound effectsinceitderives fromtheestimatedelasticityofdistancetravelled withrespecttooperating costs,whichincl of informationonvehicle fuel efficiency. Thefigureof87% isfromWest (2004)andislikely tobeanoverestimate ofthedir 21 AllusetheUSConsumerExpenditure Survey, althoughcovering differenttimeperiodsandsupplemented bydifferingsources related variables fromeach USstateover aperiod1972to2000. similar, butwithdatafromthe sameunitsineachsampleperiod.Anexamplewouldbedataonmotor-fuel consumptionand 20 Apooledcross-sectionisacross-sectionalsamplefrompopulation, taken attwoormoreintervals intime.Panel datais series econometricsandisrelevant tomany studiesofthedirectreboundeffect. influence ofunobserved variables thatpersistover time.Identifying andcorrectingforserialcorrelationisamajorissuein that theerrorinonetimeperiodiscorrelatedwithfrom one ormoreprevioustimeperiods,perhapsasaresultoft 19 Thedisputerelatestotheappropriatetreatmentofserialcorrelation andlaggeddependentvariables. Serialcorrelationme long-run value of and van Dender(2005) converge ona Haughton andSakar(1996)Small
13:56 5% and30%
Page
31 22% 30% 20 for theUS. Small provides amore . Whilethereis , whileboth 19 are relatively robust.Moreover, mostof methodologies suggeststhatthefindings despite widedifferencesindataand The relative consensusonestimates, lies somewherebetween effect forpersonalautomotive transport suggests thatthelong-rundirectrebound Taken together, ourreview of17studies data. with theresultsofstudiesusingaggregate rebound effecttobe estimate theUSaverage long-rundirect data isbyGreene most rigorousstudiesusingdisaggregate interpreted withmorecaution.Oneofthe disaggregate studiesshouldbe suggests thattheresultsfrom 1999; West, 2004). (Goldberg, 1996;PullerandGreening, effect thatrange from0%to87% produce estimatesofthedirectrebound use datafromthesamesourcebut aggregate datasources.ThreeUSstudies estimates arehigherthanthosefrom automotive transport andseveral ofthese of thedirectreboundeffectforpersonal sources provide lessconsistentestimates Studies usinghouseholdsurvey data effect declineswithincome(Box 3.2). the hypothesis thatthedirectrebound innovations andisoneofthefewtotest some importantmethodological and van Dender’s studyincorporates et al 21 23% 10% and30% . (1999),who This diversity - consistent time- udes ans ect he . 31
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 32
these studies assume that the response to 3.5 Direct rebound effects a change in fuel prices is equal in size to the response to a change in fuel efficiency, for other consumer energy but opposite in sign. Few studies test this services assumption explicitly and those that do are either unable to reject the hypothesis The next best studied area for direct that the two elasticities are equal, or find rebound effects is household heating, that the fuel efficiency elasticity is less although relatively few studies estimate than the fuel cost per kilometer elasticity. (E1), (E2) or (E3) for this energy service The implication is that the direct rebound and even fewer investigate rebound effect may lie towards the lower end of effects specifically. The available studies the above range. rely upon detailed household survey data and exhibit even greater diversity in terms The extent to which the direct rebound of the variables measured and the effect for personal automotive travel methodologies adopted. Four of the most declines with income remains unclear, rigorous studies are briefly described although the methodologically rigorous here. studies by Small and van Dender (2005) and Greene et al. (1999a) both suggest Schwarz and Taylor (1995) use cross- that it does. Measurement problems sectional data from 1188 single family US remain an issue for aggregate studies households, including measurements of (Schipper, et al., 1993), as does the thermostat settings. They estimate an geographical bias towards the United equation for the thermostat setting as a States. The available evidence is function of energy prices, external insufficient to determine whether direct temperature, heated area, household rebound effects are larger or smaller in income and an engineering estimate of Europe, but it is notable that the meta- the thermal resistance of the house. Their analysis by Espey (1998) found no data also allows them to estimate the significant difference in long-run own- demand for useful work for space heating. price elasticities of gasoline demand. On the basis of thermostat settings, their Overall, it must be concluded that direct estimate of (E2) suggests a long-run rebound effects in this sector have not direct rebound effect of 0.6% to 2.0%, obviated the benefits of technical while on the basis of the demand for improvements in vehicle fuel efficiency. useful work their estimate suggests a Between 70% to 100% of the potential larger effect of 1.4% to 3.4%. While The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: benefits of such improvements appear to these estimates are smaller than those have been realised in reduced from other studies, the difference consumption of motor-fuels. between the two is comparable to that between behavioural responses and temperature take-back identified by the evaluation studies.
Hseuh and Gerner (1993) use comparable data from 1281 single family detached
32 S4134
12/10/07 Box 3.2Thedecliningdirectreboundeffect incomes couldmake theestimateddirectreboundeffectnegative inmany states. the modelforprojecting decliningreboundeffectsinthefuture, sinceincreasing is negative somestates(Harrison, are preferred.Also, themodelleadstounlikely resultthat thedirectreboundeffect but sincethisspecificationperformsrather poorlyoverall, estimates basedupon(E3) could beinterpretedasimplyingthatthedirect reboundeffectisapproximately zero, of fuelprices.Directestimates(E2)aresmall andstatisticallyinsignificant,which in vehicle fuelefficiencymaking itdifficulttodetermineitseffectseparately from that covering 50statesover aperiodof36years, thedataprovides relatively littlevariation Although methodologicallysophisticated,thestudy isnotwithoutitsproblems.Despite coefficient isnotstatisticallysignificant,thisclaim isquestionable. effect dependsupontheabsolutelevel offuelcostsperkilometre.Butsincetherelevant reduction inthereboundeffectderives fromtheassumptionthatmagnitudeofthis result isrobust,ithassomeimportantimplications.However, two-fifthsoftheestimated in thelong-term-approximately halfthevalues estimatedfromthefulldataset.Ifthis 1997-2001, theyfindadirectreboundeffectofonly2.2%intheshort-term and10.7% 0.58%. UsingUSaverage values ofincome,urbanisationandfuelpricesover theperiod estimate thata10%increaseinincomereducestheshort-run directreboundeffectby estimates intheliterature, whilethelatterisclose totheconsensus.However, they to be4.5%andthelong-runeffect22%.Theformerislowerthanmostof Small andVan Denderestimatetheshort-run directreboundeffectfor theUSasawhole been chosenintheabsenceofstandards,givingprevailing fuelprices. between thefuelefficiencystandardandanestimateofthatwouldhave vehicle fuelefficiencyareestimatedbyincorporating avariable representingthegap than dostudiesusinghouseholdsurvey data.TheeffectoftheCAFEstandardson the sametimeproviding more informationoneffectsthatareofinteresttopolicymakers considerably moreobservations thanconventional aggregatetime-seriesdata,whileat District ofColumbiacovering theperiod1961to2001.Thisapproachprovides consumption, vehicle milestravelled andothervariables for50USstatesandthe Small andVan Denderuseaggregatedataonvehicle numbers,fuelefficiency, gasoline lead thedirectreboundeffecttobesubstantiallyoverestimated. purchase ofmorefuel-efficientcars.Theirresultsshowthatfailingtoallowforthiscan encourage moredriving,whiletheexpectationofdrivingmay encourage the for thefactthatfuelefficiencyisendogenous:i.e.morefuel-efficientcarsmay vehicle numbers,average fuelefficiencyandvehicle milestravelled, theyareableallow of thecostpermileandothervariables. Byemploying simultaneousequationsfor an econometricmodelexplainingtheamountoftravel bypassengercarsasafunction estimates ofthedirectreboundeffectforpersonalautomotive transport. Theyestimate Small andvan Dender(2005)provide oneofthemostmethodologicallyrigorous
13:56
Page
33 et al ., 2005).Thisraises questionsabouttheuseof 33
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134
34 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency 12/10/07
13:56 23 Thevariation in(E3) betweenincomegroupswas muchgreaterforspaceheatingthanotherenergy services. costs. upon theelasticityofheatdemand withrespecttothegeneralised costofspaceheat, whichincludescapitalandmaintenance 22 Greening the basisof(E3),Guertin appliances/lighting tobeestimated.On heating, water heatingand the energyconsumptionforspace relevant appliances.This inturnallows estimate theenergyefficiencyof households andapply‘frontieranalysis’to data from440singlefamilyCanadian suggests along-runmeanreboundeffect range 25%to29%. short-run directreboundeffectinthe basis of(E3),Klein’s modelsuggestsa and thedemandforspaceheat.On of energyinthetotalcostspaceheat for thetotalcostofspaceheat,share model, involving simultaneous equations sophisticated ‘householdproduction’ This allowstheestimationofa and dataonthecapitalcostofequipment. of thethermalperformancebuildings supplemented withanengineeringmodel from morethan2000UShouseholds, Klein (1987;1988)usescomparable data gas heatedhomes. for electricallyheatedhomesand58% rebound effectcanbeestimatedas35% energy efficiency, theshort-run direct of (E5),conditionalontheexistinglevel of space heating.Onthebasisofanestimate models toestimatetheenergyusefor combine econometricandengineering characteristics, whichallowsthem to ownership anddemographic comprehensive informationonappliance 1981. Theirdatasetincludes households intheUS, datingbackto Guertin
Page et al. et al
34 ’ (1998)quoteafigureof40%from thestudy, butthisoverestimates thedirectreboundeffectsinceitis based (2003) usedetailedsurvey 22 et al ’s model conducted duringperiodofrisingenergy studies usesmallsamplesizes andwere 1986). However, theserelatively old 1-26% of thosereportedforspaceheating(i.e. rebound effectsthatarewithintherange studies provide estimatesofdirect For spacecoolinginhouseholds,two reasonable assumption. household heatingwouldappeara 30% purpose ofpolicyevaluation, afigureof other circumstances.Nevertheless, forthe geographical areamay nottranslate to the resultsfromonetimeperiodand varies betweendifferenthouseholdsand between theabove studies,theresponse direct reboundeffectisnotconsistent evaluation studies,thedefinitionof for lowincomegroups.Aswiththe suggestion thatreboundeffectsarelarger and groups. income groupsto47%forlow of 38%,varying from29%forhigh range from effects forhouseholdheatingtherefore Reliable estimatesofthedirectrebound the range 25-60%. the range 10-17%andlong-runeffectsin households suggestshort-run effectsin (1986) whosestudyof370Canadian 30% forGermanhouseholds,andDouthitt techniques toreachanestimateof15- Biermayer (2000)whouseavariety of for householdheatingincludeHaasand Other estimatesofdirectreboundeffects 1.4% to60% for thedirectreboundeffect 23 ) (Hausman,1979;Dubin,etal., 10% to58% in thelong-run,witha in theshort-run S4134
12/10/07 Box 3.3Directreboundeffectsforclotheswashing be animportantconsideration, together demand from‘marginalconsumers’may rapidly increasinginmany countries, ownership ofspacecoolingtechnologyis equipment utilisation.To theextentthat studies focussolelyuponchangesin climatological conditions.Also, both given thedifferencesinhousetypesand transferable tomany Europeancountries, prices. Theirresultsmay notbe dishwashers, vacuum cleaners,televisions,powertools,computers andprinters. are bothproducedand consumedbyhouseholds,includingthose provided by Similar conclusionsshould thereforeapplytoothertime-intensive energyservicesthat even relatively largechangesinenergyefficiencyshouldhave littleimpactondemand. results thereforesupportthetheoreticalprediction that,fortimeintensive activities, Davis estimatesthattimecostsform80-90%ofthetotal costofwashing clothes.The increased utilisation. a smallportionofthegainsfromenergyefficient washing machineswill beoffsetby savings inenergycosts,theestimatedeffectwouldbe smaller. Thissuggeststhatonly from savings inwater anddetergentcosts.Iftheestimatewas basedsolelyonthe While thiscouldbeusedasanestimateofthe directreboundeffect,itresultsinpart increases intheweightofclotheswashed percycle rather thanthenumberofcycles. clean clothesincreasedby5.6%afterreceivingthenewwashers, largelyasaresultof the demandforcleanclothesinkg/day (usefulwork).Davis foundthatthedemandfor estimated. Thiswas thenusedastheprimaryindependentvariable inanequationfor The monitoringallowedthemarginalcostofclotheswashing foreachhouseholdtobe to bemadeofthepriceelasticitymachineutilisation. variations inutilisationpatternstobecontrolledforandpermittedunbiased estimates months priortotheinstallationofnewmachine.Thisallowedhouseholdspecific and theassociatedconsumptionofenergywater was monitoredfor aperiodoftwo While participationinthetrialwas voluntary, boththeutilisationofexistingmachines water. These machinesuse48%lessenergyperwash thanstandardmachinesand41%less sponsored fieldtrialofhigh-efficiencywashing machinesinvolving 98participants. tenth ofhouseholdenergyconsumption.TheestimateisbaseduponaUSgovernment- household clotheswashing -whichtogetherwithclothesdryingaccountsforaroundone Davis (2007) provides auniqueexampleofanestimatedirectreboundeffectsfor
13:56
Page
35 washing suggeststhatdirectrebound study ofdirectreboundeffectsforclothes Nadel (1993).Amethodologicallyrigorous from USevaluation studiesreportedby 38%, whichisgreaterthantheresults provides estimatesintherange 34to limited, althoughGuertin Evidence forwater heatingisalsovery existing users. with increasesinsystemcapacityamong et al . (2003) 35
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 36
effects for ‘minor’ energy services should additional (indirect) effects on the price of be relatively small (Box 3.3). However, charcoal leads to an estimated rebound this confines attention to households that effect of 42%. already have automatic washing machines Roy (2000) reports the results of a and therefore excludes rebound effects government programme that freely from marginal consumers. distributed solar-charged battery lamps to Table 3.1 summarises the results of our a rural village in India. These lamps survey of econometric estimates of the provided significantly better lighting direct rebound effect. Despite the quality than the kerosene lamps they methodological diversity, the results for displaced. Daily hours of lighting individual energy services are broadly increased from two to four, provided by a comparable. This suggests that the combination of new and old lamps since evidence for direct rebound effects is the solar lamps were limited in operating relatively robust to different datasets and hours. This led to a direct rebound effect methodologies. of approximately 50% (80% for some households). Moreover, since the ‘saved’ These relatively modest estimates for kerosene was either used for cooking or direct rebound effects are based upon sold, accounting for indirect effects studies in OECD countries and are unlikely suggests that the programme achieved no to be representative of conditions in energy savings - although significant developing countries. Hence, two studies benefits to welfare. Since the lamps were from developing countries deserve a free and kerosene subsidised, this may be mention. In a rare study of traditional an atypical example. However, the fuels, Zein-Elabdin (1997) estimates primary source of the large rebound effect direct rebound effects from fuel-efficient was the large unsatisfied demand for stoves in Khartoum by multiplying the fuel lighting. This condition applies to a range efficiency improvement by the product of of energy services in developing countries the estimated income elasticity of demand and especially for the 1.6 billion for charcoal and the share of charcoal in households who currently lack access to the household budget. Allowing for the
Table 3.1 Estimates of the long-run direct rebound effect for consumer energy services in the OECD
End-Use Range of ‘Best guess’ No. of Studies Degree The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: Values in of Confidence Evidence Base
Personal automotive 5-87% 10-30% 17 High transport Space heating 1.4-60% 10-30% 9 Medium Space cooling 1-26% 1-26% 2 Low Other consumer 0-49% <20% 3 Low energy services
36 S4134
12/10/07 the pricerisesoflate 1970swas five reduction inUKenergy demandfollowing example, Dargay (1992)found that the 1995; HaasandSchipper, 1998). For 1992; 1993;Dargay andGately, 1994; than forthosewithfallingprices(Gately, be higherforperiodswithrisingprices Second, energypriceelasticitiestendto (Henly, efficiency willnotbetaken intoaccount capital costsrequiredtoimprove energy direct reboundeffect,sincetheadditional in energypricescouldoverestimate the historical and/orcross-sectionalvariations rebound effectthatrelyprimarilyupon models. Hence,estimatesofthedirect with highercapitalcoststhanlessefficient through thepurchaseofnewequipment energy efficiencymay onlybeachieved efficiency may be.Inparticular, higher other inputcosts,changesinenergy generally notcorrelatedwithchangesin First, whilechangesinenergypricesare be incorrect. practice, bothoftheseassumptionsmay energy efficiencyis‘exogenous’). In derive solelyfromoutsidethemodel(i.e. and thatany changesinenergyefficiency comparable changesinenergyefficiency in energypriceshave anoppositeeffectto of bias.Moststudiesassumethatchanges the directreboundeffectcreatesrisk The useofpriceelasticitiestoestimate rebound effect estimates ofthedirect 3.6 Sourcesofbiasin upon biomassforcooking. electricity andthe2.5billionwhorely
13:56 et al
Page ., 1988).
37 greater datarequirements. If, instead, are relatively uncommonowingtotheir simultaneous equation models, butthese addressed throughtheuseof work. Thisso-called‘endogeneity’canbe efficiency andthedemandforuseful measured correlationbetweenenergy would notbetheonlyexplanationforany 2005). Hence,thedirectreboundeffect useful work(SmallandVan Dender, which dependsuponthedemandfor which dependsuponenergyefficiency, work dependsonthepriceofusefulwork, circumstances, thedemandforuseful you expecttodrive further).Inthese purchase anenergy-efficient carbecause demand forenergyefficiency(e.g.you demand forusefulworkmay increasethe also possiblethattheanticipatedhigh purchasing anenergy-efficient car),itis (e.g. you coulddrive furtherafter may increase thedemandforusefulwork Third, whileimproved energyefficiency effect. could overestimate thedirectrebound energy prices.Asaresult,suchstudies may overestimate theresponsetofalling prices, theestimatedpriceelasticities incorporate periodsofrisingenergy studies basedupontimeseriesdata reductions for improvements inenergyefficiencyis medium-term. Buttheappropriateproxy largely irreversible over theshortto measures suchasthermalinsulationis (Grubb, 1995).Also, investment in may alsobecomeembodiedinregulations improvements inenergyefficiency, which higher energypricesinducetechnological mid-1980s. Anexplanationmay bethat demand followingthepricecollapseof times greaterthantheincreasein in energyprices.Sincemany 37
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 38
studies include the ‘endogenous’ since improvements in energy efficiency variable(s) within a single equation and do will have an increasingly small impact on not use appropriate techniques to the total cost of useful work (Binswanger, estimate this equation, the resulting 2001). This suggests that estimates of the estimates could be biased. Several studies direct rebound effect that do not control of direct rebound effects could be flawed for increases in time costs (which is for this reason. correlated with increases in income) could potentially overestimate the direct Finally, consumers may be expected to rebound effect. Box 3.2 shows how this take the full costs of energy services into could be particular relevant to direct account when making decisions about the rebound effects in transport. consumption of those services and these include the time costs associated with The consideration of time costs also points producing and/or using the relevant to an important but relatively unexplored service - for example, the time required to issue: increasing time efficiency may lead travel from A to B. Indeed, the increase in to a parallel ‘rebound effect with respect energy consumption in industrial societies to time’ (Binswanger, 2001; Jalas, 2002). over the past century may have been For example, faster modes of transport driven in part by attempts to ‘save time’ may encourage longer commuting (and hence time costs) through the use of distances, with the time spent commuting technologies that allow tasks to be remaining broadly unchanged.24 So in completed faster at the expense of using some circumstances energy consumption more energy. For example, travel by may be increased, first, by trading off private car has replaced walking, cycling energy efficiency for time efficiency (e.g. and public transport; automatic washing choosing air travel rather than rail) and machines have replaced washing by hand; second, by the rebound effects with fast food and ready meals have replaced respect to time (e.g. choosing to travel traditional cooking and so on. While not all further). energy services involve such trade-offs, many do (compare rail and air travel for example). Time costs may be 3.7 Summary approximated by hourly wage rates and since these have risen more rapidly than • Evidence for the direct rebound effect energy prices throughout the last century, for automotive transport and there has been a strong incentive to household heating within developed The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: substitute energy for time (Becker, 1965). countries is relatively robust. If time costs continue to increase in Evidence for direct rebound effects for importance relative to energy costs, the other consumer energy services is direct rebound effect for many energy much weaker, as is that for energy services should become less important – efficiency improvements by
24 In the UK, the time spent travelling increased by only 17% between 1975 in 2005, while the total distance travelled increased by 52% (Department of Transport, 2006).
38 S4134
12/10/07 • •
smaller forotherconsumerenergy that directreboundeffectsshouldbe available empiricalevidencesuggest theoretical considerations andthe saturates andincomeincreases.Both to declineinthefutureasdemand the directreboundeffectisexpected closer to10%fortransport. Moreover, likely tobelessthan30%andmay be value ofthedirectreboundeffectis cooling inOECDcountries,themean household heatingand For personalautomotive transport, services shouldbelessthan100%. rebound effectformostenergy OECD countries,thelong-rundirect is generally foundtobeinelasticin services. Sincethedemandforenergy direct reboundeffectsforthose bound fortheweightedaverage of should provide anapproximate upper demand), theownpriceelasticity services (e.g.householdfuel demand relatestoagroupofenergy that service.Ifthemeasuredenergy bound forthedirectreboundeffect service shouldprovide anupper demand foranindividualenergy of theown-priceelasticityenergy Under certainassumptions,estimates in developed countries. this contextwillbelargerthanthose suggest thatdirectreboundeffectsin although theoreticalconsiderations improvements indeveloping countries weak forenergyefficiency producers. Evidenceisparticularly 13:56
Page
39 • • energy services. extending estimatestoincludeother services studiedhereandfor direct reboundeffectfortheenergy exists forimproving estimatesofthe overestimated. Considerable scope lead thedirectreboundeffecttobe most likely effectofthelatteristo studies appearvulnerable tobias.The estimates frommany econometric ‘evaluation studies’ispoor, whilethe The methodologicalqualityofmany space coolingforthefirsttime. consumers’ acquiringservicessuchas studies donotaccountfor‘marginal among lowincomegroupsandmost energy servicesarealsohigher effects forspaceheatingandother changes invehicle size. Rebound transport anddonotmeasure distance driven forautomotive studies onlymeasuretheincreasein been employed. For example,current definitions of‘usefulwork’thathave been studiedandtherestrictive which directreboundeffectshave relatively limitedtimeperiodsover number ofqualifications,includingthe These conclusionsaresubjecttoa energy services. efficiency improvements inconsumer offset theenergysavings fromenergy rebound effectsshouldonlypartially least forOECDcountries,direct proportion oftotalcosts.Hence,at services whereenergyformsasmall 39
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134
40 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency 12/10/07
13:56
Page
40 S4134 12/10/07 13:56 Page 41
20 25
15 30
4. The evidence for indirect and economy-wide rebound effects
This section summarises the empirical relevance of this approach is open to evidence for indirect and economy-wide question. Also, despite the widespread rebound effects, focusing upon the limited use of such models, there are only a number of studies that provide handful of applications to the rebound quantitative estimates of these effects. effect. Section 4.5 describes an This is separate from the more ‘indirect’ alternative ‘macro-econometric’ approach evidence for economy-wide rebound that can overcome some of these effects that is the subject of Section 5. A weaknesses, and summarises the results full examination of this evidence is of a recent application of this approach to contained in Technical Report 4 and the UK economy. Section 4.6 concludes. Technical Report 5.
Indirect rebound effects derive from two sources: the energy required to produce 4.1 Embodied energy – the and install the measures that improve limits to substitution energy efficiency, such as thermal insulation, and the indirect energy Many improvements in energy efficiency consumption that results from such can be understood as the ‘substitution’ of improvements. The first of these relates capital for energy within a particular to energy consumption that occurs prior system boundary. For example, thermal to the energy efficiency improvement, insulation (capital) may be substituted for while the second relates to energy fuel (energy) to maintain the internal consumption that follows the temperature of a building at a particular improvement. Sections 4.1 and 4.2 level. It is these possibilities that form the describe the mechanisms responsible for basis of estimated ‘energy saving’ each. potentials in different sectors. However, estimates of energy savings typically Section 4.3 examines the limited neglect the energy consumption that is empirical evidence for indirect rebound required to produce and maintain the effects, focusing on studies that estimate relevant capital - frequently referred to as the ‘embodied’ energy associated with embodied energy. For example, energy is different categories of consumer goods required to produce and install home and services. Despite the apparent insulation materials and energy efficient potential of this approach, there appear to motors. Substituting capital for energy be very few applications to the rebound therefore shifts energy use from the effect. energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: sector in which it is used to sectors of the Section 4.4 examines the evidence for economy that produce that capital. As a economy-wide rebound effects available result, energy use may increase from computable general equilibrium elsewhere in the economy (Kaufmann and (CGE) models of the macro-economy. Azary-Lee, 1990). These simulate the full range of Figure 4.1 provides a graphical mechanisms responsible for rebound interpretation of this process (Stern, effects, but the realism and policy 1997). Here, the function F(K) represents
41 S4134 12/10/07 13:56 Page 42
20 25 20 25 15 30 15 30
the different combinations of energy (E) the reduced energy costs, which may not and capital (K) that may be used to always be the case. Also, market provide a given level of output for a imperfections may distort the relevant particular firm or sector. But this capital prices and costs. also has indirect energy consumption In contrast to other sources of the associated with it, elsewhere in the economy-wide rebound effect, the economy, represented by the function contribution from this source may be G(K). The summation of the two gives the expected to be smaller in the long-term total energy H(K) used in the economy as than in the short-term. This is because the a whole to produce the given level of embodied energy associated with capital output. It can be seen that: first, the net equipment is analogous to a capital cost energy savings from the substitution of and hence diminishes in importance capital for energy will be less than the relative to ongoing energy savings as the energy savings within the firm or sector in lifetime of the investment increases. which the substitution takes place; and second, when capital inputs exceed a Some authors argue that similar certain level (K’), the indirect energy conclusions apply to the substitution of consumption will exceed the direct energy labour for energy, since energy is also savings – leading to backfire for the required to feed and house workers and economy as a whole, even when the thereby keep them economically individual firm or sector reduces energy productive (Kaufmann, 1992). However, consumption and when output from this there is some dispute over whether and sector is unchanged. how to account for the ‘energy cost of labour’ (Costanza, 1980).26 Similarly, In practice, backfire from this source while economists conventionally alone appears rather unlikely, since the distinguish between substitution and cost of an energy efficient technology technical change (Box 2.1), the latter is should reflect the cost of the embodied also associated with indirect energy energy (Webb and Pearce, 1975). If the consumption since it is embodied in latter exceeds the saving in energy costs, capital goods and skilled workers (Stern it is unlikely that the investment would be and Cleveland, 2004). cost-effective.25 However, this assumes that the sole benefit of the investment is
25 Note that this argument applies to measures of energy consumption weighted by the relative price of different energy carriers The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: and not to energy consumption measured simply in terms of heat content.
26 Costanza (1980) estimates the energy cost of labour as the energy associated with all personal consumption expenditures. These energy costs are then assigned to individual goods and services in proportion to the labour required to produce them. Double counting is avoided by changing the boundaries of the traditional economic input-output analysis. The net result is to greatly increase the embodied energy estimated to be associated with labour-intensive goods and services. With this approach, the ‘embodied energy intensity’ of most sectors (excluding primary energy) is found to be broadly comparable. However, this conclusion depends entirely upon the particular methodology for calculating the energy cost of labour. This is quite different from conventional accounting approaches, which estimate much lower energy intensities for many sectors and greater variation between them. It also implicitly assumes that all personal consumption expenditures are necessary to support labour, which appears unjustified.
42 S4134 12/10/07 13:56 Page 43
20 25
15 30
Figure 4.1 The limits to substitution Source: Stern (1997)
Energy - E
H (K)
G (K)
F (K)
K’ Capital - K
In principle, an assessment of the 4.2 Secondary effects embodied energy associated with a particular energy efficiency improvement Energy efficiency improvements may should take into account the relevant themselves change the demand for other alternatives. For example, a mandatory goods and services. For example, the requirement to replace existing purchase of a more fuel-efficient car may refrigerators with more energy efficient reduce demand for public transport, but at models may either increase or decrease the same time increase the demand for aggregate energy consumption over a leisure activities that can only be accessed particular period of time, depending upon with a private car (Binswanger, 2001). the age of the existing stock, the lifetime Each of these goods and services will have of the new stock, and the direct and an indirect energy consumption indirect energy consumption associated associated with them and the changed with different models of refrigerator. In pattern of demand may either increase practice, however, such estimates appear overall energy consumption or reduce it. to be rare, with most analysts focusing The net impact of such effects will be instead upon the ‘energy return on energy specific to both individual technologies invested’27 for different energy supply and individual consumers and can also be options (Cleveland, 1992).28 very difficult to estimate. energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect:
27 The Energy Returned on Energy Invested (EroEI) is the ratio of the usable energy acquired from a particular energy resource to the amount of energy expended to obtain that energy resource. In principle, when the EROEI of a resource is equal to or lower than 1, that energy source can no longer be used as a primary source of energy. However, this measure neglects the relative economic productivity of different energy forms. When this is taken into account, resources with an EroEI of less than unity may still be economic to extract.
28 Studies based upon embodied energy have fallen out of favour since the 1980s, when they were often associated with somewhat controversial ‘energy theories of value’ (Söllner, 1997). But there is no necessary link between these theories and use of ‘embodied energy’ estimates in empirical research. Consideration of rebound effects may provide a motivation for reviving this area of research.
43 S4134 12/10/07 13:56 Page 44
20 25 20 25 15 30 15 30
Very similar effects will result from energy encouraging investment, stimulating efficiency improvements by producers. economic growth and further stimulating For example, energy efficiency the demand for energy. In some improvements in steel production should circumstances, such improvements could reduce the cost of steel and (assuming also change trade patterns and these cost reductions are passed on in international energy prices and therefore lower product prices)29 reduce the input impact on energy consumption in other costs of manufacturers that use steel. This countries. in turn should reduce the cost of steel A number of analysts have claimed that products and increase demand for those the secondary effects from energy products. Such improvements could, for efficiency improvements in consumer example, lower the cost of passenger technologies are relatively small (Lovins, cars, increase the demand for car travel et al., 1988; Greening and Greene, 1998; and thereby increase demand for motor- Schipper and Grubb, 2000). This is fuel. because energy makes up a small share of This example demonstrates how energy total consumer expenditure and the efficiency improvements could lead to a energy content of most other goods and series of adjustments in the prices and services is also small. For example, quantities of goods and services supplied suppose energy efficiency improvements throughout an economy. If the energy reduce natural gas consumption per unit efficiency improvements are widespread, of space heated by 10%. If there is no the price of energy intensive goods and direct rebound effect, consumers will services may fall to a greater extent than reduce expenditure on natural gas for that of non-energy intensive goods and space heating by 10%. If natural gas for services, thereby encouraging consumer heating accounts for 5% of total demand to shift towards the former. If consumer expenditure, consumers will energy demand is reduced, the resulting experience a 0.5% increase in their real fall in energy prices will encourage greater disposable income. If all of this were energy consumption by producers and spent on motor-fuel for additional car consumers and will feed through into travel, the net energy savings (in kWh lower product prices, thereby encouraging thermal content) will depend upon the further shifts towards energy intensive ratio of natural gas prices to motor-fuel commodities. Reductions in both energy prices, and could in principle be more or prices and product prices will increase less than one.30 In practice, however, The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: consumers’ real income, thereby motor-fuel only accounts for a portion of increasing demand for products, the total cost of car travel and car travel
29 Product prices will only fall if a sufficiently large number of domestic firms within the sector benefit from the energy efficiency improvement and will be limited by the extent to which the product market is exposed to international competition.
30 Chalkley et al. (2001) provide an example of the replacement of an inefficient (C-rated) refrigerator with an efficient (A-rated)
model. Lifetime carbon savings for the refrigerator are estimated at 1645 kgCO2 and lifetime cost savings at £120.57. If these cost savings were spent wholly on gasoline, the indirect CO2 emissions would be 358 kg, giving an indirect rebound effect, in carbon terms, of 22%. However, spending all of the cost savings on gasoline is unrealistic.
44 S4134 12/10/07 13:56 Page 45
20 25
15 30
only accounts for a portion of total particular technology could be substantial consumer expenditure. For the great and may even exceed the direct energy majority of goods and services, input- savings. output data suggests that the effective expenditure on energy should be less than 15% of the total expenditure. Hence, by 4.3 Evidence for limits to this logic, the secondary effect should be only around one tenth of the direct effect substitution (Greening and Greene, 1998). Some indication of the importance of Entirely analogous arguments apply to the embodied energy may be obtained from secondary effects for producers, such as estimates of the own-price elasticity of in the steel example above. Since energy aggregate primary, secondary or final forms a small share of total production energy demand. In principle, this costs for most firms and sectors (typically measures the scope for substituting <3%) and since intermediate goods form capital, labour and materials for energy, a small share of the total costs of most while holding output constant. Most final products, the product of these energy price elasticities are estimated at suggests an indirect effect that is much the level of individual sectors and smaller than the direct effect (Greening therefore do not reflect all the embodied and Greene, 1998). energy associated with capital, labour and materials inputs. Since the own-price However, while plausible, these elasticity of aggregate energy reflects this arguments are not supported by the indirect energy consumption, it should in results of several of the quantitative principle be smaller than a weighted studies discussed below. Moreover, they average of energy demand elasticities assume that the only effect of the energy within each sector. However, the efficiency improvement is to reduce aggregate elasticity may also reflect expenditure on energy. But as argued in price-induced changes in economic Section 2, improvements in the energy structure and product mix which in efficiency of production processes are principle could make it larger than the frequently associated with improvements average of sectoral elasticities (Sweeney, in the productivity of capital and labour as 1984). These two mechanisms therefore well and therefore lead to cost savings act in opposition. that exceed the savings in energy costs
alone. In some cases, similar arguments Based in part upon modelling studies, energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: may apply to energy efficiency Sweeney (1984) puts the long-run improvements by consumers: for elasticity of demand for primary energy in example, a shift from car travel to cycling the range -0.25 to -0.6. In contrast, could save on depreciation and Kaufmann (1992) uses econometric maintenance costs for vehicles as well as analysis to propose a range from -0.05 to motor-fuel costs (Alfredsson, 2004). In -0.39, while Hong (1983) estimates a these circumstances, the secondary value of -0.05 for the US economy. A low effects that result from the adoption of a value for this elasticity may indicate a
45 S4134 12/10/07 13:56 Page 46
20 25 20 25 15 30 15 30
limited scope for substitution and hence as 83% (Box 4.1). But since their the potential for large indirect rebound methodology is crude and the results effects.31 But this interpretation is not specific to the US context, this study straightforward, since direct rebound provides little indication of the magnitude effects also contribute to the behaviour of these effects more generally. being measured. Also, measures of the Estimates of the embodied energy of quantity and price of ‘aggregate energy’ different categories of goods and services are sensitive to the methods chosen for can be obtained from input-output aggregating the prices and quantities of analysis, life-cycle analysis (LCA) or a individual energy carriers, while the price combination of the two (Chapman, 1974; elasticity will also depend upon the Herendeen and Tanak, 1976; Kok, et al., particular composition of price changes 2006). A full life-cycle analysis is time (e.g. increases in oil prices relative to gas) consuming to conduct and must address (EMF 4 Working Group, 1981). In problems of ‘truncation’ (i.e. uncertainty particular, when different energy types over the appropriate system boundary)32 are weighted by their relative marginal and joint production (i.e. how to attribute productivity, the estimated elasticities energy consumption to two or more tend to be lower (Hong, 1983) As a result, products from a single sector) (Leach, the available estimates of aggregate price 1975; Lenzen and Dey, 2000). Hence, elasticities may be insufficiently precise to many studies combine standard economic provide much indication of the magnitude input-output tables with additional of indirect rebound effects. information on the energy consumption of Relatively few empirical studies have individual sectors, to give a investigated the embodied energy comprehensive and reasonably accurate associated with specific energy efficiency representation of the direct and indirect improvements and those that have appear energy required to produce rather to focus disproportionately upon domestic aggregate categories of goods and buildings. In a rare study of energy services. More detailed, LCA-based efficiency improvements by producers, estimates are available for individual Kaufmann and Azary Lee (1990) estimate products such as building materials, but that, in the US forest products industry results vary widely from one context to over the period 1954 to 1984, the another depending upon factors such as embodied energy associated with capital the fuel mix for primary energy supply equipment offset the direct energy (Sartori and Hestnes, 2007). The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: savings from that equipment by as much
31 This is in contrast to the own-price elasticity of energy demand for an individual energy service, where high values may indicate the potential for large direct rebound effects.
32 For example, should the indirect energy costs of a building also include the energy used to make the structural steel and mine the iron ore used to make the girders? This is referred to as the truncation problem because there is no standard procedure for determining when energy costs become small enough to neglect
46 S4134 12/10/07 13:56 Page 47
20 25
15 30
Box 4.1 Limits to substitution for producers
Kaufmann and Azary Lee (1990) examined the embodied energy associated with energy efficiency improvements in the US forest products industry over the period 1954 to 1984. First, they estimated a production function for the output of this industry and used this to derive the ‘marginal rate of technical substitution’ (MRTS) between capital and energy in a given year - in other words, the amount of gross fixed capital that was used to substitute for a thermal unit of energy in that year. Second, they approximated the embodied energy associated with that capital by means of the aggregate energy/GDP ratio for the US economy in that year - hence ignoring the particular type of capital used, as well as the difference between the energy intensity of the capital producing sectors and that of the economy as a whole. The product of these two variables gave an estimate of the indirect energy consumption associated with the gross capital stock used to substitute for a unit of energy. This was then multiplied by a depreciation rate to give the energy associated with the capital services used to substitute for a unit of energy.
Finally, they compared the estimated indirect energy consumption with the direct energy savings in the forest products sector in each year. Their results showed that the indirect energy consumption of capital offset the direct savings by between 18 and 83% over the period in question, with the net energy savings generally decreasing over time. The primary source of the variation was the increase in the MRTS over time, implying that an increasing amount of capital was being used to substitute for a unit of energy. However, the results were also influenced by the high energy/GDP ratio of the US economy, which is approximately twice that of many European countries. Overall, the calculations suggest that the substitution reduced aggregate US energy consumption, but by much less than a sector-based analysis would suggest. Also, their approach did not take into account any secondary effects resulting from the energy efficiency improvements.
The simplicity of this approach suggests the scope for further development and wider application. Accuracy could be considerably improved by the use of more flexible production functions and more precise estimates for the indirect energy consumption associated with specific types and vintages of capital goods. However, to date no other authors appear to have applied this approach to particular industrial sectors or to have related it to the broader debate on the rebound effect. The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect:
47 S4134 12/10/07 13:56 Page 48
20 25 20 25 15 30 15 30
As an illustration, Sartori and Hestnes years), while the corresponding period for (2007) reviewed 60 case studies of double glazing is several years. In other buildings, and found that the share of cases, for example condensing boilers embodied energy in life-cycle energy compared to conventional boilers, the consumption ranged between 9 and 46% variation of embodied energy within for low energy buildings and between 2 individual categories of boiler exceeds the and 38% for conventional buildings – with difference between them. Hence, the the wide range reflecting different building contribution of embodied energy to the types, material choices and climatic economy-wide rebound effect appears to conditions. Two studies that controlled for vary widely from one situation to another these variables found that low energy and is inversely proportional to the designs could achieve substantial lifetime of the energy saving measure. reductions in operating energy But the patchy nature of this evidence consumption with relatively small base, the lack of systematic comparisons increases in embodied energy, leading to of energy efficiency options and the ‘payback periods’ for energy saving of as dependence of the results on particular little as one year (Feist, 1996; Winther contexts all make it difficult to draw any and Hestnes, 1999). Similar calculations general conclusions. were performed by the Royal Commission on Environmental Pollution (2007), who estimate a 15 year simple payback (in 4.4 Evidence for secondary energy terms) for low energy new build houses in the UK. However, Casals (2006) effects shows how the embodied energy of such By combining estimates of the embodied buildings could offset operational energy energy associated with different savings, even with an assumed 100 year categories of goods and services with lifetime. Such calculations typically survey data on household consumption neglect differences in energy quality and patterns, it is possible to estimate the the results are sensitive to context, design total (direct plus indirect) energy and building type. However, the increasing consumption of different types of availability of embodied energy household; together with the indirect coefficients at a national level (e.g. Alcorn energy consumption associated with and Baird (1996)) suggests the scope for
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: particular categories of expenditure (Kok, greater use of such estimates in policy et al., 2006). It is often found that the evaluation. indirect energy consumption of households exceeds the direct In the case of existing buildings, several consumption. Moreover, while indirect studies suggest that retrofits of thermal energy consumption increases with insulation pay for themselves in terms of income, direct energy consumption shows energy savings within a few months signs of saturation - suggesting that (compared to a useful life in excess of 25
48 S4134 12/10/07 13:56 Page 49
20 25
15 30
indirect energy consumption is becoming effect of a 20% improvement in the increasingly important over time.33 energy efficiency of personal transport (all modes) and space heating in Sweden. If this data is available at a sufficiently They estimate an econometric model of disaggregated level, it could also be used aggregate household expenditure, in to estimate the secondary effects which the share of total expenditure for associated with energy efficiency thirteen types of good or service is improvements by households - provided expressed as a function of the total that additional information is available on budget, the price of each good or service either the cross price elasticity between and an overall price index. This allows the different product and service categories, own-price, cross-price and income or the marginal propensity to spend34 of elasticities of each good or service to be different income groups. By combining estimated.36 Energy efficiency the estimates of embodied energy and improvements reduce the cost of secondary effects, an estimate of the total transport and heating and lead to indirect rebound effect may be obtained. substitution and income effects that Such approaches are ‘static in that they change overall demand patterns (e.g. do not capture the full range of price and improvements in transport efficiency are quantity adjustments, but could estimated to increase demand for clothes nevertheless be informative.35 However, but to decrease demand for beverages). of the 19 studies in this area reviewed by By combining these estimated changes in Kok, et al. (2006), only three were demand patterns with CO emission considered to have sufficient detail to 2 coefficients for each category of good and allow the investigation of such micro-level service (based upon estimates of direct changes – largely because they combined and indirect energy consumption) input-output with LCA data (Bullard, et al., Brännlund et al. find that energy 1978). Hence, estimation of secondary efficiency improvements in transport and effects by this route appears to be in its heating lead to (direct + indirect) infancy. rebound effects (in carbon terms) of Three studies that use this general 120% and 170% respectively. approach are summarised here. First, Brännlund et al.’s results are heavily Brännlund et al. (2007) examine the dependent on the assumed carbon
33 Results vary widely with country, time period and methodology. For example, Herendeen (1978) found that indirect energy
consumption in Norway accounted for one third of total energy consumption for a poor family and approximately two thirds for energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: a rich family. Vringer and Blok (1995) found that 54% of total energy demand in Dutch households was indirect, while Lenzen (1998) found that 30% of total energy demand in Australian households was indirect.
34 Defined as the change in expenditure on a particular product or service, divided by the change in total expenditure. The marginal propensity to spend on different goods and services varies with income and it is an empirical question as to whether the associated indirect energy consumption is larger or smaller at higher levels of income. However, the greater use of energy intensive travel options by high income groups (notably flying) could be significant in some cases.
35 In technical terms, these provide a partial equilibrium analysis, as distinct from the general equilibrium analysis provided by CGE models.
36 Brännlund et al. employ Almost Ideal Demand (AID) model, which has been shown to have a number of advantages over other models of consumer demand (Deaton and Mulbauer, 1980; Xiao, et al., 2007). The model relies on the assumption of ‘staged-budgeting’: for example consumers are assumed to first decide on the proportion of their budget to spend on transport, and then to decide how to allocate their transport budget between different modes. While analytically convenient, this assumption is likely to be flawed. 49 S4134 12/10/07 13:56 Page 50
20 25 20 25 15 30 15 30
emission coefficients, but the source of secondary effects from re-spending these is not made explicit. The results also reduce the overall energy savings by contradict the econometric evidence on almost one third. A comprehensive switch direct rebound effects, since carbon to green consumption patterns in travel, emissions for heating and transport are food and housing is estimated to have a estimated to increase. Furthermore, rebound effect of 35%. Brännlund et al. use an iterative Secondary effects are relatively large in estimation procedure, but only present this example because ‘green’ consumption the results from the first estimation step. reduces expenditure on more than energy This weakness is overcome by Mizobuchi alone. Also, the results from such studies (2007), who follows a very similar depend upon the methodology and approach to Brännlund et al, but applied assumptions used, as well as the types of to Japanese households. Despite the household analysed and the particular differences in data sources and estimation shifts in consumption patterns that are procedures, the estimated rebound effects explored. For example, a more recent are broadly the same. However, Mizobuchi study (Kanyama, et al., 2006) using a also examines the effect of the additional similar model and approach to Alfredsson, capital cost of energy efficient equipment but employing Swedish rather than Dutch and finds that these reduce the rebound data on energy intensity, finds that a shift effect significantly. to ‘green’ food consumption could reduce The third example adopts a different overall energy consumption. Closer approach, using data on the marginal examination reveals that this result propensity to spend of different income follows largely from the assumption that groups in Sweden. Alfredsson (2004) greener diets are more expensive (owing calculates the direct and indirect energy to the higher cost of locally produced consequences of ‘greener’ consumption organic food), thereby leading to a patterns, which include both technical negative ‘re-spending’ effect. changes, such as buying a more fuel- In sum, the potential of embodied energy efficient car, and behavioural changes approaches to estimating secondary such as car sharing. In the case of effects has yet to be fully explored. While ‘greener’ food consumption (e.g. shifts the studies reviewed here suggest that towards a vegetarian diet), the total secondary effects may sometimes be energy consumption associated with food larger than commonly assumed, the items is reduced by around 5% and total The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: conclusions may change once expenditure on food items is reduced by methodological weaknesses are 15%. But the re-spending of this money addressed or a different choice of on a variety of items, notably travel and independent variable is made. Hence, at recreation, leads to indirect energy present the available evidence is too small consumption that more than offsets the to permit any general conclusions to be original energy savings (i.e. backfire). The drawn. results for a shift towards ‘greener’ travel patterns are less dramatic, but the
50 S4134 12/10/07 13:56 Page 51
20 25
15 30
4.5 Evidence for economy- energy studies (Bhattacharyya, 1996), it is only recently that attempts have been wide effects from general made to quantify economy-wide rebound equilibrium models effects in this way.37 The literature is therefore extremely sparse, but now The economy-wide rebound effect includes two insightful studies represents the sum of the direct and commissioned by the UK government indirect rebound effects and will depend (Allan, et al., 2006; Barker and Foxon, upon the size, nature and location of the 2006). A key distinction is between energy efficiency improvements. Given Computable General Equilibrium (CGE) the number of confounding variables, it is models of the macroeconomy and those likely to be very difficult to estimate based upon econometrics. This section through the econometric analysis of discusses some results from CGE models, secondary data. while Section 4.5 discusses an application One approach, although it would not of a macro-econometric model to the permit quantification of the overall effect, rebound effect. would be to identify those variables that Computable General Equilibrium (CGE) should influence the size of direct and models are widely used in the indirect effects and to estimate these investigation of energy and climate policy, empirically. Direct rebound effects for partly as a consequence of the ready producers, for example, should be availability of modelling frameworks and influenced by the own-price elasticity of the associated benchmark data. This demand for the relevant products, the approach is informed by neoclassical share of energy in the total cost of economic theory, but can deal with production and the extent to which the circumstances that are too complex for cheaper energy services are able to analytical solutions. substitute for capital, labour and materials (Saunders, 1992; Allan, et al., 2006). CGE models are calibrated to reflect the Rebound effects may be expected to be structural and behavioural characteristics larger in energy intensive sectors and also of particular economies and in principle where the input mix is fairly flexible and can indicate the approximate order of where the demand for products is magnitude of direct and indirect rebound effects from specific energy efficiency relatively price-elastic. improvements. A CGE model should allow
An alternative approach is to estimate the the impacts of such improvements to be energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: magnitude of economy-wide effects isolated, since the counterfactual is simply through energy-economic models of the a model run without any changes in macro-economy (Grepperud and energy efficiency, as well as allowing the Rasmussen, 2004). Despite the rebound effect to be decomposed into its widespread use of such models within constituent components, such as
37 A special edition of the Energy Policy journal published in 2000 provides a invaluable account of the state of the debate at that time, but does not include any modelling estimates of economy-wide rebound effects (Schipper, 2000)
51 S4134 12/10/07 13:56 Page 52
20 25 20 25 15 30 15 30
substitution and output effects. In (>50%) or backfire. The latter was found principle, CGE models also provide scope in two studies of economies in which for sensitivity analysis, although in energy forms an important export and practice this appears to be rare. import commodity, suggesting that this is a potentially important and hitherto CGE models have a number of limitations neglected variable. Allan et al. (2006) find (see Box 4.2) that have led many authors a long-term rebound effect of 31% from to question their realism and policy across-the-board improvements in the relevance (Barker, 2005). While energy efficiency of UK production sectors, developments in CGE methodology are including primary energy supply. This beginning to overcome some of these study is summarised in Box 4.3. weaknesses, most remain. Also, the predictive power of such models is rarely The results suggest that the magnitude of tested and different models appear to rebound effect depends upon a wide range produce widely varying results for similar of variables. While Saunders (1992) and policy questions (Conrad, 1999). Hence, others stress the importance of the while CGE models may provide valuable ‘elasticity of substitution’ between energy insights, the quantitative results of such and other inputs in production (Box 4.4), models should be interpreted with caution. other characteristics such as the elasticity of supply of capital and labour, the own- Eight CGE modelling studies of rebound price elasticity of demand for the product effects have been identified and reviewed of each sector, the energy intensity of (Table 4.1). These models vary producing sectors, the scope for considerably in terms of the production substitution between different functions used, the manner in which consumption goods, the income elasticity different inputs are combined (the of the demand for goods and the manner ‘nesting’ structure), the assumed scope in which government revenue is for substitution between different inputs, redistributed are also potentially the treatment of labour supply, the important. The contrasting results of manner in which government savings are Hanley et al. (2005) for the Scottish recycled and other key parameters. These economy (rebound >100%) and Allan et studies also vary widely in their simulation al. (2006) for the UK economy (rebound ~ of energy efficiency improvements, with 37%) are revealing, since the assumed some introducing an across the board improvement in energy efficiency is the improvement and others introducing a same in both cases (5% in all production specific improvement in an individual sectors). The difference is primarily due to The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: sector, or combination of sectors. This the relative sensitivity of export demand diversity, combined with the limited to changes in energy efficiency. While both number of studies available again makes it studies assume that energy efficiency difficult to draw any general conclusions. improvements are made in electricity The most notable result is that all of the generation, it is only in the Scottish case studies find economy-wide rebound that this leads to a substantial increase in effects to be greater than 37% and most electricity exports – and hence in domestic studies show either large rebounds energy consumption.
52 S4134 12/10/07 13:56 Page 53
20 25
15 30
Box 4.2 Limitations of CGE models
• Market and behavioural assumptions: CGE models are based upon a number of standard neo- classical assumptions (e.g. utility maximization; perfect competition; constant returns to scale in production; etc.) that are poorly supported by empirical evidence. In particular, the possibility of ‘win-win’ policies, such as those aimed at encouraging energy efficiency, may be excluded if an economy is assumed to be at an optimal equilibrium.
• Functional Forms: The choice of utility and production functions is governed by the need for convenience and solvability, rather than realism and generally imposes restrictions on the behaviour of the economy being modelled. The choice of a different production function can lead models to predict different outcomes to an identical policy change. The most common approach is the ‘nested constant elasticity of substitution’ (CES) production function, but the manner in which this is implemented varies widely from one model to another. This structure also assumes that the optimum ratio of two inputs that are grouped together in a ‘nest’ is unaffected by either the level or price of other inputs (‘separability’). However, this assumption is generally not supported by empirical evidence (Frondel and Schmidt, 2004).
• Calibration and parameters: CGE models are calibrated to benchmark data from a single year and adjustments are made to the data to ensure that the equilibrium assumption holds. The choice of base year for calibration is somewhat arbitrary and may influence the results. Some parameter values will be determined through this calibration, while others will be set externally on the basis of econometric literature. However, the time periods/regions/sectors on which this literature is based may not be appropriate to the model application, and the process of compiling parameter values may not always be transparent. Assumed parameter values could have a significant influence on the model results, but the calibration approach provides no information on the statistical reliability of individual estimates. Sensitivity tests are possible, but these are frequently confined to a small number of relevant parameters. Also, the modeling typically rests on the implicit assumption that such parameters will remain stable over time.
• Sensitivity and transparency: There exists considerable variation between CGE models so that care needs to taken when comparing results. Changing some assumptions can sometimes generate very different simulated outcomes. The model results can be driven by assumptions that are not apparent to a reader not acquainted with the model. But CGE models are not necessarily a ‘black box’: transparency may be considerably improved by providing information on key features and assumptions and explaining model results with reference to economic theory.
• Treatment of Technical Change: In most CGE models, technological change is assumed to be The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: costless and exogenous and thus not related to or determined from within the system. A common approach is to assume that energy efficiency improves at a constant rate over time, but this fails to capture price/policy induced innovation and other characteristics of endogenous technical change.
• Time scales: Many (but not all) CGE models simulate equilibrium states of the economy and do not consider the dynamics of adjustment and the associated costs. The solutions are assumed to refer to the ‘long-run’, but the time period that this represents may be unclear. For example, transport and building infrastructures take much longer to adjust than other types of capital equipment. 53 S4134 12/10/07 13:56 Page 54
20 25 20 25 15 30 15 30
Table 4.1 Summary of CGE studies of rebound effects . Interpretation depends upon the nesting K), labour (L) and energy (E) inputs, could lasticity of substitution between (KL) and E. Intuitive presentation, no sensitivity tests, lack of transparency. Models efficiency improvementsgood in explanation domestic of the stoves. factors at Wide work. range of sensitivity tests and Coal intensive sectors benefit, asenergy does consumption. whole Also economy examines due cases to where high coal use use of is coal subject in to primary emissions tax. See Box 4.3 Applies to 1957-1962 period inand structure which are known combined changes in in turn. energy Results efficiency apply productivity only to energy efficiency componentPresentation unclear, althoughelasticity there of is substitution from some 0.3increases to sensitivity 0.7 analysis, as jointly including withsubstitution energy/value other elasticities varying parameters. increase. Rebound added, effect labour/capital and level of energy composite Comments Region is significantelectricity electricity exports exporter and result depends in part on increased Model is simulated dynamicallyeconomic growth, with labour a force counterfactual growth,assumed technological progress case until and 2050. in net which foreign projections debt are of world effect oil but central central 37% in 53% in >100% >100% >100% 50-60% rebound scenario scenario 47-77%. Small for Estimated electricity >100% for 100%,improvement in 150% efficiency ofburning wood- stoves and 200% energy production efficiency andimprovement an efficiency. in energy use compared to caseinvestments where generate costless investments and productivity increased in coal cleaning -increasing supply lowering price and energy usesectors across (including energy sectors). all production Assumedimprovements energy efficiency change in efficiency factorenergy for in use production of energy usesectors across all production 15% increase in energy efficiency in non-energy sectorsincrease in energy sectors. and 12% Doubling of growth ratesproductivity. of energy Fourelectricity efficiency sectors doubled, & two have have oil efficiency doubled. 1.0 Two scenarios: an improvement of 1.0 Business-as-usual scenario 0.3 5% improvement in efficiency of 0.4. 0.3. 5% improvement in efficiency of The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: with 0&1 range ESUB 0.2 and energy to 0.87. from 0.07 ) ) L L fuel, K, fuel, K, functions (KL)(EM Nesting structure or Sudan Utility Country region Kenya Elec, Sweden (KE)L Values Japan (KL)E 0.5. 1% in all sectors modelled as China Elec, Scotlan d UK (KL)(EM Norway (KE)L Between , et , et al ,2005 2004 et al 1994 Author/ Date Semboja, 1994a Dufournaud Vikstrom, 2004 Washida, 2004 Grepperud and Rasmussen Glomsrød and Taoyuan, 2005 Hanley al Allan 2006 take one of three forms, namely: K(LE); (KL)E; (KE)L. ESUB means the elasticity substitution between energy and other inputs take example, for K(LE) ESUB refers to the elasticity of substitution between L and E, while (KL)E it e structure. For Notes: The production functions combine inputs into pairs, or ‘nests’. For example, a nested production function with capital ( For Notes: The production functions combine inputs into pairs, or ‘nests’.
54 S4134 12/10/07 13:56 Page 55
20 25
15 30
Box 4.3 CGE estimates of economy-wide rebound effects for the UK
Allan et al. (2006) estimate economy-wide rebound effects for the UK following a 5% across-the-board improvement in the efficiency of energy use in all production sectors. Since their model allows for the gradual updating of capital stocks, they are able to estimate a short run rebound effect of 50% and a long-run effect of 31% (which contradicts most of the literature, which estimates long-run effects to be larger).
The energy efficiency improvements increase long-run GDP by 0.17% and employment by 0.21%. They have a proportionally greater impact on the competitiveness of energy intensive sectors which is passed through in lower product prices despite a 0.3% increase in real wages. Output is increased in all sectors, with the iron and steel and pulp and paper sectors benefiting the most with long-run increases of 0.67% and 0.46% respectively. In contrast, the output of the oil refining and electricity industries (i.e. oil and electricity demand) is reduced, with the price of conventional electricity falling by 24% in the long-run. This fall in energy prices contributes a significant proportion of the overall rebound effect and results from both cost reductions in energy production - due to the energy efficiency improvements - and reduced energy demand.
Allan et al. are using an economic rather than thermodynamic measure of energy efficiency, but a 5% improvement may nevertheless be impractical for industries such as electricity generation and oil refining which are operating close to thermodynamic limits. It would also require major new investment and take time to be achieved. The results suggest that the economy-wide rebound effect would be smaller if energy efficiency improvements were confined to energy users, but this scenario was not investigated. Moreover, the results suggest that energy efficiency improvements in the energy supply industry may be associated with large rebound effects.
A notable feature of this study is the use of sensitivity tests. Varying the assumed elasticity of substitution between energy and non-energy inputs between 0.1 and 0.7 (compared to a baseline value of 0.3) had only a small impact on economic output (from 0.16% in the low elasticity case to 0.10% in the high case), but a major impact on the rebound effect. This varied from 7% in the low case to 60% in the high case. Grepperud and Rasmussen (2004) report similar results, which highlights the importance of this parameter for CGE simulations. Unfortunately, as shown in Box 4.4, the empirical basis for this parameter is weak. The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: Varying the elasticity of demand for exports was found to have only a small impact on GDP and energy demand, suggesting that the energy efficiency improvements had only a small impact on the international competitiveness of the relevant industries. However, different treatments of the additional tax revenue were found to be important, with recycling through lower taxes increasing the rebound effect from 31% to 40%.
55 S4134 12/10/07 13:56 Page 56
20 25 20 25 15 30 15 30
Box 4.4 Parameterising CGE models
A key parameter in CGE models is the so-called elasticity of substitution between different inputs. This determines the extent to which one input can substitute for another while keeping output constant. The elasticity of substitution between energy and other inputs has a strong influence on the estimated magnitude of rebound effects (Grepperud and Rasmussen, 2004).
There are a large number of empirical estimates of elasticities of substitution between different inputs, within different countries and sectors and over different periods of time. In principle, this literature could be used as a basis for selecting appropriate parameter values in individual CGE models. In practice, however, there is only a tenuous relationship between the parameters estimated by empirical studies and those assumed by the models. In particular, CGE models: • use different types of production function from those estimated within empirical studies; • use different definitions of the elasticity of substitution from those estimated with empirical studies; • combine inputs into nests while most empirical studies do not; • assume that the scope for substitution within a nest is independent of the level or prices of other inputs, while most empirical studies do not; • make assumptions about the elasticity of substitution between different nests, while most empirical studies provide estimates of the elasticity of substitution between individual pairs of inputs.
In addition: the process of compiling parameter values is rarely transparent; sensitivity tests are uncommon; the empirical studies frequently apply to different sectors, time periods and levels of aggregation to those represented by the model; and different models use widely different assumptions. These observations suggest that the empirical basis for most CGE models is relatively weak.
All but one of the models explore the CGE models also simulate energy implications of energy efficiency efficiency improvements as pure ‘energy improvements in production sectors and augmenting technical change’, which is the CGE literature offers relatively little assumed to be costless. Of the studies The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: insight into the implications of energy reviewed here, only Allan et al. (2006) efficiency improvements in consumer consider the implications of additional goods. Since there are differences across costs associated with energy efficiency income groups, this would require a much improvements and they find that rebound greater detail on the demand side of the effects are correspondingly reduced. CGE models than is commonly the case, In summary, given the small number of together with more accurate studies available, the diversity of representations of household behaviour. approaches and the methodological
56 S4134 12/10/07 13:56 Page 57
20 25
15 30
weaknesses of the CGE approach, it is not of particular sectors, such as electricity possible to draw any general conclusions generation, where representation of regarding the size of economy-wide specific technologies is desirable. In rebound effect. Indeed, since the most contrast to their CGE counterparts, macro- important insight from this literature is econometric models do not rely upon that the economy-wide rebound effect restrictive assumptions such as constant varies widely from one circumstance to returns to scale and perfect competition. another, a general statement on the size They also replace the somewhat ad-hoc of such effects may be misleading. use of parameter estimates with Perhaps the most useful application of this econometric equations estimated for approach would be to investigate the individual sectors which implicitly reflect non-optimising behaviour, such as the determinants of rebound effects more apparent neglect of cost-effective systematically. It is worth noting, opportunities to improve energy efficiency. however, that the available studies However, this greater realism is achieved suggest that economy-wide effects are at the expense of greater complexity, more frequently large and that the potential for onerous data requirements and higher backfire cannot be ruled out. Moreover, costs in developing and maintaining such these effects derive from ‘pure’ energy models. This section describes the use of efficiency improvements and therefore do one such model (MDM-E3)39 to explore not rely upon simultaneous improvements economy-wide rebound effects in the UK in the productivity of capital and labour (Barker and Foxon, 2006; Barker, et al., inputs. 2007). At present, this appears to be the only application of such models to the economy-wide rebound effect.
4.6 Evidence for economy- MDM-E3 combines time-series econometric wide effects from macro- relationships and cross-sectional input- output relationships with detailed econometric models modelling of the energy sector (Junankar, Macro-econometric models can overcome et al., 2007). It distinguishes 27 several of the weaknesses of CGE investment sectors, 51 categories of modelling while at the same time providing household expenditure and 41 a greater level of disaggregation that industries/commodities. The model permits the investigation of specific includes equations for consumption, investment, employment and trade for
government policies. Their usefulness can energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: be further enhanced if they can be each of the 41 industries, together with effectively linked to ‘bottom-up models’38 equations for wage rates, output and
38 ‘Bottom-up’ or engineering-economic models usually focus upon individual sectors and energy services and contain detailed information on the performance and cost of energy-using equipment. They simulate the ageing and replacement of this equipment and seek to minimise the net cost of energy services given appropriate assumptions about individual and organisational investment behaviour.
39 The Cambridge Multisectoral Dynamic Model of the UK energy-environment-economy (MDM-E3) is developed and maintained by Cambridge Econometrics Ltd and also used by the Cambridge Centre for Climate Change Mitigation Research (4CMR) at the Department of Land Economy, University of Cambridge.
57 S4134 12/10/07 13:56 Page 58
20 25 20 25 15 30 15 30
commodity prices. The projected activity energy efficiency policies, together with levels are used as inputs to an energy sub- reference scenario that did not. The model, along with data on temperature and estimated net energy savings were energy prices and assumptions about included directly in the energy demand technical change. This leads to estimates of equations for each sector, the results of total energy demand, fuel and electricity which were then fed back into the use by 13 categories of user and electricity macroeconomic model. Given the prices. The sub-model then feeds this projected lower energy demand, lower information back into the main model by energy prices and hence lower energy adjusting the input-output coefficients for costs for each sector, the model projected producers and consumer expenditures on a range of secondary effects including energy.40 The two models are run increased output and changes in trade iteratively to reach a stable solution over patterns. The estimated investment costs the projection period. Both the main model of the energy efficiency measures were and electricity sub-model use modern also taken into account by including them ‘cointegration’ techniques to distinguish in the relevant investment equations. short-term dynamic responses from long- Overall, the cost-effective energy efficiency term relationships (Engle and Granger, measures contributed to a 1.26% increase 1987; Cambridge Econometrics, 2005) in GDP by 2010 (relative to the reference scenario) a 0.84% increase in employment In a study conducted on behalf of the UK and a slight increase in imports. Energy government, MDM-E3 was used to simulate consumption was 13.8% lower than in the the macroeconomic impact of a number of reference scenario, even after allowing for UK energy efficiency policies over the economy-wide rebound effects. period 2000 to 2010 (Barker and Foxon, 2006). The first stage was to develop Indirect rebound effects were estimated as exogenous estimates of the ‘gross’ energy the difference between the energy savings savings from each of these policies, the projected by the model and the estimated ‘net’ energy savings which allow for the net energy savings, expressed as a estimated direct rebound effects associated percentage of the estimated gross energy with each policy and the associated savings. The base run led to an estimated investment costs. While Barker and Foxon indirect rebound effect of 11% by 2010. (2006) state that the direct rebound effect Closer inspection shows that indirect from energy efficiency improvements by rebound effects were higher in the energy producers was assumed to be zero, the intensive industries (25%) and lower for output effects from such improvements are households and transport (7%) (the The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: subsequently modelled. Hence, it is the opposite to what was assumed for direct substitution effect from such effects). The primary source of the indirect improvements that is assumed to be zero. effects was substitution between energy and other goods by households, together The next stage was to run the model for a with increases in output by (particularly base case that included the full set of energy intensive) industry, which in turn
40 This contrasts with other model frameworks, in which projections from a macroeconomic model are simply used as inputs into an energy sub-model, without any feedback from the latter.
58 S4134 12/10/07 13:56 Page 59
20 25
15 30
led to increased demand for both energy rebound effects could be larger. Third, the and energy-intensive intermediate goods. model does not reflect the indirect energy Increases in consumers’ real income consumption embodied within the energy contributed relatively small rebound effects efficient technologies themselves. While (0.2%). the extra investment is taken into account, it appears to reduce the overall energy The direct rebound effects were estimated consumption associated with investment to reduce overall energy savings by 15%, rather than increase it. Finally, the model leading to an estimated economy-wide confines attention to national energy use rebound effect of 26% in 2010. Indirect and ignores the indirect energy effects appeared relatively insensitive to consumption associated with increased variations in energy and carbon prices. The imports and tourism. This omission could authors claim that the results support be significant from a climate change Grubb’s (1990) argument that policy- perspective, since it corresponds to ~40% induced energy efficiency improvements of the extra domestic output. are associated with small rebound effects because they focus on energy services with In sum, while greater confidence can be a low own-price elasticity as a consequence placed in this estimate of economy-wide of various market failures. This is rebound effects than those from CGE misleading, however: first, because this models, there are a number of reasons why argument applies to direct rebound effects this study may underestimate the full rather than the indirect effects being effect. Also, any similarity between this modelled; and second because these result and that of Allan et al. (2006) is services should become more price elastic spurious, since they use different if the market failures are overcome. approaches to model different types of rebound effect from different types and The macro-econometric approach size of energy efficiency improvement in exemplified by MDM-E3 appears to offer a different sectors. more robust approach to estimating economy-wide rebound effects than CGE modelling. Nevertheless, there are a number of reasons why this particular 4.7 Summary study may underestimate economy-wide • There are very few quantitative rebound effects. First, while output effects estimates of indirect and economy- are estimated, the substitution between wide rebound effects and those that (cheaper) energy services and other inputs are available have a number of flaws.
within production sectors is ignored. Also, While a number of methodological energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: the direct rebound effects for consumers approaches are available to estimate have to be estimated rather than modelled. these effects, the limited number of Second, the modelling implicitly assumes studies to date provides an insufficient ‘pure’ energy efficiency improvements, basis to draw any general conclusions. with no associated improvements in the productivity of other inputs. But if energy • Techniques are available to estimate efficient technologies are commonly the embodied energy associated with associated with such improvements, energy efficiency improvements, but
59 S4134 12/10/07 13:56 Page 60
20 25 20 25 15 30 15 30
the potential of these techniques has simultaneous improvements in the yet to be fully exploited. Most studies productivity of capital and labour. focus on domestic buildings and • The results of CGE studies results apply demonstrate that embodied energy solely to energy efficiency associated with energy efficient improvements by producers, so buildings varies widely between therefore cannot be extended to different building types, designs and energy efficiency improvements by contexts. In most cases, the embodied consumers. Also, the small number of energy is more than outweighed by the studies available, the diversity of direct energy savings during the approaches used and the building life-cycle, but the contribution methodological weaknesses of CGE of embodied energy to the economy- modeling all suggest the need for wide rebound effect is generally caution when interpreting these ignored. results. • The secondary effects associated with • In principle, more robust estimates of energy efficiency improvements by the economy-wide rebound effect may households may be estimated through be obtained from macro-econometric a combination of embodied energy models of national economies. Barker analysis and econometric models of and Foxon (2006) use this approach to consumer behaviour. Only a handful of estimate an economy-wide rebound studies have adopted this approach, effect of 26% from current UK energy and these give estimates of between efficiency policies. However, there are a 33% and 170% for direct and number of reasons why this study may secondary effects combined. However, have underestimated the economy- these studies have a number of wide rebound effect. weaknesses, and the results are very dependent upon the particular • The main insight from this evidence application as well as the data and base is the dependence of the methodologies employed. economy-wide rebound effects on the nature and location of the energy • CGE studies suggest that the efficiency improvement, which makes magnitude of economy-wide rebound any general statements regarding the effects depend very much upon the magnitude of such effects sector where the energy efficiency questionable. However, while little improvements take place and are confidence can be placed in the The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: sensitive to a number of variables. quantitative estimates, the frequent While only a handful of studies are finding that economy-wide rebound available, they suggest that economy- effects exceed 50% should give cause wide rebound effects may frequently for concern. Extending and improving exceed 50% and the potential for this evidence base should therefore be backfire cannot be ruled out. Moreover, a priority for future research. these rebound effects derive from ‘pure’ energy efficiency improvements and therefore do not rely upon
60 S4134 12/10/07 13:56 Page 61
5. The evidence for ‘backfire’
This section summarises the empirical made by other advocates of the K-B evidence for the Khazzoom-Brookes postulate, including Len Brookes himself postulate, focusing in particular on the (Brookes, 2000). work of W.S. Jevons, Len Brookes and Neither Brookes nor Saunders cite Harry Saunders. An in-depth examination empirical estimates of direct, indirect and of this evidence is contained in Technical economy-wide rebound effects, but Report 5. instead develop their case through a mix The ‘Khazzoom-Brookes’ (K-B) postulate of theoretical argument, mathematical claims that economy-wide rebound effects modelling, anecdotal examples and exceed unity, so that energy efficiency ‘suggestive’ evidence from econometric improvements lead to backfire. The term analysis and economic history (Box 5.1). was first coined by Saunders (1992) who It is these ‘indirect’ sources of evidence refers specifically to the energy efficiency that are reviewed in this section. None of improvements that result from technical this research provides quantitative change, rather than from the substitution estimates for the size of the economy- of other inputs for energy (Box 2.1). Also, wide rebound effect and the majority of Saunders’s statement of the K-B postulate the studies make no reference to the implies that ‘pure’ energy efficiency rebound effect at all. Instead, they improvements will increase energy provide evidence that may arguably be consumption, regardless of any used in support of the K-B postulate, associated improvements in the either on theoretical grounds or on the productivity of capital, labour and basis of historical experience. Like the K- materials. However, this distinction is not B postulate itself, this evidence frequently
Box 5.1 Sources of evidence considered indirectly relevant to the K-B postulate
• The relationship between macro-level energy productivity and micro-level thermodynamic efficiency (Berndt, 1978; 1990; Ang, 2006). • The relationship between energy productivity and total factor productivity (Schurr, 1982; 1983; 1985; Jorgenson, 1996). • The contribution of energy to economic growth (Toman and Jemelkova, 2003; Stern and Cleveland, 2004). • The implications of energy augmenting technical change within neoclassical The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: production and growth theory (Saunders, 1992; 2007). • Decomposition analysis of historical trends in energy consumption (Schipper and Grubb, 2000). • Econometric studies of the ‘causal’ relationships between energy consumption and economic growth (Kraft and Kraft, 1978; Stern, 1993). • Empirically validated alternatives to conventional models of economic growth that include energy or useful work as a factor of production (Kummel, et al., 2002; Ayres and Warr, 2005).
61 S4134 12/10/07 13:56 Page 62
runs counter to conventional wisdom. arguments and those of contemporary However, in all cases it is suggestive ecological economists. While the evidence rather than definitive. remains ambiguous and open to interpretation, the central argument is This section is structured as follows: that energy – and by implication energy Section 5.1 provides a historical context efficiency - plays a significantly more to the debate, including Jevons’ 19th important role in economic growth than is century example of the effect of energy assumed within mainstream economics. efficiency improvements in steam Section 5.6 highlights some of the engines, together with more implications of this finding for the contemporary examples of comparable economy-wide rebound effect. Section 5.7 ‘general-purpose’ technologies. This concludes. introduces the central theme of this section: namely that the evidence used in support of the K-B postulate is closely 5.1 Historical perspectives linked to a broader question regarding the contribution of energy to economic The argument that improved energy growth. efficiency will increase economy-wide energy consumption was first made by Section 5.2 summarises Brookes’ W.S. Jevons in 1865, who used the arguments in favour of the postulate, example of the steam engine: identifies some empirical and theoretical weaknesses and examines whether more “… it wholly a confusion of ideas to recent research supports Brookes’ claims. suppose that the economical use of fuel is Section 5.3 provides a non-technical equivalent to a diminished consumption. summary of Saunders’ work, highlighting The very contrary is the truth....…Every the dependence of these results on improvement of the engine when effected specific theoretical assumptions and the will only accelerate anew the consumption questions it raises for standard economic of coal…” (Jevons, 1865) approaches. Jevons cites the example of the Scottish Section 5.4 investigates the empirical iron industry, in which: evidence regarding the scope for “..... the reduction of the consumption of substitution between energy and capital. coal, per ton of iron, to less than one third It shows how 30 years of research have
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: of its former amount, has been failed to reach a consensus on this issue followed….by a tenfold increase in total and argues that the relationship between consumption, not to speak of the indirect this and the rebound effect is more effect of cheap iron in accelerating other complex than some authors have coal consuming branches of industry…” suggested. Section 5.5 examines further (Jevons, 1865) evidence on the contribution of energy to economic growth and points to the According to Jevons, the early Savory interesting parallels between Brookes’ engine for pumping floodwater out of coal
62 S4134
12/10/07 power….” (Jevons, 1865). regulating, transmitting, ormodifyingits mechanism ofanengine,necessaryfor as thecrank, thegovernor, andtheminor change, including:“….contrivances, such intertwined withbroadertechnical efficiency ofsteamengineswere improvements inthethermodynamic Jevons highlightedthefactthat thereby increasingdemandforboth. the costoftransporting coalandiron, development ofrailways, whichlowered cycle. Italsocontributedtothe engines, creatingapositive feedback iron, inturn,reducedthecostofsteam the costofiron(Ayres, 2002).Lowercost coal neededtomake ironandreducing temperatures, reducingthequantity of thereby increasingtheblast was topumpairintoblastfurnaces, applications. Oneimportantapplication comparable steamenginesinahostof cost coalwhichinturnwas usedby facilitating greaterproductionoflower became widespreadincoalmines, Watt andothersthatsteamengines with thesubsequentimprovements by of consumptionwas toohigh.” Itwas only mines “…consumednocoalbecauseitrate cost ofahorsepowersteamfell byjustover 80% betweenthe1820sand1890s. pressure steamturbinesintheearlier 20th-centuryusedonlyonesixth(Crafys, 2003). AccordingtoAtack (1979),theannual engine, theWatt engineusedonly 2/5oftheamountcoalperunitoutput,whilecomparedto theearlyWatt engine,high 41 Anotherfactorwas thedevelopment ofhighpressureboilersafter1840(Hills,1989).Compared totheearlyNewcomen factor productivity. improvements intechnologyandtotal efficiency arefrequentlylinked tobroader how improvements inthermodynamic source ofmotive powerand demonstrate increased useofsteamenginesasa developments wereessentialtothe
13:56
Page
63 41 These widespread useinmultipleapplications.It goods thathave thepotential for process technologiesandintermediate stages ofdevelopment ofenergy intensive efficiency improvements intheearly These examplesrelatetoenergy technology. developments inprocessandproduct deeply entwinedwithbroader efficiency ofproductionprocessesare improvements inthethermodynamic applications. Hence,onceagain,the suitable foramuchwiderrange of (which hasahighcarboncontent)andis very differentproducttowroughtiron produced bytheBessemerprocessisa automobiles. However, themildsteel range ofapplicationsincluding rail industry, andlaterinamuchwider rails, therebyfacilitatingthegrowthof a largemarket intheproductionofsteel The lowcostBessemersteelinitiallyfound (Rosenberg, 1989) increase....the demandforfuel.” unit ofoutput,itsultimateeffectwasto sharply reducedfuelrequirementsper demand. Asaresult,althoughtheprocess bringing withitlargeincreasesin were notfeasiblebeforeBessemer, employ steelinawidevarietyofusesthat of metallurgy[but]madeitpossibleto most fuelsavinginnovationsinthehistory “[the Bessemerprocess]wasoneofthe process forsteelmaking: the comparable exampleoftheBessemer More recently, Rosenberg (1989)hascited 63
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 64
is possible that the same consequences to per capita GDP provided by the may not follow for energy efficiency technical improvements in lighting improvements in mature and/or non- technology. Since lighting efficiency energy intensive process technologies and improved by a factor of 1000, the data intermediate goods that have a relatively suggest that per capita energy narrow range of applications. Similarly, consumption for lighting increased by a the same consequences may not follow factor of six. In principle, the direct from improvements in consumer rebound effect could be estimated by technologies that supply energy services constructing a counterfactual scenario in with a low own-price elasticity and where which lighting efficiencies remained at energy represents only a small share of 1800 levels. But this would be a total costs. (Ayres, 2002). The relevance meaningless exercise over such a time and importance of these distinctions is interval, given the co-evolution and discussed further below. interdependence of the relevant variables and the interrelationship between energy A historical perspective on rebound effects consumption and economic growth (Box is provided by Fouquet and Pearson 5.2). To the extent that the demand for (2006), who present some remarkable lighting is approaching saturation in many data on the price and consumption of OECD countries, future improvements in lighting services in the UK over a period of lighting efficiency may be associated with seven centuries (Table 5.1). Per capita smaller rebound effects. Nevertheless, consumption of lighting services grew this historical perspective gives cause for much faster than per capita GDP concern over the potential of technologies throughout this period, owing in part to such as compact fluorescents to reduce continuing reductions in the price of energy consumption in developing lighting services (£/lumen hour). This, in countries. turn, derived from continuing improvements in the thermodynamic efficiency of lighting technology, in combination with continuing reductions in 5.2 Energy productivity and the real price of lighting fuel (itself, partly economic growth a consequence of improvements in the thermodynamic efficiency of energy Despite their far-reaching implications, supply). In this case, improvements in Jevons’ ideas were neglected until lighting technology were substantially comparatively recently and contemporary The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: more important than improvements in advocates of energy efficiency are energy supply (in the ratio of 180 to 1 frequently unaware of them. While a 1980 over the period 1800 to 2000). paper by Daniel Khazzoom stimulated much research and debate on the direct Per capita lighting consumption increased rebound effect (Besen and Johnson, by a factor of 6566 between 1800 and 1982; Einhorn, 1982; Henly, et al., 1988; 2000, largely as a consequence of the Lovins, et al., 1988), most researchers falling cost of lighting services relative to ignored the long-term, macroeconomic income, but also as a result of the boost
64 S4134
Box 5.2Energyconsumptionandeconomicgrowth-neoclassicalecologicalperspectives may partlyreflectdifferingviews over therelationshipbetweenenergyandeconomic growth. efficiency. This suggeststhatdifferingviewsover thesize oftheeconomy-wide reboundeffect inputs contributelittle toeconomicgrowth,thenneithershould improvements inenergy then improvements inenergy efficiencymay dothesame.Conversely, ifincreasesinenergy efficiency. Hence,ifincreasesinenergy inputscontributedisproportionatelytoeconomicgrowth, useful workcanbeobtainedwiththesame,or less, energyconsumptionthroughimproved energy work (includingelectricitygeneration) orintheproductionofheat(Ayres andWarr, 2005).More economically significantisthatitusedtoperform usefulwork-eitherintheformofmechanical relationship between conflicting empiricalevidence.Adifficultywith bothisthattheyconfineattentiontothe The conventional andecologicalperspectives reflectdifferingassumptionsandaresupported by share oftotalcosts. this view, theproductivityofenergyinputsissubstantiallygreaterthan suggestedbyitssmall last twocenturies(Cleveland, availability ofhighqualityenergyinputshasbeentheprimarydriver ofeconomicgrowthover the However, thisviewhasbeencontestedbyecologicaleconomists,whoarguethattheincreased and increasesintotalfactorproductivitythatarefrequentlyreferredtoastechnicalchange. from thecombinationofincreasedcapitalandlabourinputs,changesinqualitythoseinputs and Harper, 1987;BarroandSala-I-Martin, 1995).Economicgrowthisassumedtoresultinstead energy accountsforarelatively smallshareoftotalcosts(Jones,1975;Denison,1985;Gullickson is thatincreasesinenergyinputsplay arelatively minorroleineconomicgrowth, largely because The conventional wisdom (asrepresentedbybothneoclassicaland‘endogenous’growththeory) mechanism (Ayres andWarr, 2002). relationship betweenthetwo, witheachcausingtheotheraspartofapositive feedback considered acauseoftheincreasedeconomicoutput.Alternatively therecouldbeasynergistic the increasedenergyconsumption,andtowhatextentgrowthininputscan be open thequestionoftowhatextentgrowthineconomicoutputcanbeconsideredacause of consumption atdifferentlevels ofaggregationandover differentperiodsoftime.Butthisleaves Numerous studieshave demonstrated strong correlationsbetweeneconomicoutputandenergy 12/10/07 oe 1800=1.0forallindicesSource:Fouquet andPearson (2006) Note: Table 5.1SevencenturiesoflightingintheUK 801011111 1.17 15 3.92 2.9 1 0.25 5000 25630 0.83 7 0.75 220 0.15 1 6566 - 1528 0.1 3.9 84.7 0.0003 0.002 0.22 1 0.042 0.17 1000 0.27 - 340 14.5 2.1 0.18 4.4 1 2.0 0.40 2000 3.0 0.26 0.79 1950 0.40 0.75 Real 1900 1.0 0.50 1850 1.65 1800 Total 1.50 1750 1.50 1700 Consumption 1300 Priceof Lighting Priceof Year
13:56 ihig fiinylgtn o ih e cnupin GDPper consumption oflightper lighting efficiency lighting
ulsrie aiao ih capita oflight capita services fuel Page
65 energy consumption andeconomicgrowth.Butthereason thatenergyis et al ., 1984;Beaudreau,1998;Kummel, et al ., 2000).Accordingto 65
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134
66 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency 12/10/07
13:56 42 Oneofthesecritics,Horace Herring,isnowmoresympathetictotheK-B postulate(Herring, 2006) responses (Brookes, 1992;1993). Brookes hasprovided anumberofrobust Toke, 1990;Grubb, 1992),towhich (Grubb, 1990;HerringandElliot, prompted afierceresponsefromcritics 1990; 2000;2004).Brookes workhas efficiency policy(Brookes, 1978;1984; these withcritiquesofgovernment energy favour oftheK-B postulateandcombined has developed coherentargumentsin the Britisheconomist,LenBrookes, who have beentaken upwithsomevigourby concern. However, Jevons’ arguments implications thatwereJevons’ primary However, Brookes’ useoftheterm implications fordemand.” in itsimplicitpricewiththeobvious efficient useisforittoenjoyareduction resource tofinditselfinaworldofmore productive fuel,oralternativelythatfora productive fuelisgreaterthanforless Jevons (1865)thatthemarketforamore “…it hasbeenclaimedsincethetimeof runs asfollows: (Schurr, 1984;1985).Akey argument economic outputandenergyconsumption efficiency, totalfactorproductivity, between various measuresofenergy of evidence,suchashistoricalcorrelations arguments, supportedbyindirectsources therefore relieslargelyontheoretical efficiency ispractically impossible.He individual improvements inenergy macroeconomic consequencesof empirical support”, sinceestimatingthe are susceptibleonlytosuggestive of whatmightbecalledtheJevons school Brookes (2000)arguesthat“…Theclaims
Page
66 42 can beaddedtogethertoproducean assumption thatindividualenergysavings energy efficiency, andtherelated services fallsundertheinfluenceofraised fixed whilethe marginalcostofenergy that energyservicedemandwillremain Brookes alsocriticisestheassumption is inevitable. insufficient basisforclaimingthatbackfire theoretical argumentappeartobean microeconomic analysissuggests,this energy consumptionwillbelessthan obvious thattheoverall reductionin wide reboundeffect.Butwhileitis forms onecomponentoftheeconomy- economy-wide energydemand.This stimulate acorrespondingincreasein reduce energypricesandthereby could lowerenergydemandsufficientlyto multiple energyefficiencyimprovements Of course,thecombinedimpactof associated indirectreboundeffects. demand forusefulworkandthe depending uponthepriceelasticityof may either increaseordecrease expected toincrease,energydemand themselves. Whiletheformermay be demand forenergycommodities demand forusefulwork,andnottothe implications’ thereforerelatetothe kilometre isreduced.The‘obvious efficiency, butthepricepervehicle following animprovement invehicle fuel motor-fuel pricesmay beunchanged energy, orusefulwork.For example, instead lowertheeffective priceofoutput change thepriceofinputenergy, but energy efficiencyimprovements donot ‘implicit price’isconfusing.Individual S4134
12/10/07 • characterised asfollows: important argumentsmay be and economicgrowth.Thethreemost relationship betweenenergyconsumption important issuesregardingthe test. Indoingso, hehighlightssome that appearmoreamenabletoempirical arguments insupportoftheK-B postulate Brookes marshalsanumberofother suggests. is greaterthanone–astheK-B postulate than zero isdifferentfromarguingthatit economy-wide reboundeffectisgreater opportunities. However, arguingthatthe assessment ofenergyefficiency rebound effectsintheconventional neglect ofbothdirectandindirect Brookes ishighlightingthepersistent economy asawhole.Inbothcases, estimate ofwhatcanbesaved over the in thepriceofenergywillraise (lower)total factorproductivity. the rate ofchangeintotalfactorproductivity (Sanstad, to beassociatedwithfalling(increasing) energyintensity. However, thismay notalways bethecase,since italsodependsup found ‘energy-using’ technical changein29outof35sectors.Generally, wewouldexpectenergysaving (using)technicalchang of outputUSmanufacturingsectors, holdinginputpricesconstant.Contrary toconventional wisdom, JorgensonandFraumeni 44 Intheiroriginalstudy, JorgensonandFraumeni (1981)estimatedtherate ofchangeintheshare energycostsinthevalu use perunitofoutputfell(Schurr, 1982). use ofmoreflexibleformsenergy(oilandelectricity)enhanced theproductivityofcapitalandlaboursufficientlythaten efficiency, whileenergyprices fell inrealterms.Even thoughenergyuseincreasedrelative tolabourandcapital,theincrea 43Between 1918and1973,theUSeconomy experiencedsubstantialincreases in bothtotalfactorproductivityandenergy
expected tocontinueinthefuture. increased aggregate energyconsumptionhas improved aggregate energyefficiencyhas rapid growthineconomicoutputthat change hasstimulatedasufficiently energy forotherinputs,thistechnical growth. Despitethesubstitutionof productivity anddriven economic substantially improved totalfactor encouraged technicalchange, of energy(especiallyelectricity)has increased useofhigherqualityforms The productivityargument: 13:56
Page . 43
at thesametimeas 67 This patternmay be The et al ., 2006).Withenergy-using technicalchangea decrease (increase) • in economicoutput,theconstruction necessary condition energy efficiencyimprovements area counterfactual scenario. Butifthe between theactualdemandand then taken tobethedifference energy efficiencyimprovements are 2006). Theenergysavings from those improvements (Geller, ‘would have been’intheabsenceof value andestimatewhatconsumption energy intensityfixed atsomehistoric efficiency improvements istohold ‘energy savings’ fromenergy common approachtoquantifyingthe The endogeneityargument: B postulatebySaunders(1992). cited assuggestive evidencefortheK- than reduceit. energy intensityover time,rather technical changehasbeentoincrease individual sectors,thecontributionof results suggestthat,atthelevel of standard assumptions,Jorgenson’s Jorgenson, 1991).Contrary to change (Jorgenson,1984;Hoganand others onthedirectionoftechnical Second, theworkofJorgensonand et al in drivingproductivitygrowth(Schurr, energy quality(notablyelectrification) historical importanceofchangesin Sam Schurrandcolleaguesonthe empirical evidence.First,theworkof two separate, butrelatedsourcesof The productivityargumentrestsupon ., 1960;Schurr, 1984;1985). 44 This workisalso for thegrowth et al ergy sed on A ., e e 67
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 68
of a counterfactual in this way is Brookes uses this evidence to support his misconceived.45 The endogeneity case. Specific criticisms include the argument is not developed in detail by following: Brookes, but raises questions over the use of ‘decomposition analysis’46 to • Schurr’s work applies primarily to the explore the rebound effect (Schipper causal effect of shifts to higher quality and Grubb, 2000). fuels (notably electricity), rather than improvements in thermodynamic • The accommodation argument: conversion efficiency or other factors Energy efficiency improvements are that affect aggregate measures of claimed to ‘accommodate’ an energy energy efficiency. The effect of the price shock so that the energy latter on total factor productivity may supply/demand balance is struck at a not be the same as the effect of the higher level than if energy efficiency former. Also, the patterns Schurr had remained unchanged (Brookes, uncovered may not be as ‘normal’ as 1984). While not immediately Brookes suggests and the link obvious, this argument rests on the between energy efficiency assumption that the income elasticity improvements and improvements in of ‘ useful’ energy demand falls total factor productivity appears to steadily as an economy develops, but vary greatly, both over time and is always greater than unity (Brookes, between different sectors and energy 1972). ‘Useful’ energy consumption is services. a quality-adjusted measure of aggregate energy consumption in • Neither Jorgenson’s work itself, nor which different energy types are those of comparable studies weighted by their relative economic consistently find technical change to productivities (Adams and Miovic, be ‘energy-using’. Instead, the 1968). empirical results vary widely between different sectors, countries and time Technical Report 5 describes the historical periods and are sensitive to minor research that forms the basis for these changes in econometric specification arguments, summarises how Brookes (Norsworthy, et al., 1979; Roy, et al., uses this research to support his case, 1999; Welsch and Ochsen, 2005; identifies potential empirical and Sanstad, et al., 2006). Jorgenson’s theoretical weaknesses and examines in results rest on the erroneous detail whether more recent research assumption that the rate and direction The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: confirms or contradicts Brookes’ claims. It of technical change is fixed, and more points to a number of flaws, both in the sophisticated models suggest that the evidence itself and in the manner in which magnitude and sign of technical
45 Technically, economic output and energy efficiency should be considered endogenous variables, since each influences the other. Conventional methodological approaches to estimating historical ‘energy-savings’, such as decomposition analysis, fail to do this.
46 Decomposition analysis expresses trends in aggregate quantities as the product of a number of different variables. For example, economy-wide energy consumption may be expressed into the product of population, GDP per capita and energy use per unit of GDP. An additive decomposition expresses the change in energy use over a particular period as the sum of the change in each of the right-hand side variables, while a multiplicative decomposition expresses the ratio of energy use at the end of the period to that at the beginning of the period as the product of comparable ratios for each of the right-hand side variables. Similar expressions can be developed at varying levels of detail for energy use within individual sectors. Thanks in part to the work of Lee Schipper and colleagues, decomposition analysis has become a widely used tool within energy economics (Ang, 1999). 68 S4134
12/10/07 • • relevance oftheseresults may hingeupontheappropriate choice ofindependentvariable forthereboundeffect. improvements inmoreaggregate measuresofenergyintensityforparticulartypescapital (e.g. machinery).Hence,the sectors. Similarly, themorerobustresultsofSueWingandEckhaus (2006)suggestthatthishasnotnecessarilytranslated int has notnecessarilytranslated intoimprovements inmoreaggregatemeasuresofenergyintensity at thelevel ofindustrial conversion efficiencyofindividualdevices, suchasmotorsandboilers.WhatJorgenson’s worksuggests,therefore,isthistha required foranempiricalestimate ofthereboundeffect.Buttechnicalchangehasclearlyimproved thethermodynamic Hence, notonlyisthedirectionoftechnicalchangeoppositeto what isconventionally assumed,butalsooppositetowhatis thereby increaseoverall energyconsumption,even whileotherfactors(suchasstructural change)areactingto decreaseit. 48 Jorgenson’s work suggeststhatthecontributionoftechnicalchangehasfrequentlybeentoreduceenergyefficiencyand may alsoleadtoincorrectsigns(LimandShumway, 1997). than thenumberofvariables. Failing toallowforcointegration canallowtheprecisionofrelationshipstobe overestimated a whether theirregulartrendsinagroupofvariables aresharedbythegroup, sothatthetotalnumberofuniquetrendsisless they arebothdriven byathird,possiblyomitted,variable. Cointegration analysisseekstoidentifythisrelationshipbydete another, becausethereisalong-term relationshipbetweenthem.Thismay bebecauseonevariable ‘causes’theother, orthat 47 Thepresenceofcointegration betweentwoormorevariables impliesthatonevariable cannotmove away ‘toofar’ from
the K-B postulateremainsunclear. relationship betweenthisfindingand to beconsistentlyfound,the energy-using technicalchangewere (Kaufmann, 2004).Moreover, even if could beeitherbiasedorspurious means thatsomeoftheestimates account forchangesinenergyquality ‘cointegration’ the failuretocheckforpresenceof (Sue WingandEckaus,2006).Also, types ofcapitalaswellover time change varies betweensectorsand useful energyinputs.Anearlierstudy be representedasalinearfunctionof thereby allowingeconomicoutputto demand isalways greater thanunity, the incomeelasticityof‘useful’energy model restsontheassumptionthat difficult tointerpretandcalibrate. The both unconventional in approachand economy (Brookes, 1984),whichis theoretical modeloftheworld based uponahighlysimplified The ‘accommodation’argumentis growth remainstobeestablished. change inencouraging economic compared tootherformsoftechnical improvements (however defined) importance ofenergyefficiency firm empiricalbasis.Therelative rhetorically persuasive butlacksa The endogeneityargumentis 13:56
Page
69 47 in thedataorto 48 experience suggeststhatimprovements in materials. Inparticular, historical productivity ofcapital,labourand associated withimprovements inthe energy productivityarefrequently Brookes’ workisthatimprovements in Perhaps themostimportantinsightfrom case insupportoftheK-B postulate. wisdom, hehasnotprovided aconvincing evidence thatchallengeconventional important issuesandpointedtosourcesof while Brookes hashighlightedsome K-B postulateisopen toquestion.Hence, (individually andcollectively) supportthe weaknesses, buttheextenttowhichthey of evidencehave empiricalandtheoretical In sum,notonlydoeseachofthesources contradicts Brookes’ claims. 1960s toaround0.7in1990,which declined fromabove unityinthe elasticity ofusefulenergydemandhas (1992) suggeststhattheincome 2006a). However, analysisbyDargay Richmond andKaufmann, 2006b; thermal content(Stern,2004c; energy consumptiononthebasisof hypothesis, sinceitaggregates Curves’ hasgenerally nottestedthis research on‘Environmental Kuznets has notbeenupdated.Contemporary support forthishypothesis, butthis by Brookes (1972)provides some cting nd o t 69
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 70
energy productivity have been associated save more than energy costs alone, the with proportionally greater improvements argument that rebound effects must be in total factor productivity. While Schurr’s small because the share of energy in total work provides evidence for this at the costs is small is undermined. Much the level of the national economy, numerous same applies to the contribution of energy examples from the energy efficiency efficiency improvements to economic literature provide comparable evidence at growth. But this leaves open the question the level of individual sectors and of whether energy efficiency technologies (Box 5.3). Such examples improvements are necessarily associated are frequently used by authors such as with proportionally greater improvements Lovins (1997) to support the business in total factor productivity, or whether (as case for energy efficiency, but they also seems more likely) this is contingent upon point to situations where rebound effects particular technologies and may be expected to be large (Saunders, circumstances. If the latter is the case, 2000b). If energy efficient technologies policy measures could potentially be boost total factor productivity and thereby targeted on ‘dedicated’ energy efficiency
Box 5.3 Examples from the energy efficiency literature of the link between improved energy efficiency and improved total factor productivity
• Lovins and Lovins (1997) used case studies to argue that better visual, acoustic and thermal comfort in well-designed, energy efficient buildings can improve labour productivity by as much as 16%. Since labour costs in commercial buildings are typically 25 times greater than energy costs, the resulting cost savings can potentially dwarf those from reduced energy consumption.
• Pye and McKane (1998) showed how the installation of energy efficient motors reduced wear and tear, extended the lifetime of system components and achieved savings in capital and labour costs that exceeded the reduction in energy costs.
• Sorrell et al. (2004) found a host of examples of the ‘hidden benefits’ of energy efficiency improvements within 48 case studies of organisational energy management. For example changes to defrosting regimes at a brewery led to energy savings, water savings, reduced maintenance and reduced deterioration of building fabric.
• Worrell et al. (2003) analysed the cost savings from 52 energy efficiency projects,
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: including motor replacements, fans/duct/pipe insulation, improved controls and heat recovery in a range of industrial sectors. The average payback period from energy savings alone was 4.2 years, but this fell to 1.9 years when the non-energy benefits were taken into account.
• Using plant-level data, Boyd and Pang (2000) estimated fuel and electricity intensity in the glass industry as a function of energy prices, cumulative output, a time trend, capacity utilisation and overall productivity. Their results show that the most productive plants are also most energy efficient and that a 1% improvement in overall productivity results in a more than 1% improvement in energy efficiency.
70 S4134
12/10/07 the productivityofseveral inputs Since technicalchangetypicallyimproves increase overall energyconsumption. labour ormaterialsproductivitywill argues thatimprovements incapital, productivity ofotherinputs.Healso productivity whilenotaffectingthe technical changethatimproves energy improvements -thatis,aformof likely outcomeof‘pure’energyefficiency growth modeltoarguethatbackfireisa Saunders (1992)usestheneoclassical models. predicted outcomeof importantly, heshowshowbackfireisthe about howtheeconomy operates. Most its favour, given certainassumptions but merelyprovide suggestive evidencein that hisresultsprove theK-B postulate, criticism. ButSaundersdoesnotclaim assumptions thatcanbeafocusof necessarily basedonhighlyrestrictive is abstract andtheoreticalis production andgrowththeory. Thiswork basing hisargumentsuponneoclassical sophistication totherebounddebateby postulate’ andhasbroughtanewlevel of advocate ofthe‘Khazzoom-Brookes Harry Saundersisthesecondmajor production theory 5.3 Energyproductivityand smaller reboundeffects. on totalfactorproductivityandhence improvements thathave smallerimpacts available andtheappropriatechoiceinvolves trade-offs between flexibilityandanalyticaltractability. feasibly (orhave historically)moved betweenalternative inputcombinations. Therearearange ofdifferentfunctionalforms approximate real-world productionbehaviour. Thisisusefulinunderstanding therate atwhichagentswithinaneconomy can between inputsandoutputs.Their purposeistodefineasetofparameters which, given theobserved data,reasonably 49 Productionfunctionsarenormallyrepresentedbyfunctional formswhichareintendedtoapproximate therelationship
13:56
Page
71 standard economic useless ininvestigating therebound functions arefoundtobeeffectively Several commonlyusedproduction the firm,sectororeconomy-wide level. relevant productionfunction –whetherat almost entirelyonthechoiceof magnitude ofreboundeffectsdepends Saunders (2007)showshowthepredicted (2000). with analternative approachbyLaitner Saunders’ approachandcontrasts this provides avery simpleillustration of sectors (Saunders,2005).Box 5.4 particular technologiesin to estimatethereboundeffectfrom empirically estimatedproductionfunctions and opensupthepossibilityofusing applicable toindividualfirmsandsectors Unlike Saunders(1992),thisworkisalso production functiontogenerate backfire. the potentialofdifferenttypes contribution, Saunders(2007)focuseson energy services.Inamorerecent production function an alternative choiceismadeforthe predicted bytheneoclassicalmodelwhen demonstrated thatbackfireisstill Saunders (2000a)subsequently backfire beingoverestimated. However, energy servicesledtotheprobabilityof failure todistinguishbetweenenergyand Howarth (1997),whoarguedthatthe model was subsequentlychallengedby Saunders’ useoftheneoclassicalgrowth increase overall energyconsumption. most formsoftechnicalchangewill simultaneously, Saundersarguesthat 49 used toprovide 71
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 72
effect, since the relevant results are the improvements are likely to lead to same for whatever values are chosen for backfire. Alternatively, if rebound effects key parameters. One popular production are considered to vary widely in function (the constant elasticity of magnitude between different sectors, substitution, or CES), is found to be able Saunders’ work suggests that standard to simulate rebound effects of different and widely used economic methodologies magnitudes, but only if a particular cannot be used to simulate them. assumption is made about how different The above conclusions apply to pure inputs are combined.50 Since this form is energy efficiency improvements. But widely employed within energy-economic Saunders (2005) also uses numerical models, Saunders’ results raise serious simulations to demonstrate the potential concerns about the ability of such models for much larger rebound effects when to accurately simulate rebound effects. An improvements in energy efficiency are alternative and more flexible functional combined with improvements in the form (the ‘translog’) that is widely used in productivity of other inputs. Again, if the empirical studies is also found to lead to validity of the theoretical assumptions is backfire once standard restrictions are accepted, these results suggest that imposed on the parameter values to backfire may be a more common outcome ensure that the behaviour of the function than is conventionally assumed. is consistent with economic theory (Saunders, 2007)51. Saunders approach is entirely theoretical and therefore severely limited by the There is a substantial empirical literature assumptions implicit in the relevant estimating the parameters of different models. For instance, technology always types of production function at different comes free, there are only constant levels of aggregation and obtaining a good returns to scale in production, markets fit with observed data. Hence, if such are fully competitive, there is always full functions are considered to provide a employment, qualitative differences in reasonable representation of real-world capital and energy are ignored and so on. economic behaviour, Saunders’ work Indeed, a considerable literature suggests that ‘pure’ energy-efficiency challenges the idea that an ‘aggregate’
50 The CES function used by Saunders combines inputs into pairs, or ‘nests’. For example, a nested production function with capital (K), labour (L) and energy (E) inputs, could take one of three forms, namely: K(LE); (KL)E; (KE)L. Saunders (1992) shows that the (KL)E form permits a range of values for the rebound effect (depending upon the elasticity of substitution between energy and capital/labour), while the other forms always lead to backfire. However, despite being in widespread use, this type The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: of function imposes very restrictive conditions on real-world behaviour that are not supported by empirical evidence (Frondel and Schmidt, 2004).
51 Restrictions normally have to be imposed upon the parameter values in a translog cost function to ensure that its behaviour is consistent with basic economic theory. In particular, the cost function must be concave - implying that the marginal product of each input declines with increasing use of that input. In many applications, such as CGE modelling, these conditions need to be satisfied for all input combinations, but empirically estimated cost functions sometimes violate these conditions (Diewert and Wales, 1987). However, Ryan and Wales (2000) show that if concavity is imposed locally at a suitably chosen reference point, the restriction may be satisfied at most of the data points in the sample. Under these circumstances, the translog may be able to represent different types of rebound effect for particular data sets.
72 S4134
12/10/07 But theydeserve tobetaken seriously. they aresuggestive rather thandefinitive. from acontestedtheoreticalframework, assumptions. Sincetheseresultsderive result isrobusttodifferentmodel theory, backfireisquitelikely andthis significant reboundeffectscanexistin Overall, Saundersworksuggeststhat secondary concern. those improvements isarguablya efficiency improvements, thesourceof at issueistheconsequencesofenergy the reboundeffect.However, sincewhatis authors have usedsuchmodelstoexplore weakness toalargeextent,butdateno growth theory’have overcome this developments inso-called‘endogenous policy-relevant questions.Morerecent capacity ofsuchmodelstoaddressmany direction. Thischaracteristic limitsthe processes thataffectitsrate and without explicitrepresentationofthe change iscostlessandautonomous, weakness istheassumptionthattechnical of individualsectors.Aparticular functions forrepresentingthebehaviour not necessarilyinvalidate theuseofsuch 1993; Temple, 2006)-althoughthismay whole ismeaningfulconcept(Fisher, production functionfortheeconomy asa has astronginfluence onhowmuch production (suchascapital andlabour) can substitutefor other factorsof “It appearsthattheeasewithwhichfuel as follows: A key conclusionfromSaunders’workis energy andcapital 5.4 Substitutionbetween
13:56
Page
73 efficient technologies.Withlow programmes aimedatcreatingnewfuel about reboundandshouldinclinetowards inputs couldprovide someinsightsinto substitution between energy andother and typicalvalues ofelasticities of examination ofthenature,determinants These observations suggest thatacloser 2000b) lower costtotheeconomy.”(Saunders, carbon taxeshavemoreofaneffectat reducing fueluseviataxes.Withhigh incline towardsprogrammesaimedat worries moreaboutreboundandshould contrast, ifonebelieves prove morecostlytotheeconomy.In given reductioninfueluseandwould taxes arelesseffectiveinachievinga “…If onebelieves climate policy: Saunders tosuggestapossibletrade offin energy-economic models,leading is thereforeakey parameter within and growth.Theelasticityofsubstitution a disproportionateimpactonproductivity that increasesinenergypricesmay have between energyandotherinputssuggest values oftheelasticitysubstitution changes inenergyprices.Incontrast, low therefore adaptrelatively easilyto economy ismore‘flexible’andmay inputs meanthataparticularsectoror substitution inputs ( substitution of substitutionistheso-called The parameter thatmeasuresthis‘ease’ 2000, p.443). greater willbetherebound”(Saunders, the greaterthiseaseofsubstitution, rebound willbeexperienced.Apparently, σ ). Highvalues ofthe between energyandother between energyandother σ is low,oneworriesless σ is high,one elasticity of elasticity of σ carbon σ , 73
The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134
74 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency 12/10/07
13:56 Box 5.4Howtheoreticalassumptionscandetermineresults Where: K=capital,L=labour, E=energyand is the‘Cobb-Douglas’, whichmay berepresentedasfollows: neoclassical productionfunctions.Avery simple,butstillwidelyusedproduction function Much ofSaundersworkinvolves theuseofcalculustoinvestigate thebehaviour of the productivityofenergyinputs( the effectofimprovements inenergyproductivity( productivity ofotherinputsandisassumedtobecostless.Saunders(2007)investigates This may beinterpretedasaformoftechnicalchangethatdoesnotaffectthe productivity ofenergyinputs,sothattheproduct conflicting theoreticalassumptions thatrequireempiricalvalidation. Hence, whilebothapproaches areinternallyconsistent,theirresults aredriven by policies willreducethe energy/GDP ratio bythisamountis flawed. a criticismofLaitner’s approachcouldbethat theassumptionthatenergyefficiency assumptions abouttheformofproduction function alsoleadtobackfire.Incontrast, function. ButSaunders(2007)showsthat several alternative andmoreflexible economy isunlikely tobehave inthemannersuggestedbyaCobb-Douglasproduction effects fromthesepolicies.AcriticismofSaunders approachcouldbethatthereal-world efficiency policieswillreducethisby30%-thereby ignoringany ‘lower-level’ rebound wide energy/GDPratio astheindependentvariable andsimplyassumes that energy economic outputincreasebythesameamount). Laitner, incontrast, usestheeconomy- economy-wide energy/GDP ratio remainsunchanged(i.e.energy consumption and energy productivityastheindependentvariable andderives a resultinwhichthe from differentdefinitionsoftheindependentvariable. Saundersusesan improvement in These conflictingconclusionsresultinpartfromdifferencesapproach,and is unlikely, Saunderspositionisthatbackfirelikely tobethenorm. a relatively smallimpactonGDP. ButwhileLaitnerusesthisresulttoarguethatbackfire Both authorsagree,therefore,that‘pure’energyefficiencyimprovements shouldhave possible changesinenergypricesarealsotaken intoaccount. reduction intheenergy/GDPratio. Laitnershowsthatthisconclusionisunchangedwhen improvements shouldbeinsufficienttooffsettheenergysavings achieved bythe small, theadditionaleconomicgrowthstimulatedby‘pure’energyefficiency efficiency improvements onGDPgrowth.Sincetheshareofenergyintotalcostsis 30%. Asaresult,theonlyreboundeffectsthatLaitnerconsidersareeffectofenergy that energyefficiencypolicieswouldreducetheeconomy-wide energy/GDPratio by the effectofenergyefficiencyimprovements ontheUSeconomy. Thissimply This approachcanbecomparedwithLaitner’s (2000)‘backoftheenvelope’ estimateof productivity ofenergyinputsshouldonlyincreaseGDPbysome2.3%. energy intotalcosts,Saunders(2000a)estimatesthata20%increasethe energy consumptionhasincreased.Usingstandardassumptionsabouttheshareof amount, leaving theaggregateenergy/outputratio Cobb-Douglas function,bothenergyconsumptionandoutputincreasebythesame economic outputintheshort-term, withrealenergypricesfixed. Hefindsthat,witha
Page
74 τ ) hasthereforeledtobackfire,sinceeconomy-wide α + β =1. Themultiplier τ E represents‘effective’ energyinputs. unchanged τ ) onenergyconsumptionand . Theimprovement in τ ( τ ≥ 1 ) increasesthe assumes S4134 12/10/07 13:56 Page 75
the likely magnitude of rebound effects in this section. The possible trade-off in different sectors and for the economy as a climate policy that is suggested by whole. Of particular interest is the Saunders may therefore not exist. In elasticity of substitution between energy addition, since most empirical studies and capital, since many types of energy measure something quite different from efficiency improvement may be the parameters assumed within energy- understood as the substitution of capital economic models, the empirical basis for for energy. Technical Report 3 therefore those models is further called into provides an in-depth examination of question (Box 4.4). empirical estimates of the elasticity of To the extent that a general conclusion substitution between energy and capital, can be drawn from the empirical together with an extensive review of the literature, it is that energy and capital associated theoretical issues. The typically appear to be either complements empirical literature on this subject turns or weak substitutes (Box 5.6). This could out to be confusing and contradictory, have some important implications. First, a with more than three decades of empirical reduction in the price of capital relative to research failing to reach a consensus on energy (e.g. through investment whether energy and capital may be subsidies) may in some circumstances considered as ‘substitutes’ or increase energy consumption rather than ‘complements’ (Box 5.5 and 5.6). reduce it (Berndt and Wood, 1979). Moreover, the relationship between the Second, the economic impact of an elasticity of substitution and the rebound increase in energy prices could be effect turns out to be far from significant: straightforward. “A reduction in the use of energy by itself Our investigation of this topic reveals that will have a relatively small economic Saunders’ statements regarding the impact, determined to first order by relationship between elasticities of energy’s small value share. But if the substitution and the rebound effect are reduced use of energy also produces a potentially misleading. The relationship reduction in the use of capital, the larger depends very much upon the distinction value share of capital applies and the between energy and energy services, the economic impact is magnified. This particular choice of production function, indirect effect through capital can be the the appropriate definition of the elasticity largest component of the economic of substitution and the validity of the impact of reduced energy use... but this energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: assumption of ‘separability’ between effect is often ignored in economic impact energy services and other inputs (Box analyses of energy policy” (Hogan, 1979) 5.5). When these are taken into account, it is found that large rebound effects may Hence, this review suggests the possibility occur even when the elasticity of of a strong link between energy substitution between energy and capital is consumption and economic output as well low, which appears to contradict the as potentially high costs associated with observation quoted at the beginning of reducing energy consumption. However,
75 S4134
76 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency 12/10/07
13:56 Box 5.5Definingandmeasuringelasticitiesofsubstitution cancel eachotherout. smaller whenhigherlevels ofaggregationareused. Thesetwofactorsmay thereforepartly the relevant capital.Thissuggeststhattheestimated scopeforinputsubstitutionmay be one sector, for example,may leadtoanincreaseinenergyconsumption inthesectorproviding energy isrequiredfortheprovision oflabourandcapital.Substitutioncapital forenergyand However, individual inputscannotalways beconsidered asindependent,notablybecause substitution may alsobegreaterwhenhigherlevels ofaggregationareused(Solow, 1987). product mixisgreaterathigherlevels ofaggregation,theestimatedscopeforinput implicitly assumethattheproductmixisfixed (Miller, 1986).Sincethescopefor changing to produceaparticularproductisrelatively fixed. Many studiesoverlook suchchangesand substitution intheaggregateduetochanges product mix,even ifthemixofinputsrequired The level ofaggregation thestudyisalsoimportant,sinceasectormay stillexhibitinput price-induced substitutionisempiricallychallenging. substantial impactontheempiricalresults,butdistinguishingbetweentechnicalchangeand Schmidt, 2004).Assumptionsaboutthenatureandbiasoftechnicalchangemay alsohave a of substitutionbetweentwoinputsinthesamegroupcouldstillbebiased(Frondeland is notalways tested,and even ifitisfoundtohold,theassociatedestimatesofelasticity two inputsisunaffectedbythelevel orpriceofotherinputs (‘separability’). Thisassumption Standard methodologicalapproachesfrequentlyassumethattheeaseofsubstitutionbetween methodology andassumptionsused. while theestimatedscopeforsubstitutionmay dependvery muchupontheparticular widely betweendifferentsectors,levels ofaggregation anddifferentperiodsoftime, cases, theCrossPriceelasticity( acknowledged drawbacks anditsquantitative value lacksmeaning(Frondel,2004).Inmany other increases(decreases),holdingoutputconstant.However thismeasurehasanumberof substitutes (complements)whentheusageofoneincreases(decreases)price function employed. Ingeneral, the a variety ofassumptions,includinginparticularthespecificformproductionorcost inputs withindifferentsectorsandcountriesover differenttimeperiods.Theserelyupon A largenumberofempiricalstudiesestimateelasticitiessubstitutionbetweendifferent be moreappropriatemeasures,butthesehave yet togainwidespreaduse. substitution ( The majorityofexistingempiricalstudiesusethesign‘Allen-Urzwa’ elasticity of under onemeasureandcomplementsanother). classification dependsupontheparticulardefinitionbeingused(i.e.inputsmay besubstitutes is commonlyusedtoclassifyinputsas‘substitutes’or‘complements’. Buttheappropriate elasticity ofsubstitutionbetweenthemisgreater, whilethesignofelasticitysubstitution For whenthemagnitudeof alldefinitions,substitutionbetweentwoinputsis‘easier’ both confusingandcontradictory (Stern, 2004a). the lackofclarityinrelationshipbetweenthem,combinetomake theempiricalliterature others thatappearlessfrequently. Thelackofconsistencyintheusethesedefinitionsand There areatleastfive definitionsoftheelasticitysubstitutionincommonuseandseveral
Page
76 AES ) tomake thisclassification.Withdefinition,twoinputsaredescribedas CPE ) ortheMorishimaelasticityofsubstitution( actual scope forsubstitutionmay beexpectedtovary MES ) would S4134 12/10/07 13:56 Page 77
Box 5.6 Empirical estimates of the elasticity of substitution between energy and capital
Technical Report 3 reviews more than 200 empirical estimates of the elasticity of substitution between energy and capital. The results were analysed to see how the estimates varied with factors such as the sectors covered, the functional form employed, the use of time-series versus cross-sectional data and the assumptions regarding technical change. The most striking result from the analysis is the lack of consensus that has been achieved to date, despite three decades of empirical work. While this may be expected if the degree of substitutability depends upon the sector, level of aggregation and time period analysed, it is notable that several studies reach different conclusions for the same sector and time period, or for the same sector in different countries.
If a general conclusion can be drawn, it is that energy and capital typically appear to be either complements (i.e. AES<0) or weak substitutes (i.e. 0 Overall summary of results World UK US Complements Substitute <1 Substitute >1 given the extent to which the estimated 5.5 Energy productivity and scope for substitution varies between different sectors and levels of aggregation ecological economics energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: (not to mention between different fuels In his 1984 paper, Brookes quotes Sam and types of capital), broad conclusions of Schurr’s observation that: “….it is energy this type could be misleading. Moreover, that drives modern economic systems given the difficulties with the empirical rather than such systems creating a literature, very little confidence can be demand for energy.” (Brookes, 1984). placed in this result. This highlights an important theme in Brookes’ work: namely that energy plays 77 S4134 78 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency 12/10/07 13:56 significantly contributed totheobserved micro level donotappeartohave efficiency ofindividual devicesatthe improvements inthethermodynamic the observed trends.Hence, theobserved other factorsmay be energy-saving technicalchange,but these reflect theinfluenceoffactors that, notonlydoestheenergy/GDPratio consumption. Kaufmann (1992)suggests contribution toreducedenergy direction oftechnicalchangeandits conclusions regardingtherate and analysts may have cometoincorrect changes inenergyquality, conventional efficiency (Box 5.7).Byneglecting technological improvements inenergy improvements inenergyqualitythanto much moretostructural changeand reductions inenergy/GDPratios owe and otherssuggeststhathistorical First, analysisbyKaufmann (1992;2004) briefly describedbelow. growth. Four examplesofthisworkare historical determinantsofUSproductivity same way asSchurr’s research onthe support fortheK-B postulate inmuchthe work arguablyprovides suggestive investigated thereboundeffect,buttheir Ecological economistshave notdirectly increased energyconsumption. for decouplingeconomicgrowthfrom them toexpressscepticismover thescope high-quality energysources.Thisleads century totheincreasingavailability of of theincreasedproductivityover thepast (1984), whoattributealargecomponent economists suchasCleveland, same claimismadebyecological neoclassical economists.Butpreciselythe than isconventionally assumedby a moreimportantroleineconomicgrowth Page 78 sufficient other to explain et al than . changes infuelmixand energyprices to becomenegative). Again,neglectof no evidencethatitisnegative (orissoon less thanoneinOECDcountries,thereis consumption may bebothdecliningand income elasticityofaggregateenergy and Kaufmann, 2006b;2006a).Whilethe consumption (Stern,2004b;Richmond in incomewillleadtodecliningenergy little supportfortheclaimthatincreases Third, historicalexperienceprovides very (Stern, 1993;2000). to GDP-asecologicaleconomistssuggest appears torunfromenergyconsumption quality istaken intoaccount,thecausality changes inenergyquality. Whenenergy contradictory, mostofthemneglect of suchstudiesarefrequently affect economicgrowth.Whiletheresults reduction inenergyusemay negatively if causalityrunstheotherway rounda adverse effectsoneconomicgrowth,while consumption may bereducedwithout energy consumptionthen argued thatifcausalityrunsfromGDPto energy consumptionandviceversa. Itis rate shouldbefollowedbyachangein consumption thenachangeinthegrowth growth isthecauseofincreasedenergy Yoo, 2006;Zachariadis, 2006). If GDP Chontanawat, consumption andGDP(Stern,1993; direction ofcausalitybetweenenergy econometric techniquestotestthe economists have usedmodern Second, bothneoclassicalandecological economic modelsmay beflawed. conventional assumptionsofenergy- technical change,thissuggeststhatthe Jorgenson andothersonenergy-using macro-level. Aswiththeworkof reduction inenergyintensityatthe et al ., 2006;Lee, S4134 energy saving technicalchange. or slopeofindividualregression coefficients duringdifferenttimeperiods-suchasmay followanincreaseinenergyprices bias; b)includingatimetrendto representenergy-saving technical change;andc)usingdummy variables totestforchangesi 52 Namely:a)seekingevidence forserialcorrelationandheteroscedasticityintheerrorterm,which couldbeevidenceofmiss Box 5.7Energy/GDPratiosandchangesinenergyquality sectors. effects fromenergyefficiencyimprovements may belowerin the householdsectorthaninproducing may bethemosteffective way ofreducingtheenergy/GDPratio. Thisinturn suggeststhatrebound The resultsalsoindicatethatreducingthefraction ofGDPspentdirectlyonenergy byhouseholds, saved directlythroughenergyefficiency improvements ineachofthosesectors. consumption associatedwithlabourandcapital inputsconstituteasignificantportionoftheenergy estimated atthelevel ofindividualsectors.Thisarguablysuggeststhattheindirectenergy of energydemandvaries between-0.05and-0.39,whichisgenerally smallerthantheelasticities economy, forsubstitutingcapitalandlabourenergy. Estimatedannually, theownpriceelasticity Kaufmann alsointerpretstheresultsasillustrating thelimitedscope,atlevel ofthemacro- by developing newtechniquesforusingoil,natural gasandprimaryelectricityinplaceofcoal.” last 40years, technicalchangehasreducedtheamountofenergyusetoproduceaunitoutput a unitofoutput.Butcharacterising thattechnicalchangeas‘energy-saving’ ismisleading.Over the “….Technical changeshasreducedtheamountofenergy(asmeasuredinheatunits)usedtoproduce find statisticallysignificantevidenceforenergysaving technicalchange.Kaufmann commentsthat energy inputs.Kaufmann testedthisimplicationinthreedifferentways, advances intechnologythatallowthesametypeandquantityofoutputtobeproducedwithless By implication,Kaufmann’s resultssuggestlittleroleforenergy-saving technicalchange-definedas provide amoreorlesssufficientexplanationfortheobserved trendsinenergyintensity. important thanthoseabove, butwhenallfourfactorsweretaken intoaccount,theywerefoundto and towards theservicesectorreducedenergy/GDPratios. Thesemechanismswerefoundtobeless substitution ofcapitalforenergy, whileshiftstowards lessenergyintensive manufacturingsectors In addition,changesinenergypricesencouraged substitutionbetweeninputs,includingthe also foundtobehighlysignificantinexplainingtrendstheaggregateratio. on energybyhouseholdsincreasedpriorto1973anddecreasedthereafterthesetrends were should translate intofallsintheenergy/GDPratio –andviceversa. Thefraction ofGDPspentdirectly energy intensityofothergoodsandservices,fallsintheformerasafraction oftotalexpenditure Since theenergyintensityofhouseholdpurchasesisanordermagnitudegreaterthan and nuclear)provided asignificantcontributionafter1973. declining energy/GDPratios priorto1973,whiletherisingcontributionofprimaryelectricity(hydro obtained fromeachheatunitofenergyinput.Theshiftcoaltooilcontributedgreatly improvements inenergyqualityledtolowerintensitiesbyallowingmoreusefulworkbe intensity forthefourcountriesstudiedthroughoutpost-war period.Kaufmann arguedthat Despite thesimplicityofthisformulation,itwas foundtoaccountformostofthevariation inenergy energy prices. proportion oftheproductmixthatoriginatedinenergyintensive manufacturingsectors;andprimary in primaryenergyconsumption;thefraction ofGDPspentdirectlyonenergybyhouseholds;the period 1950-1990.Theexplanatoryvariables werethepercentage shareofdifferentenergycarriers energy consumption(inkWhthermal)torealGDPinFrance, Germany, JapanandtheUKduring Kaufmann (1992)soughttoquantifythefactorsthatcontributedchangesinratio ofprimary 12/10/07 13:56 Page 79 52 but ineachcasefailedto n theintercept if thisinduces ing variable 79 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 80 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency 12/10/07 13:56 time trend.Moderntheoriesofeconomic growthseektomake thesourceanddirectionoftechnicalchangeendogenous. measured (JorgensonandGriliches, 1967).Inneoclassicalgrowthmodels,technicalchangeistypically representedbyasimple studies have shownhowtheproportionofgrowththatisattributed totechnicalchangedependsuponhowtheinputsare the growthofinputs.Earlymodelsattributedasmuch 70%ofthegrowthinoutputtotechnicalchange,butlater 53 Traditional neoclassical growthmodelsestimate‘technicalchange’astheresidualinoutputthatisnotexplainedby Kummel, (Kummel, conventional modelsofeconomicgrowth developed anumberofalternatives tothe Finally, ecologicaleconomistshave change (Kaufmann, 2004). and potentialofenergysaving technical misleading conclusionsregardingtherole may have ledearlierstudiestodraw conversion efficiencies(Table 5.2)to and thermodynamic(second-law) data ontheexergy contentoffuelinputs and Warr (2005),whocombinehistorical Of particularinterestistheworkbyAyres rebound effectcouldbevery large. consumption –inotherwords,the therefore oneconomy-wide energy dramatic effectoneconomicgrowthand productivity ofenergyinputscouldhave a share, implyingthatimprovements inthe be aroundtentimeslargerthanitscost productivity ofenergyinputsisfoundto technical change. attribute muchoftheincreaseinoutputto theories ofeconomicgrowth,which change. Thisisincontrast toconventional without attributingany roletotechnical trends ineconomicgrowthextremelywell, models arefoundtoreproducehistorical directly fromaproductionfunction.These productivity ofeachinputisestimated the value ofoutput.Instead,the proportional totheshareofthatinputin that theproductivityofeachinputis departure fromthetraditional assumption 2005). Akey featureofthesemodelsisa Page et al et al 80 ., 1985;Beaudreau,1998; ., 2000;Ayres andWarr, 53 The marginal well articulatedandpersuasive. The economics, theecologicalperspective is While firmlyoutsidemainstream measures oftechnologicalchange. obviating theneedforalternative efficiency becomethedominantdriver – improvements inthermodynamic minor contributortoeconomicgrowth, to economicgrowth.Far frombeinga forms oftechnicalchangethatcontribute provide aquantifiable surrogate forall thermodynamic conversion efficiency The implicationisthatimprovements in need foramultipliertechnicalchange. the pastcentury, therebyeliminatingthe extremely goodfittoUSGDPtrendsover energy, Ayres andWarr obtainan production function,rather thanprimary By includingusefulworkintheir (Ayres andWarr, 2006). conversion processesis effectively wasted productive, whiletheexergy thatislostin useful workthatiseconomically makes agreatdealofsense,sinceit conversion efficiencies.Thisapproach improvements inthermodynamic themselves, owingtosubstantial faster thantheconsumptionoffuels from fuelresourceshasgrownmuch implying thattheusefulworkobtained a factorof18over thepast100years, inputs totheUSeconomy have grownby past century. Theyshowthatusefulwork useful work)intheUSeconomy over the output ofconversion devices(termed develop auniquetimeseriesoftheexergy S4134 12/10/07 conventionally understood causality’) isnotthesameascausality being measuredhere(so-called‘Granger the statisticalformofcausalitythatis oversimplified (Zachariadis, 2006).Also, that aredrawn are frequently ambiguous andthepolicyimplications between energyandGDPremain investigations ofcausalityrelationships For example,theresultsofeconometric remains patchy andinsome casesflawed. evidence insupportofthisperspective favour ofbackfire.However, theempirical appears tounderlieBrookes’ argumentsin argument thatSchurrmadeandwhich share oftotalcosts.Thisispreciselythe productive thanissuggestedbyitssmall general implicationisthatenergymore Source: Ayres processes intheUS(average%efficiencyspecifiedyear) Table 5.2Trendsinsecond-lawconversionefficienciesofprimary content. (1985; 2000)isabletoreproduce economicgrowthwithoutatimetrend,whilemeasuringenergyinputs onthebasisofthermal them todispensewithaseparate timetrendtorepresenttechnicalchange.Butthey madenocommentastowhy Kummel 56 Ayres andWarr (2005)claim thattheinclusionofusefulworkrather thanprimary energyintheproductionfunctionallows 55 Theso-calledLINEXproductionfunctionimpliesincreasingmarginal returnsandvariable marginalproductivities. 54 For example,ametofficepredictionofrain canbeshownto‘Granger cause’rain! models’ relyuponanunusualandoddly the differentvariants of ‘ecological growth modern economies.Inasimilarmanner, problematic forsystemsascomplex conventional notionsofcausalitymay be 903. 392 03 2 0.25 20 14 5 25 20 7 13.9 8.0 3.0 33.3 Low 32.5 Medium 3.8 1990 1970 High 1900 ElectricityTransportation Year 13:56 et al itiuin(te)(steam) (steel) distribution eeaintmeauetmeauetemperature temperature generation temperature Page . (2003) n poesha rcs etspaceheat processheat processheat and 81 54 and ambiguous andindirect. evidence totheK-B postulateremains were tobeaccepted,thelinkfromthis remains elusive. Moreover, even ifthis energy toeconomicgrowththerefore the disproportionatecontributionof and conclusions.Convincing evidenceof objective comparisonoftheirmethods perspectives seemtohave prevented an of conventional and ecological Unfortunately, thedifferentassumptions treated withconsiderable caution. proxy fortechnicalchange,mustbe conversion efficiencycan actasasuitable that improvement inthermodynamic magnitude largerthanitscostshare,or productivity ofenergyisanorder a result,claimsthatthemarginal could potentiallyinvalidate theresults. As each other results thataredifficulttoreconcilewith bias fromanumberofsources behaved productionfunction 56 and appearvulnerable to 55 , provide 57 that 81 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 82 The neoclassical assumption appears to efforts. The increased availability of be that capital, labour and energy inputs electricity could promote access to safe have independent and additive effects on drinking water (e.g. in deeper wells), economic output, with any residual allow the refrigeration of food and increase being attributed to exogenous medicine and thereby improve both the technical change. Endogenous growth health of workers and their economic theory has modified these assumptions, productivity. Similarly, the increased but still attributes a relatively minor role availability of low-cost transport fuels to energy. In contrast, the ecological could interact with investment in transport assumption appears to be that capital, infrastructure to increase the geographic labour and energy are interdependent size, scale and efficiency of markets. inputs that have synergistic and Schurr’s (1983; 1984; 1985) account of multiplicative effects on economic output, the impact of electricity (and especially and that the increased availability of low- electric motors) on the organisation and cost, high-quality energy sources provides productivity of US manufacturing provides a necessary condition for technical an analogous example for producers in change. A bridge between the two could developed countries. potentially be provided by Toman and It is an empirical question as to whether Jemelkova’s (2003) observation that increased inputs of useful work (or energy such benefits apply in practice and to services) may enhance the productivity of what extent. Ecological economists capital and labour: appear to claim that such a situation is the norm, with the result that the increased “……when the supply of energy services is availability of high-quality energy has increased, there is not just more energy been a primary driver of economic to be used by each skilled worker or activity. But if the increased availability of machine; the productivity with which high-quality energy inputs has a every unit of energy is used also rises. If disproportionate impact on productivity all inputs to final production are increased and economic growth, then improvements in some proportion, final output would in thermodynamic efficiency may do the grow in greater proportion because of the same, because both increase the useful effect on non-energy inputs.” (Toman and work available from conversion devices. If Jemelkova, 2003) it is useful work rather than raw energy Focusing in particular on households in (or exergy) inputs that drives economic developing countries, Toman and activity, then improvements in second-law The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: Jemolkova (2003) propose a number of conversion efficiency could potentially ways in which the increased availability of mitigate the economic impact of future useful work could improve capital and shortages of high-quality forms of energy labour productivity and hence – notably oil. disproportionately affect economic output. For example, cheaper and better lighting However, this argument uses a could allow greater flexibility in time thermodynamic measure of energy quality allocation throughout the day and evening and therefore neglects the other factors and enhance the productivity of education that determine the economic productivity 82 S4134 12/10/07 (Howarth, 1997;Lovins, 1998;Laitner, number ofleading energy analysts rebound effectshasbeen dismissedbya The possibilityoflargeeconomy-wide growth thanisconventionally assumed. playing amoreimportantroleineconomic conventionally assumedandtoenergy rebound effectsbeinglargerthanis the evidencepointstoeconomy-wide than theyhave received todate.Muchof evidence deserve moreserious attention Nevertheless, theargumentsand and flawedinanumberofrespects. indirectly relevant tothereboundeffect suggestive rather thandefinitive, only evidence citedinfavour ofthepostulateis exist. Thetheoreticalandempirical review isthatsuchevidencedoesnot acceptance. Themainconclusionfromthe evidence ifitistogainwidespread and thereforerequiresstrongsupporting counterintuitive claimformany people be withoutthoseimprovements. Thisisa energy consumptionabove whereitwould efficiency improvements willincrease that One interpretationoftheK-B postulateis 5.6 Implications effects. be associatedwithlargesecondary effect oneconomicoutput,theymay also improvements have adisproportionate may belimited.Moreover, ifthese compensate forfuturesupplyshortages limitations; hence,theirabilityto ultimately constrained bythermodynamic associated withembodiedenergyandare conversion efficienciesarenecessarily of energycarriers.Also, improvements in 13:56 all economically justifiedenergy Page 83 General-purpose technologies (GPTs) railroads, automobiles andcomputers. technologies’, suchassteamengines, associated with‘general-purpose for theenergyefficiencyimprovements Rebound effectsmay beparticularlylarge • • • • • associated with: energy efficiencyimprovements that reboundeffectsshouldbelargerfor be large.For example,wemay speculate rebound effectsaremoreorlesslikely to circumstances underwhicheconomy-wide economic productivity, andthe associated withbroaderimprovements in (however definedandmeasured)are improvements inenergyefficiency investigate theextenttowhich Future researchshouldtherefore share ofenergyintotalcostsissmall. necessarily besmalljustbecausethe is thecase,thenreboundeffectsneednot in theproductivityofotherinputs.Ifthis frequently associatedwithimprovements that energyefficiencyimprovements are becomes moreplausibleifitisaccepted 2000; SchipperandGrubb, 2000).Butit those thatdonot. labour productivity, comparedto technologies thatimprove capitaland later stages;and diffusion comparedtothoseinthe technologies intheearlystagesof to non-coretechnologies; core processtechnologiescompared energy users; energy supplyindustriescomparedto sectors; compared tonon-energyintensive energy intensive productionsectors 83 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 84 have a wide scope for improvement and energy efficient technologies, rather than elaboration, are applicable across a broad improving the energy efficiency of GPTs. range of uses, have potential for use in a However, these categories are poorly wide variety of products and processes defined and the boundaries between them and have strong complementarities with are blurred. Moreover, even if GPTs can existing or potential new technologies meaningfully be distinguished from other (Lipsey, et al., 2005). Steam engines forms of technology, continued economic provide a paradigmatic illustration of a growth is likely to depend upon the GPT in the 19th-century, while electric diffusion of new types of GPT that may motors provides a comparable illustration increase aggregate energy consumption. for the early 20th century. The former was Hence, while it may be unlikely that all used by Jevons to support the case for energy efficiency improvements will lead backfire, while the latter was used by to backfire, we still have much to learn Brookes. about the factors that make backfire more or less likely. The key to unpacking the K-B postulate may therefore be to distinguish the energy efficiency improvements associated with GPTs from other forms of 5.7 Summary energy efficiency improvement. The K-B • The case for the K-B postulate is not postulate seems more likely to hold for based upon empirical estimates of the former, particularly when these are rebound effects, but instead relies used by producers and when the energy upon stylised theoretical arguments efficiency improvements occur at an early and empirical evidence from a range stage of development and diffusion of the of sources that is both suggestive and technology. The opportunities offered by indirect. Disputes over the postulate these technologies have such long term rest in large part on competing and significant effects on innovation, theoretical assumptions. productivity and economic growth that economy-wide energy consumption is • Historical experience demonstrates increased. In contrast, the K-B postulate that substantial improvements in seems less likely to hold for dedicated various measures of energy efficiency energy efficiency technologies such as have occurred alongside continuing improved thermal insulation, particularly increases in economic output, total when these are used by consumers or factor productivity and overall energy The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: when they play a subsidiary role in consumption. However, the causal economic production. These technologies links between these trends remains have smaller effects on productivity and unclear. economic growth, with the result that economy-wide energy consumption may • Brookes has developed a range of be reduced. arguments in support of the K-B postulate and cited a number of The implication is that energy policy suggestive sources of empirical should focus on encouraging dedicated evidence. However, his theoretical 84 S4134 12/10/07 • • are far-reaching. them. Ineithercase,theimplications functions cannotbeusedtorepresent between differentsectors,such effects vary widelyin magnitude backfire. Alternatively, ifrebound improvements arelikely tolead that ‘pure’energy-efficiency behaviour, Saunders’worksuggests representation ofreal-world considered toprovide a reasonable research. Ifsuchfunctionsare widely intheoreticalandempirical production functionsthatareused the predictedoutcomeofneoclassical Saunders hasshownhowbackfireis particular circumstances. whether itiscontingentupon this isnecessarilythecase,or leaves openthequestionofwhether costs issmallundermined.Butthis because theshareofenergyintotal rebound effectsmustbesmall energy alone,theargumentthat thereby save costsonmorethan the productivityofotherinputsand energy efficienttechnologiesboost individual sectorsandtechnologies.If national economies,aswell for thiscanbefoundatthelevel of in totalfactorproductivity. Evidence proportionally greaterimprovements are generally associatedwith improvements inenergyproductivity A key themeinBrookes’ workisthat support hiscase. empirical evidencedoesnotalways weaknesses andmorerecent arguments have anumberof 13:56 Page 85 • • the muchbroaderquestion ofthe postulate cantherefore belinked to useful work.Thedisputeover theK-B the same,sincebothprovide more in thermodynamicefficiencyshoulddo economic growth,thenimprovements contribute disproportionatelyto Hence, ifincreasesinenergyinputs because itprovides usefulwork. is onlyeconomicallyproductive driver ofeconomicgrowth.Butenergy energy inputshasbeentheprimary increased availability andqualityof ecological economistsarguethatthe energy intotalcosts.Incontrast, growth, owingtothesmallshareof small contributiontoeconomic of energyinputshasonlymadea assume thattheincreasedavailability economic growth.Mosteconomists about thecontributionofenergyto Underlying Brookes’ workisaclaim reducing energyconsumption. output andhighcostsassociatedwith energy consumptionandeconomic possibility ofastronglinkbetween substitutes. Thissuggeststhe complements oronlyweak that capitalandenergyappeartobe general conclusionscanbedrawn, itis economic models.To theextentthat parameter values withinenergy- insufficient basisfortheassumed inconclusive andprovides an this areaisbothconfusedand The extensive empiricalliterature in complex thancommonlyassumed. nature ofthisrelationshipismore energy andotherinputs,butthe the scopeforsubstitutionbetween Rebound effectsdependinpartupon 85 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 86 contribution of energy to economic efficiency improvement. In particular, growth. the K-B postulate seems more likely to hold for energy efficiency • Ecological economists cite a range of improvements associated with the evidence in support of their claims, early stage of diffusion of ‘general- but this remains patchy and in some purpose technologies’, such as electric cases flawed. Of particular interest motors in the early 20th century. It are the alternatives to standard may be less likely to hold for the later models of economic growth which can stages of diffusion of these be used in support of claims that technologies, or for ‘dedicated’ energy energy efficiency improvements are efficiency technologies such as associated with substantial improved thermal insulation. improvements in total factor However, these categories are poorly productivity and that rebound effects defined and the boundaries between are large. However, since these them are blurred. models have a number of theoretical and empirical weaknesses, convincing • Overall, while it is unlikely that all evidence of the disproportionate energy efficiency improvements will contribution of energy remain elusive. lead to backfire, we still have much to learn about the factors that make • The debate over the K-B postulate backfire more or less likely to occur. would benefit from further distinctions between different types of energy The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: 86 S4134 12/10/07 13:56 Page 87 6. Conclusions, research needs and policy implications 6.1 Conclusions cooling within OECD countries is relatively robust. Evidence for direct The main conclusions from this rebound effects for other consumer assessment are as follows: energy services is much weaker, as is that for energy efficiency 1. Rebound effects are significant, improvements by producers. but they need not make energy efficiency policies ineffective in • For household heating, household reducing energy demand cooling and personal automotive transport in OECD countries, the • The available evidence for all types of direct rebound effect is likely to be rebound effects is limited and less than 30% and may be closer to inconclusive. While the evidence is 10% for transport. Moreover, direct better for direct effects than for rebound effects for these energy indirect effects, it remains mainly services are expected to decline in the focused on a small number of future as demand saturates and consumer energy services within income increases. This means that OECD countries. Both direct and improvements in energy efficiency indirect rebound effects appear to should achieve 70% or more of the vary widely between different expected reduction in energy technologies, sectors and income consumption for those services - groups and in most cases cannot be although the existence of indirect quantified with much confidence. effects means that the economy-wide • The evidence does not suggest that reduction in energy consumption will improvements in energy efficiency be less. Direct rebound effects should routinely lead to economy-wide be smaller for other consumer energy increases in energy consumption, as services where energy forms a some commentators have suggested. relatively small proportion of total At the same time the evidence does costs and therefore has little influence not suggest that economy-wide on operating decisions. rebound effects are small (e.g. • These conclusions are subject to a <10%) as many analysts and number of important qualifications, policymakers assume. Rebound including the dependence of direct effects therefore need to be taken rebound effects on household income, seriously in policy appraisal. the neglect of ‘marginal consumers’ energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: 2. For most consumer energy and the relatively limited time periods services in OECD countries, direct over which these effects have been rebound effects are unlikely to studied exceed 30% • There are very few studies of direct • Evidence for the direct rebound effect rebound effects from energy efficiency for personal automotive transport, improvements in developing household heating and household countries. However, both theoretical 87 S4134 12/10/07 13:56 Page 88 considerations and the limited the diversity of approaches used and evidence that is available suggest that the variety of methodological direct rebound effects in these weaknesses associated with the CGE contexts could be larger than in OECD approach all suggest the need for countries and could in some cases caution when interpreting these exceed unity. This is especially the results. case for the 1.6 billion households • In principle, more robust estimates of who currently lack access to electricity the economy-wide rebound effect may and the 2.5 billion who rely upon be obtained from macro-econometric biomass for cooking. models of national economies. Barker 3. There are relatively few and Foxon (2006) use this approach quantitative estimates of indirect to estimate an economy-wide rebound and economy-wide rebound effect of 26% from current UK energy effects, but several studies efficiency policies. However, there are suggest that economy-wide a number of reasons why this study effects may exceed 50% could have underestimated economy- wide effects. • Quantitative estimates of indirect and economy-wide rebound effects are 4. The evidence and arguments rare. While a number of used in support of the Khazzoom- methodological approaches can be Brookes postulate are insufficient used to estimate these effects, the to demonstrate its validity, but limited number of studies available nevertheless pose an important provides an insufficient basis to draw challenge to conventional any general conclusions. The most wisdom important insight from these studies • The theoretical arguments for the K-B is that the magnitude of the effect postulate rely upon a conceptual depends very much upon the sector framework that is stylised and with the energy efficiency restrictive, while the empirical improvement takes place and is evidence cited in its favour is indirect sensitive to a number of variables. and suggestive. Since a number of • A handful of CGE modeling studies flaws have been found with both, the estimate economy-wide rebound K-B ‘hypothesis’ cannot be considered The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: effects to be 37% or more, with half to have been adequately verified. of the studies predicting backfire. Nevertheless, the arguments and These effects derive from ‘pure’ evidence used to defend the K-B energy efficiency improvements by postulate deserve more serious producers (not consumers) and attention than they have received to therefore do not rely upon date. simultaneous improvements in the • It is conventionally assumed that productivity of other inputs. However, there is considerable scope for the small number of studies available, 88 S4134 12/10/07 • seems morelikely to becontingent Instead, thelinkbetween thetwo associated withsuch improvements. improvements may notnecessarilybe small. Butenergyefficiency the shareofenergyintotalcostsis not necessarilybesmalljustbecause the case,thenreboundeffectsneed in totalfactorproductivity. Ifthisis proportionately greaterimprovements frequently associatedwith efficiency improvements are plausible ifitisacceptedthatenergy rebound effectsbecomesmore The possibilityoflargeeconomy-wide conventionally assumed. economic growththanis playing a moreimportantrolein effects relatively largeandtoenergy points toeconomy-wide rebound consumption. Overall, thisevidence decoupled fromthegrowthinenergy in economicoutputhasbeen there islessevidencethatthegrowth ‘quality’ oreconomicproductivity, fuels areweightedbytheirrelative energy intensity. Also, oncedifferent technical changehasactedtoincrease inputs forenergyandthatmuch limited scopeforsubstitutingother this reportsuggeststhatthereismore However, theevidencereviewedin consumption fromeconomicgrowth. observed decouplingofenergy and therebycontributedtothe energy efficiencyofindividualsectors change hashistoricallyimproved the conventionally assumedthattechnical economic output.Itisalso maintaining thesamelevel of for energyconsumptionwhile substituting capitalandotherinputs 13:56 Page 89 estimating sucheffects, thereis of theinherentdifficulty ofmeasuringor weak. Whilethisispartly aconsequence effects, theevidencebaseisremarkably Given thepotentialimportance ofrebound 6.2 Researchneeds • energy consumptionmay bereduced. with theresultthateconomy-wide productivity andeconomicgrowth, technologies have smallereffectson these areusedbyconsumers.These thermal insulation,particularlywhen efficiency technologiessuchas likely toholdfordedicatedenergy contrast, theK-B postulateseemsless energy consumptionisincreased.In economic growththateconomy-wide on innovation, productivityand such longtermandsignificanteffects offered bythesetechnologieshave 20th century. Theopportunities a comparable illustration fortheearly century, whileelectricmotorsprovide illustration ofaGPTinthe19th- engines provide a paradigmatic of development anddiffusion.Steam improvements occuratanearlystage used byproducersandwhenthe (GPTs), particularlywhentheseare with ‘general-purpose technologies’ efficiency improvements associated more likely toholdforenergy example, theK-B postulateseems energy efficiencyimprovement. For distinctions betweendifferenttypesof would benefitfrommorecareful The debateover theK-B postulate circumstances. upon particulartechnologiesand 89 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:56 Page 90 considerable scope for improving required on the dependence of direct knowledge in a number of areas. The rebound effects on income. following highlights some priorities for • The geographical bias of the evidence future research. base also needs to be addressed. In 1. Research on direct rebound particular, the evidence for rebound effects needs to improve in effects in developing countries is very rigour and expand in scope weak. • Estimates of the direct rebound effect 2. Quantitative estimates of indirect are contingent upon good data sets and economy-wide rebound and would benefit from more robust effects are feasible and should be methodologies. This is particularly pursued case for quasi-experimental studies of • A combination of input-output household heating, where current analysis and life-cycle analysis can be evaluation practice is poor. used to estimate the embodied energy • Econometric studies need to address associated with various types of the potential sources of bias indicated energy efficiency improvement. These in Section 3. There is scope for both estimates need to be developed more econometric and quasi-experimental systematically and the results studies of a greater range of incorporated within technology and consumer energy services, provided policy appraisals. that individual appliances can be • Embodied energy analysis can also be monitored. However, the policy issue combined with econometric models of here is not so much changes in short- consumer or producer behaviour to term utilisation patterns, but changes estimate the secondary effects from in the number and capacity of energy efficiency improvements by conversion devices over the longer households. This approach is limited term. to rather aggregate categories of • Estimates of the direct rebound effect energy service and has a number of for personal automotive transport methodological weaknesses. would benefit from more appropriate Nevertheless, there is considerable definitions of useful work. A study scope for further research. employing tonne kilometres as the The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: • Given the widespread use of CGE dependent variable appears feasible models in energy research, the lack of and could potentially capture the application to rebound effects is effect of increasing car sizes. Analysis surprising. There is much scope for is also needed of other modes of expanding the evidence base in terms transport, including freight. of the countries and sectors studied • There is scope for more empirical and the different types of energy work on the ‘rebound effect with efficiency improvement that are respect to time’, especially in the area modelled. However, the empirical of transportation. More work is also basis for CGE models needs to be 90 S4134 12/10/07 • • Ourunderstandingofthe 3. • failed toreachaconsensus onthe Since thirtyyears ofresearch has be misleading. many energy-economic modelsmay available evidence,theprojectionsof (AEEI) appearinconsistentwiththe energy efficiencyimprovements’ assumptions about‘autonomous mix remainsunclear. Sincestandard and otherinputs,changesinfuel change, substitutionbetweenenergy relative importanceoftechnical measures ofenergyefficiency, the change andchangesinvarious the relative contributionofstructural analysis isroutinelyusedtoidentify understood. Whiledecomposition efficiency atthemicrolevel ispoorly thermodynamic measuresofenergy macro-level andphysical/ measures ofenergyefficiencyatthe The linkagebetweeneconomic greatly improved economic growthneedstobe contribution ofenergyto identified herecouldbeaddressed. which someoftheweaknesses application ofthismethodology, in models. Thereisscopeforfurther be obtainedfrommacro-econometric wide reboundeffectsmay potentially More robustestimatesofeconomy- expressed. and withwhatconfidencetheycanbe establish howrobusttheresultsare, specific assumptions.Thiswouldhelp analysis tohighlighttheimportanceof systematic andinformedsensitivity improved andthereisaneedformore 13:57 Page 91 • • induced technicalchange. While endogenous growth theory and contemporary research on has notbeenaddressedby explore thereboundeffect,issue used neoclassicalgrowththeoryto economic growth.WhileSaundershas the contributionofenergyto generally pay insufficient attentionto mainstream economists,who this approachislargelyignoredby route forfurtherresearch.At present, assumptions andofferapromising growth challengeconventional ‘Ecological’ modelsofeconomic in totalfactorproductivity. other inputsandwithimprovements improvements intheproductivityof aggregation areassociatedwith improvement atdifferentlevels of different typesofenergyefficiency whether, howandtowhatextent Future researchshouldinvestigate results. clarify thereasonsfordiffering would alsobebeneficial,tofurther full meta-analysis ofexistingstudies attention tochangesinproductmix.A different inputsandpay closer assumption of‘separability’ between neutral technicalchange,testthe production function,allowfornon- should alsouseaflexibleformforthe empirical grounds.Futurestudies than assumedandonlyacceptedon technical changearetestedforrather that restrictionssuchasneutral flawed. Futureworkshouldensure methodological approachmay be theoretical assumptionsand/or energy andcapital,theunderlying issue ofsubstitutabilitybetween 91 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:57 Page 92 communication is inhibited in part by rebound effects may exceed 50% and competing ‘world-views’, there should could potentially increase energy be scope for mutual learning and consumption in the long-term. In improved testing. other circumstances (e.g. energy efficiency improvements in consumer electronic goods) economy-wide 6.3 Policy implications rebound effects are likely to be smaller. But in no circumstances are The general conclusion of this assessment they likely to be zero. is that rebound effects need be taken • Taking rebound effects into account more seriously by analysts and will reduce the apparent effectiveness policymakers than has hitherto been the of energy efficiency policies. However, case. While the effectiveness of energy many energy efficiency opportunities efficiency policies has not been are highly cost-effective and will investigated, some general policy remain so even when rebound effects implications can nevertheless be drawn: are allowed for. Provided market and 1. The potential contribution of organisational failures can be energy efficiency policies needs overcome, the encouragement of to be reappraised. these opportunities should increase real income and contribute to • Energy efficiency may be encouraged economic growth. They may not, through policies that raise energy however, reduce energy consumption prices, such as carbon taxes, or and carbon emissions by as much as through non-price policies such as previously assumed. building regulations. Both should continue to play an important role in 2. Rebound effects should be taken energy and climate policy. However, into account when developing many official and independent and targeting energy efficiency appraisals of such policies have policy overstated the potential contribution • Rebound effects vary widely between of non-price policies to reducing different technologies, sectors and energy consumption and carbon income groups. While these emissions. differences cannot be quantified with The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: • It would be wrong to assume that, in much confidence, there should be the absence of evidence, rebound scope for including estimated effects effects are so small that they can be within policy appraisals and using disregarded. Under some these estimates to target policies circumstances (e.g. energy efficient more effectively. Where rebound technologies that significantly effects are expected to be large, there improve the productivity of energy may be a greater need for policies intensive industries) economy-wide that increase energy prices. 92 S4134 12/10/07 • Reboundeffectsmaybe 3. • services remainsrelatively constant ensuring thatthecostofenergy direct andindirectreboundeffectsby Carbon/energy pricingcanreduce trading scheme through taxationoranemissions pricing –whetherimplemented mitigated throughcarbon/energy wider benefitstothemarket technologies, leaving therealisationof ‘dedicated’ energyefficient make moresensetofocuspolicyon understood andquantified.Itmay opportunities needtobeclearly implications ofencouraging these large reboundeffects.Hence,the energy costsmay beassociatedwith capital andlabourcostsaswell ‘Win-win’ opportunitiesthatreduce 13:57 Page 93 • required. the energysavings. Apolicymixis rebound effectscouldoffsetmuchof barriers may beinsufficient,since Similarly, policiestoaddressmarket distribution andcompetitiveness. adverse impactsonincome carbon technologiesandcouldhave the innovation anddiffusionoflow overcome thenumerousbarriersto insufficient onitsown,sinceitwillnot Carbon/energy pricingmay be rapidly ifemissionsaretobereduced. increasing. Itneedstoincreasemore prevent carbonemissionsfrom and reboundeffects,simplyto to accommodatebothincomegrowth increase over timeatarate sufficient Carbon/energy pricingneedsto while energyefficiencyimproves. 93 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 94 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency 12/10/07 13:57 Page 94 S4134 12/10/07 13:57 Page 95 References Adams, F. G. and P. Miovic, (1968), 'On relative fuel efficiency and the output elasticity of energy consumption in Western Europe', The Journal of Industrial Economics, 17(1), 41-56. Alcorn, J. A. and G. Baird, (1996), Embodied energy analysis of New Zealand building materials- methods and results, Proceedings of the Embodied Energy: The Current State of Play Seminar, Deakin University, Geelong, Australia, 28-29 November Alcott, B., (2005), 'Jevons' paradox', Ecological Economics, 54(1), 9-21. Alfredsson, E. C., (2004), ''Green' consumption - no solution for climate change', Energy, 29, 513- 24. Allan, G., N. Hanley, P. G. McGregor, J. Kim Swales, and K. Turner, (2006), 'The macroeconomic rebound effect and the UK economy', Final report to the Department Of Environment Food and Rural Affairs, Department Economics, University of Strathclyde, Strathclyde. Ang, B. W., (1999), 'Decomposition methodology in energy demand and environmental analysis', in Handbook of Environmental and Resource Economics, J.C.J.M van der Bergh ed, Edward Elgar, Cheltenham, UK. Ang, B. W., (2006), 'Monitoring changes in economy-wide energy efficiency: From energy-GDP ratio to composite efficiency index', Energy Policy, 34(5), 574-82. Atack, J., (1979), 'Fact in fiction? The relative cost of steam and water power: a simulation approach', Explorations in Economic History, 16, 409-37. Ayres, R. U., (2002), 'Resources, scarcity, technology and growth', INSEAD Working Paper No. 2002/118/EPS/CMER, Centre for the Management of Environmental Resources, INSEAD, Fontainebleau. Ayres, R. U., L. W. Ayres, and B. Warr, (2003), 'Exergy, power and work in the US economy, 1900- 1998', Energy, 28(3), 219-73. Ayres, R. U. and B. Warr, (2002), 'Two paradigms of production and growth', CMER Working Paper, INSEAD, Fontainbleau, France. Ayres, R. U. and B. Warr, (2005), 'Accounting for growth: the role of physical work', Structural Change and Economic Dynamics, 16(2), 181-209. Ayres, R. U. and B. Warr, (2006), 'REXS: a forecasting model for assessing the impact of natural resource consumption and technological change from economic growth', Structural Change in Economic Dynamics, 17(3), 329-78. Baker, P., Blundell, R., and J. Mickelwright, (1989), 'Modelling household energy expenditures using micro-data', Economic Journal, 99(720-738). Baker, P. and R. Blundell, (1991), 'The microeconometric approach to modelling energy demand: energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: some results for UK households', Oxford Review of Economic Policy, 7(2), 54-76. Barker, T., (2005), 'The transition to sustainability: a comparison of general equilibrium and space- time economics approaches', Working Paper Number 62, Tyndall Centre for Climate Change Research. Barker, T., P. Ekins, and T. Foxon, (2007), 'Macroeconomic effects of efficiency policies for energy- intensive industries: the case of the UK Climate Change Agreements, 2000-2010', Energy Economics, 29(5), 760-78. 95 S4134 12/10/07 13:57 Page 96 Barker, T., P. Ekins, and N. Johnstone, (1995), Global warming and energy demand, Routledge, London. Barker, T. and T. Foxon, (2006), 'The macroeconomic rebound effect and the UK economy', Report to the Department of the Environment, food and Rural Affairs, 4CMR, Cambridge. Barro, R. J. and X. Sala-I-Martin, (1995), Economic Growth, McGraw-Hill, New York. Beaudreau, B. C., (1998), Energy and Organisation: group and distribution re-examined, Greenwood Press, Westport, CT. Becker, G. S., (1965), 'A theory of the allocation of time', The Economic Journal, LXXV(299), 493- 517. Bergh, J. C. J. M. v. d. and K. J. Button, (1999), 'Meta-analysis, economic valuation and environmental economics', in Handbook of Environmental Resources, J.C.J.M. van den Bergh ed, Edward Elgar, Cheltenham. Berndt, E. R., (1978), 'Aggregate energy, efficiency and productivity measurement', Annual Review of Energy, 3, 225-73. Berndt, E. R., (1990), 'Energy use, technical progress and productivity growth: a survey of economic issues', The Journal of Productivity Analysis, 2, 67-83. Berndt, E. R. and D. O. Wood, (1979), 'Engineering and econometric interpretations of energy- capital complementarity', American Economic Review, June, 259-68. Berry, L., (1983), 'Residential conservation programme impacts: methods of reducing self-selection bias', Evaluation Review, 7(6), 753-75. Besen, S. M. and L. L. Johnson, (1982), 'Comment on "Economic implications of mandated efficiency standards for household appliances"', Energy Journal, 3(1), 110-16. Bhattacharyya, S. C., (1996), 'Applied general equilibrium models for energy studies: a survey', Energy Economics, 18, 145-64. Binswanger, M., (2001), 'Technological progress and sustainable development: what about the rebound effect?' Ecological Economics, 36(1), 119-32. Birol, F. and J. H. Keppler, (2000), 'Prices, technology development and the rebound effect', Energy Policy, 28(6-7), 457-69. Boardman, B. and G. Milne, (2000), 'Making cold homes warmer: the effect of energy efficiency improvements in low-income homes', Energy Policy,, 218(6-7), 411-24. Boyd, G. A. and J. X. Pang, (2000), 'Estimating the linkage between energy efficiency and productivity', Energy Policy, 28, 289-96. The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: Brännlund, R., T. Ghalwash, and J. Nordstrom, (2007), 'Increased energy efficiency and the rebound effect: effects on consumption and emissions', Energy Economics, 29(1), 1-17. Brookes, L., (2004), 'Energy efficiency fallacies—a postscript', Energy Policy, 32(8), 945-47. Brookes, L. G., (1972), 'More on the output elasticity of energy consumption', The Journal of Industrial Economics, 21(1), 83-92. Brookes, L. G., (1978), 'Energy policy, the energy price fallacy and the role of nuclear energy in the UK', Energy Policy, 6(2), 94-106. 96 S4134 12/10/07 components', JournalofEnergy Literature, 1(2),3. Dahl, C., (1994),'Demand fortransportation fuels:asurvey ofdemandelasticities andtheir Mineral Economics,Colorado SchoolofMines,Colorado. NEMS', PreparedforUSDepartmentofEnergy, Contract No. De-AP01-93EI23499, Departmentof Dahl, C., (1993),'A survey ofenergydemandelasticities insupportofthedevelopment ofthe Working Paper nO. 75/03,DepartmentofEconomicHistory, LondonSchoolofEconomics. Crafys, N., (2003),'Steamasageneral-purpose technology:agrowthaccountingperspective', Costanza, R., (1980),'Embodiedenergyandeconomicvaluation', Science,210,1219-24. Elgar, Cheltenham,UK. analysis', inHandbookofEnvironmental andResource Economics,J.C.J.M van dnBerghed,Edward Conrad, K., (1999),'Computablegeneral equilibriummodelsforenvironmental economicsandpolicy economy', EcologicalEconomics,32,301-17. Cleveland, C.J., R.K.Kaufmann, andD. I.Stern,(2000), 'Aggregation andtheroleofenergyin economy: abiophysical perspective', Science,225,890-97. Cleveland, C.J., R.Costanza,C.A.S. Hall,andR.K.Kaufmann, (1984),'EnergyandtheUS U.S.' EcologicalEconomics,6(2),139-62. Cleveland, C.J., (1992),'Energyqualityandenergysurplusintheextraction offossilfuelsinthe Economics, University ofSurrey, Guildford. GDP: evidencefrom30OECDand78non-OECDcountries',Working Paper, Departmentof Chontanawat, J., L.Hunt,C.,, andR.Pierse,(2006),'Causalitybetweenenergyconsumption Chapman, P., (1974),'Energycosts:areviewofmethods', EnergyPolicy, 2(2),91-103. Design, 1(163-170). respending reboundeffectinthesphereofconsumerproducts',TheJournalSustainableProduct Chalkley, A.M., E.Billett,andD. Harrison,(2001),'An investigation ofthepossibleextent limitations anddifferences',EnergyBuildings,38,381-92. Casals, X.G., (2006),'Analysis ofbuildingenergyregulation andcertificationinEurope:theirrole, Customs andExcise, London. Cambridge Econometrics,(2005),'ModellingtheinitialeffectsofClimateChangeLevy',HM 267–313. process andinput–output analysis',Resources and Energy 1(1978)(3),pp. 267–313,1(3), Bullard, C.W., P. S. Penner, andD. A.Pilati,(1978),'Netenergyanalysis:handbookforcombining Brookes, L.G., (2000),'Energyefficiencyfallaciesrevisited',EnergyPolicy, 28(6-7),355-66. 346-47. Brookes, L.G., (1993),'Energyefficiencyfallacies-thedebateconcluded',EnergyPolicy, 21(4), 390-92. Brookes, L.G., (1992),'Energyefficiencyandeconomicfallacies-areply',EnergyPolicy, 20(5), Energy Policy, 18(2),199-201. Brookes, L.G., (1990),'Thegreenhouseeffect:thefallaciesinenergyefficiencysolution.' Economics ofNuclearEnergy, LeonardBrookes andH.Motameneds,ChapmanHall,London. Brookes, L.G., (1984),'Long-termequilibriumeffectsofconstraints inenergysupply',The 13:57 Page 97 97 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:57 Page 98 Dahl, C. and T. Sterner, (1991), 'Analyzing Gasoline Demand Elasticities - a Survey', Energy Economics, 13(3), 203-10. Dargay, J. M., (1992), Are price & income elasticities of demand constant? The UK experience, Oxford Institute for Energy Studies, Oxford, U.K. Dargay, J. M. and D. Gately, (1994), 'Oil demand in the industrialised countries', Energy Journal, 15(Special Issue), 39-67. Dargay, J. M. and D. Gately, (1995), 'The imperfect price irreversibility of non-transportation of all demand in the OECD', Energy Economics, 17(1), 59-71. Davis, L. W., (2007), 'Durable goods and residential demand for energy and water: evidence from a field trial', Working Paper, Department of Economics, University of Michigan. Deaton, A. and J. Mulbauer, (1980), 'An almost ideal demand system', The American Economic Review, 70, 312-26. DEFRA, (2007), 'Consultation document: energy, cost and carbon savings for the draft EEC 2008 - 11 illustrative mix', Department of Environment, Food and Rural Affairs, London. Denison, E. F., (1985), Trends in American Economic Growth 1929-1982, The Bookings Institute, Washington, DC. Department of Transport, (2006), 'National Travel Survey', Department of Transport, London. Diewert, W. E. and T. J. Wales, (1987), 'Flexible functional forms and global curvature conditions', Econometrica, 55(1), 43-68. Douthitt, R. A., (1986), 'The demand for residential space and water heating fuel by energy conserving households', The Journal of Consumer Affairs, 20(2), 231-48. Dubin, J. A., A. K. Miedema, and R. V. Chandran, (1986), 'Price Effects of Energy-Efficient Technologies - a Study of Residential Demand for Heating and Cooling', Rand Journal of Economics, 17(3), 310-25. Einhorn, M., (1982), 'Economic implications of mandated efficiency standards for household appliances: an extension.' Energy Journal, 3(1), 103-09. EMF 4 Working Group, (1981), 'Aggregate elasticity of energy demand', Energy Journal, 2(2), 37- 75. Engle, R. F. and C. W. J. Granger, (1987), 'Cointegration and error correction: representation, estimation and testing', Econometricaa, 55(2), 251-76. Espey, J. A. and M. Espey, (2004), 'Turning on the lights: a meta-analysis of residential electricity demand elasticities', Journal of Agricultural and Applied Economics, 36(1), 65-81. The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: Espey, M., (1998), 'Gasoline demand revisited: an international meta-analysis of elasticities', Energy Economics, 20, 273-95. Fanger, O., (1970), Thermal Comfort: Analysis and Applications in Environmental Engineering, Danish Technical Press, Copenhagen. Feist, W., (1996), Life-cycle energy balances compared: low energy house, passive house, self- sufficient house, Proceedings of the International Symposium of CIB W67, Vienna, Austria, Ferrer-i-Carbonell, A., A. C. Muskens, and M. J. van Leeuwen, (2002), 'Behavioural responses to energy-related taxes: a survey', International Journal of Global Energy Issues, 18(2/3/4), 202-17. 98 S4134 12/10/07 Energy Economics,26(2), 261-82. Grepperud, S. andI.Rasmussen, (2004),'A general equilibriumassessmentofreboundeffects', rebound effect-asurvey', EnergyPolicy, 28(6-7),389-401. Greening, L.A., D. L.Greene,andC.Difiglio, (2000),'Energyefficiencyandconsumption-the a reviewoftheliterature', Report totheU.S. DepartmentofEnergy, HaglerBaillyandCo., Denver. Greening, L.A.andD. L.Greene,(1998),'Energyuse,technicalefficiency, andthereboundeffect: vehicles', EnergyJournal,20(3),1-31. Greene, D. L., J. R.Kahn, andR.C.Gibson,(1999b),'Fuel economy reboundeffectforUShousehold Laboratory, OakRidge,Tennessee. vehicle travel withrespecttofuelcostpermileusingtheRTEC survey data',OakRidgeNational Greene, D. L., J. R.Kahn, andR.Gibson,(1999a),'An econometric analysisoftheelasticity Journal, 13(1),117-43. Greene, D. L., (1992),'Vehicle useandfueleconomy: howbigisthe"rebound"effect?'Energy Journal ofTranspor EconomicsandPolicy, 36(1),1-26. Graham, D. J. andS. Glaister, (2002),'Thedemandforautomobilefuel:asurvey ofelasticities', No: 5673,NationalBureauofEconomicResearch, Cambridge,MA. Goldberg, P. K., (1996),'Theeffectofthecorporate average fueleffciencystandards.'Working Paper 73. increasing energyefficiency:thirtyyears ofexperienceinOECDcountries',EnergyPolicy, 34,556- Geller, H., P. Harrington,A.H.Rosenfeld, S. Tanishima, andF. Unander, (2006),'Policies for 163-82. Gately, D., (1993),'Theimperfectpricereversibility ofworldoildemand',EnergyJournal,14(4), to priceincreasesanddeclines',EnergyJournal,13(4),179-207. Gately, D., (1992),'Imperfectpricereversed abilityofUSgasolinedemand:asymmetricresponses Modern Evaluation Research', EcologicalEconomics,55(4),515-26. Frondel, M.andC.Schmidt,(2005),'Evaluating Environmental Programs: ThePerspective of energy', EcologicalEconomics,51,217-23. Frondel, M.andC.Schmidt,(2004),'Facing thetruthaboutseparability: nothingworkswithout elasticities', EnergyPolicy, 32,989-1000. Frondel, M., (2004),'Empiricalassessmentofenergypricepolicies:thecaseforcross Journal ofPolitical Economy, 95,1089-97. Friedman, D., (1987),'Coldhousesinwarm climatesandviceversa: aparadox ofrational heating', 12, 205-17. Frey, C.J. andD. G.Labay, (1988),'Examinationofenergytake-back', EnergySystems andPolicy, in theUnitedKingdom(1300-1700)',TheEnergyJournal,27(1),139-77. Fouquet, R.andP. Pearson, (2006),'Seven centuriesofenergyservices:thepriceanduselight Cambridge, MA. Fisher, F. M., (1993),Aggregation:aggregateproductionfunctionsandrelatedtopics,MITPress, 13:57 Page 99 99 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:57 Page 100 Grubb, M., J. Kohler, and D. Anderson, (2002), 'Induced technical change in energy and environmental modelling: analytic approaches and policy implications', Annual Review of Energy and the Environment, 27, 271-308. Grubb, M. J., (1990), 'Energy efficiency and economic fallacies', Energy Policy, 18(8), 783-85. Grubb, M. J., (1992), 'Reply to Brookes', Energy Policy, 783-85. Grubb, M. J., (1995), 'Asymmetrical price elasticities of energy demand', in Global warming and energy demand, T. Barker, P. Ekins and N. Johnstone eds, Routledge, London and New York. Guertin, C., S. Kumbhakar, and A. Duraiappah, (2003), 'Determining demand for energy services: investigating income-driven behaviours', International Institute for Sustainable Development. Gullickson, W. and M. J. Harper, (1987), 'Multi factor productivity in US manufacturing 1949-1983', Monthly Labour Review, (October 18-28). Haas, R. and P. Biermayr, (2000), 'The rebound effect for space heating - Empirical evidence from Austria', Energy Policy, 28(6-7), 403-10. Haas, R. and L. Schipper, (1998), 'Residential energy demand in OECD-countries and the role of irreversible efficiency improvements', Energy Economics, 20(4), 421-42. Hanley, M., J. M. Dargay, and P. B. Goodwin, (2002), 'Review of income and price elasticities in the demand for road traffic', Final report to the DTLR under Contract number PPAD 9/65/93, ESRC Transport Studies Unit, University College London, London. Hanley, N., P. G. McGregor, J. K. Swales, and K. Turner, (2005), 'Do increases in resource productivity improve environmental quality? Theory and evidence on rebound and backfire effects from an energy-economy-environment regional computable general equilibrium model of Scotland', Department of Economics, University of Strathclyde, Strathclyde. Harrison, D., G. Leonard, B. Reddy, D. Radov, P. Klevnäs, J. Patchett, and P. Reschke, (2005), 'Reviews of studies evaluating the impacts of motor vehicle greenhouse gas emissions regulations in California', National Economic Research Associates, Boston. Hartman, R. S., (1988), 'Self-selection bias in the evaluation of voluntary energy conservation programs', The Review of Economics and Statistics, 70(3), 448-58. Haughton, J. and S. Sarkar, (1996), 'Gasoline tax as a corrective tax: Estimates for the United States, 1970-1991', Energy Journal, 17(2), 103-26. Hausman, J. A., (1979), 'Individual Discount Rates and the Purchase and Utilization of Energy-Using Durables', Bell Journal of Economics, 10(1), 33-54. Henly, J., H. Ruderman, and M. D. Levine, (1988), 'Energy savings resulting from the adoption of The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: more efficient appliances: a follow-up', Energy Journal, 9(2), 163-70. Herendeen, R., (1978), 'Total energy cost of household consumption in Norway, 1973', Energy, 3(5), 615-30. Herendeen, R. and J. Tanak, (1976), 'The energy cost of living', Energy, 1(2), 165-78. Herring, H., (2006), 'Energy efficiency--a critical view', Energy, 31(1), 10-20. Herring, H. and M. Elliot, (1990), 'Letter to the editor', Energy Policy, 18(8), 786. Hills, R. L., (1989), Power from Steam, Cambridge University Press, Cambridge. 100 S4134 12/10/07 9(1-2), 221-35. households inSweden: options forreduction,lessonsfrommodelling',Journal of IndustrialEcology, Kanyama, A. C., R.Engstrom,andKok, (2006),'Indirect anddirectenergyrequirementsofcity Working Paper, CambridgeEconometrics. Junankar, S., O. Lofsnaes,andP. Summerton,(2007),'MDM-E3:ashorttechnicaldescription', Economic Studies,34(3),249-82. Jorgenson, D. W. andZ.Griliches,(1967),'Theexplanationofproductivitychange', Review of Boston. Jorgenson, D. W., (1996),GrowthVol. 2Energy, theEnvironment, andEconomicGrowth,MITPress, Jorgenson, D. W., (1984),'Therole ofenergyinproductivitygrowth.'TheEnergyJournal,5(3). Measuring Natural Resource Substitution., E.R.BerndtandB.C. Fieldeds,TheMITPress,Boston. Jorgenson, D. andB. Fraumeni, (1981),'Relative prices andTechnical Change',inModelingand Reinhold, London. Jones, H.G., (1975),Anintroductiontomoderntheoriesofeconomicgrowth,Van Nostrand improved fuelefficiency',TheEnergyJournal,14(4),99. Jones, C.T., (1993),'Another lookatU.S. passengervehicle useandthe"rebound"effectfrom Transport EconomicsandPolicy, 31(3),277-92. estimations ofvehicle stock,meanfuelintensity, andmeanannualdrivingdistance', Journalof Johansson, O. andL.Schipper, (1997),'Measuringlong-runautomobilefueldemand:separate ed, AugustusM.Kelley, NewYork. Concerning theProgressofNation,andProbableExhaustionOurCoal-mines,A.W. Flux Jevons, W. S., (1865),'TheCoalQuestion:CanBritainSurvive?' inTheCoalQuestion:AnInquiry Economics, 41(1),109-23. Jalas, M., (2002),'A timeuseperspective onthematerialsintensityofconsumption', Ecological to theIPCCFourth AssessmentReport, Intergovernmental Panel onClimate Change. IPCC, (2007),'ClimateChange2007:MitigationofClimateChange',Working GroupIIIcontribution Energy Demand',JournalofConsumerAffairs,27(1),87-105. Hsueh, L.-M. andJ. L.Gerner, (1993),'EffectofThermalImprovements inHousingonResidential 15(4), 1. Howarth, R.B., (1997),'Energyefficiencyandeconomic growth',Contemporary EconomicPolicy, the spaceheatingfuelconsumptioninEnglishdwellings',EnergyandBuildings,38(10),1171-81. Hong, S. H., T. Oreszeczyn, andI.Ridley, (2006),'Theimpactofenergyefficientrefurbishmenton 4(2), 172-77. Hong, N.V., (1983),'Two measuresofaggregateenergyproductionelasticities',TheEnergyJournal, Committee onScienceandTechnology, London. HoL, (2006),'SecondReport: EnergyEfficiency, Session2005-2006',HouseofLordsSelect emissions', TheEnergyJournal,12(1),67-85. Hogan, W. W. andD. W. Jorgenson,(1991),'ProductivitytrendsandthecostofreducingCO2 Resources andEnergy, 2,201-20. Hogan, W. W., (1979),'Capital-energy complementarityinaggregateenergy-economic analysis', 13:57 Page 101 101 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:57 Page 102 Kaufmann, R. K., (1992), 'A biophysical analysis of the energy/real GDP ratio: implications for substitution and technical change', Ecological Economics, 6(1), 35-56. Kaufmann, R. K., (1994), 'The relation between marginal product and price in US energy markets : Implications for climate change policy', Energy Economics, 16(2), 145-58. Kaufmann, R. K., (2004), 'The mechanisms of autonomous energy efficiency increases: a cointegration analysis of the US energy/GDP ratio', The Energy Journal, 25(1), 63-86. Kaufmann, R. K. and I. G. Azary-Lee, (1990), A biophysical analysis of substitution: does substitution save energy in the US forest products industry?, Ecological economics: its implications for forest management and research, Proceedings of a Workshop held in St Paul, Minnesota, April 2-6 Kempton, W. and L. Montgomery, (1982), 'Folk quantification of energy', Energy, 7(10), 817-27. Khazzoom, J. D., (1980), 'Economic implications of mandated efficiency in standards for household appliances', Energy Journal, 1(4), 21-40. Klein, Y. L., (1987), 'Residential energy conservation choices of poor households during a period of rising energy prices', Resources and Energy, 9(4), 363-78. Klein, Y. L., (1988), 'An econometric model of the joint production and consumption of residential space heat', Southern Economic Journal, 55(2), 351-59. Kok, R., R. M. J. Benders, and H. C. Moll, (2006), 'Measuring the environmental load of household consumption using some methods based on input–output energy analysis: A comparison of methods and a discussion of results', Energy Policy, 34(17), 2744-61. Kraft, J. and A. Kraft, (1978), 'On the relationship between energy and GNP', Journal of Energy and Development, 3(401-3). Kummel, R., J. Henn, and D. Lindenberger, (2002), 'Capital, labor, energy and creativity: modeling innovation diffusion', Structural Change and Economic Dynamics, 13(4), 415-33. Kummel, R., D. Lindenberger, and W. Eichhorn, (2000), 'The productive power of energy and economic evolution', Indian Journal of Applied Economics, 8, 231-62. Kummel, R., W. Strassl, A. Gossner, and W. Eichhorn, (1985), 'Technical progress and energy dependent production functions', Nationalökonomie - Journal of Economics, 3, 285-311. Laitner, J. A., (2000), 'Energy efficiency: rebounding to a sound analytical perspective', Energy Policy, 28(6-7), 471-75. Leach, G., (1975), 'Net energy analysis — is it any use?' Energy Policy, 3(4), 332-44. Lee, C. C., (2006), 'The causality relationship between energy consumption and GDP in G-11 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: countries revisited', Energy Policy, 34(9), 1086-93. Lenzen, M., (1998), 'Energy and greenhouse gas cost of living for Australia during 1993/94', Energy, 23(66), 497-516. Lenzen, M. and C. Dey, (2000), 'Truncation error in embodied energy analyses of basic iron and steel products', Energy, 25(6), 577-85. Lim, H. and C. R. Shumway, (1997), 'Technical change and model specification: US agricultural production', American Journal of Agricultural Economics, 79, 543-54. 102 S4134 12/10/07 Cleveland ed,ElsevierAcademic Press. Rosen, M.A., (2004),'Exergy analysisofenergysystems',inEncyclopaedia ofEnergy, C.J. income andenergyuseand/or carbonemissions?'EcologicalEconomics,56(2), 176-89. Richmond, A.K.andR.Kaufmann, (2006b),'Isthere aturningpointintherelationshipbetween between incomeandenergyuse/carbonemissions', TheEnergyJournal,27(4),157-79. Richmond, A.K.andR.Kaufmann, (2006a),'Energy pricesandturningpoints:therelationship Energy EfficiencyinIndustry, Washington, DC, efficiency casetoindustrybyquantifyingnon-energy benefits,Proceedings1999SummerStudyon Pye, M.andA.McKane, (1998),Enhancingshareholdervalue: makingamorecompellingenergy using 9years ofUSsurvey data',EnergyEconomics, 21(1),37-52. Puller, S. L.andA.Greening,(1999),'Householdadjustmenttogasolinepricechange:ananalysis minority householdtype',EnergyEconomics,15(2),93-100. Poyer, D. A.andM.Williams,(1992), 'Residential energydemand:additional empirical evidenceby issues', EnergyPolicy, 24(5),377-90. Patterson, M.G., (1996),'Whatisenergyefficiency:concepts,indicatorsandmethodological the householdsector',TheBellJournalofEconomics,11,309-21. Parti, M.andC.Parti, (1980),'Thetotalandappliance-specificconditionaldemandforelectricityin analysis ofsomecontributingfactors',BrookingsPapers inEconomicActivity, 2,387-41. Norsworthy, J. R., M.J. Harper, andK.Kunz, (1979),'The slowdown inproductivitygrowth:an Economics, 21,493-515. Nesbakken, R., (1999),'Pricesensitivityof residentialenergyconsumptioninNorway', Energy Nadel, S., (1993),'Thetake-back effect-factorfiction',U933,ACEEE. Working Paper, Graduate SchoolofEconomics,Kobe University, Kobe, Japan. Mizobuchi, K.I., (2007),'An empiricalevidenceofthereboundeffectconsideringcapitalcosts', improvements inlow-income homes',EnergyPolicy, 28,411-24. Milne, G.andB. Boardman,(2000),'Makingcoldhomeswarmer: theeffectofenergyefficiency energy-capital complementarity',SouthernEconomicJournal,52(3),745-62. Miller, E.M., (1986),'Cross-sectionalandtime-seriesbiasesinfactordemandstudies:explaining Economic Statistics,13(2),151-60. Meyer, B., (1995),'Natural andquasiexperimentsineconomics',TheJournalofBusiness Institute, OldSnowmass,Colorado. Lovins, A.B. andL.H.Lovins, (1997),'Climate:makingsenseandmoney',Rocky Mountain adoption ofmoreefficientappliances:anotherview;afollow-up', TheEnergyJournal,9(2),155. Lovins, A.B., J. Henly, H.Ruderman, andM.D. Levine,(1988),'Energysaving resultingfromthe 18 September Lovins, A.B., (1998),'FurthercommentsonRed Herrings',LettertotheNewScientist,No. 2152, Ecological Economics,43(2-3),105-26. Löschel, A., (2002),'Technological changeineconomicmodelsofenvironmental policy:asurvey', Technologies andLong-termEconomicGrowth,OxfordUniversity Press,Oxford. Lipsey, R., G., K.I.Carlaw, andC.T. Bekar, (2005),EconomicTransformations: General Purpose 13:57 Page 103 103 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:57 Page 104 Rosenberg, N., (1989), Energy Efficient Technologies: Past, Present and Future Perspectives, How Far Can the World Get on Energy Efficiency Alone?, Roy, J., (2000), 'The rebound effect: some empirical evidence from India', Energy Policy, 28(6-7), 433-38. Roy, J., J. Sathaye, A. H. Sanstad, P. Mongia, and K. Schumacher, (1999), 'Productivity trends in India's energy intensive industries', The Energy Journal, 20(3), 33-61. Royal Commission on Environmental Pollution, (2007), 'The Urban Environment', London. Sanders, M. and M. Phillipson, (2006), 'Review of differences between measured and theoretical energy savings for insulation measures', Centre for Research on Indoor Climate and Health, Glasgow Caledonian University, Glasgow. Sanstad, A. H., J. Roy, and S. Sathaye, (2006), 'Estimating energy-augmenting technological change in developing country industries', Energy Economics, 28, 720-29. Sartori, I. and A. G. Hestnes, (2007), 'Energy use in the life-cycle of conventional and low-energy buildings: a review article', Energy and Buildings, 39, 249-57. Saunders, H. D., (1992), 'The Khazzoom-Brookes postulate and neoclassical growth', The Energy Journal, 13(4), 131. Saunders, H. D., (2000a), 'Does predicted rebound depend on distinguishing between energy and energy services?' Energy Policy, 28(6-7), 497-500. Saunders, H. D., (2000b), 'A view from the macro side: rebound, backfire, and Khazzoom-Brookes', Energy Policy, 28(6-7), 439-49. Saunders, H. D., (2005), 'A calculator for energy consumption changes arising from new technologies', Topics in Economic Analysis and Policy, 5(1), 1-31. Saunders, H. D., (2007), 'Fuel conserving (and using) production function', Working Paper, Decision Processes Incorporated, Danville, CA. Schipper, L., (2000), 'Editorial', Energy Policy, 28, 6-7. Schipper, L. and M. Grubb, (2000), 'On the rebound? Feedback between energy intensities and energy uses in IEA countries', Energy Policy, 28(6-7), 367-88. Schipper, L., M. Josefina, L. P. Figueroa, and M. Espey, (1993), 'Mind the gap The vicious circle of measuring automobile fuel use', Energy Policy, 21(12), 1173-90. Schurr, S., (1982), 'Energy Efficiency and Productive Efficiency: Some Thoughts Based on the American Experience', Energy Journal, 3(3), 3-14. Schurr, S. H., (1983), 'Energy abundance and economic progress', Annual Review of Energy, The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: 10(3/4), 111-17. Schurr, S. H., (1984), 'Energy, economic growth and human welfare', in The Economics of Nuclear Energy., L. Brookes and H. Motamen eds, Chapman and Hall, London. Schurr, S. H., (1985), 'Energy conservation and productivity growth : Can we have both?' Energy Policy, 13(2), 126-32. Schurr, S. H., B. C. Netschert, V. E. Eliasberg, J. Lerner, and H. H. Landsberg, (1960), 'Energy in the American Economy', Resources for the Future, John Hopkins University Press, Baltimore. 104 S4134 12/10/07 American EconomicReview, 74(2),31-37. Sweeney, J. L., (1984),'Theresponse ofenergydemandtohigherprices:whathave welearned?' Government, Harvard University, Boston. Implications forLong-Run CO2EmissionProjections', Working Paper, Kennedy Schoolof Sue Wing,I.andR.S. Eckaus,(2006), 'The DeclineinU.S. EnergyIntensity:ItsOriginsand Stern, N., (2007),'SternReview: TheEconomicsof ClimateChange',HMTreasury, London. in Economics,No. 0410,Rensselaer Polytechnic Institute, Troy, NY. Stern, D. I.andC.J. Cleveland, (2004),'Energyand economicgrowth',Rensselaer Working Paper 32(8), 1419-39. Stern, D. I., (2004c),'TheriseandfalloftheEnvironmental Kuznets Curve', World Development, 32(Eight), 1419-39. Stern, D. I., (2004b),'TheriseandfalloftheEnvironmental Kuznets Curve', World Development, No. 0403,Rennsselaer Polytechnic Institute. Stern, D. I., (2004a),'Elasticitiesofsubstitutionandcomplementarity',Working Paper inEconomics, macroeconomy', EnergyEconomics,22,267-83. Stern, D. I., (2000),'A multivariate cointegration analysisoftheroleenergyinUS neoclassical interpretationofecologicaleconomics',EcologicalEconomics,21,197-215. Stern, D. I., (1997),'Limitstosubstitutionintheirreversibility inproductionandconsumption:a Economics, 15(2),137-50. Stern, D. I., (1993),'EnergyandeconomicgrowthintheUSA :Amultivariate approach',Energy Cost-Effective Investment, Edward Elgar, Cheltenham, UK. Sorrell, S., E.O. Malley, S. J., andS. Scott,(2004),TheEconomicsofEnergyEfficiency:Barriersto University ofSussex,Brighton. function oftheUKEnergyResearch Centre,SPRU(ScienceandTechnology Policy Research), improvements inenergyefficiency:ScopingNote',Report fortheTechnology Policy Assessment Sorrell, S. andJ. Dimitropoulos,(2005b),'An assessmentofevidenceforreboundeffectfrom Centre, SussexEnergyGroup, SPRU, University ofSussex,Brighton. improvements inenergyefficiency:AssessmentProtocol',AreportfortheUKEnergyResearch Sorrell, S. andJ. Dimitropoulos,(2005a),'An assessmentofevidencefora'reboundeffect'from Energy Policy, 35(3),1858-71. Sorrell, S., (2007),'Improving theevidencebaseforenergypolicy:Theroleofsystematicreviews', Review, 77(4),605-14. Solow, J. L., (1987),'Thecapital-energycomplementaritydebaterevisited',TheAmerican Economic Ecological Economics,22(3),175-201. Söllner, F., (1997),'A reexaminationoftherolethermodynamicsforenvironmental economics', Contract Number02-336,DepartmentofEconomics,University ofCalifornia,Irvine. California Environment ProtectionAgencyandtheCaliforniaEnergyCommission,FinalReport ARB emissions onvehicle milestravelled', PreparedfortheStateofCaliforniaAirResources Board,the Small, K.A.andVan Dender, (2005),'A study toevaluate theeffectofreducedgreenhousegas household comfort',EnergyJournal,16(1),41-54. Schwarz, P. M.andT. N.Taylor, (1995),'Coldhands,warm hearth?Climate,nettakeback, and 13:57 Page 105 105 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:57 Page 106 Taylor, L. D., G. R. Blattenberger, and P. K. Verleger, (1977), 'The residential demand for energy', EA-235, Electric Power Research Institute, Palo Alto, California. Temple, J., (2006), 'Aggregate production functions and growth economics', International Review of Applied Economics, 20(3), 301-17. Toke, D., (1990), 'Increasing energy supply not inevitable', Energy Policy, 18(7), 671-73. Toman, M. and B. Jemelkova, (2003), 'Energy and Economic Development: An Assessment of the State of Knowledge', The Energy Journal, 24(4). Train, K. E., (1994), 'Estimation of net savings from energy-conservation programs', Energy, 19(4), 423-41. Vringer, K. and K. Blok, (1995), 'The direct and indirect energy requirements of households in the Netherlands', Energy Policy, 23(10), 893-910. Wall, G., (2004), 'Exergy', in Encyclopaedia of Energy: Volume 2, C.J. Cleveland ed, Elsevier Academic Publishers, Amsterdam, New York. Webb, M. and D. Pearce, (1975), 'The economics of energy analysis', Energy Policy, 3(4), 318-31. Welsch, H. and C. Ochsen, (2005), 'The determinants of aggregate energy use in West Germany: factor substitution, technological change, and trade', Energy Economics, 27, 93-111. West, S. E., (2004), 'Distributional effects of alternative vehicle pollution control policies', Journal of Public Economics, 88, 735-57. Wilson, A. and J. Boehland, (2005), 'Small is Beautiful: U.S. House Size, Resource Use, and the Environment', Journal of Industrial Ecology7, 9(1-2), 277-28. Winther, B. N. and A. G. Hestnes, (1999), 'Solar versus Green: the analysis of a Norwegian row house', Solar Energy, 66(6), 387-93. Wirl, F., (1997), The economics of conservation programs, Kluwer, Dordrecht. Worrell, J. A., M. Ruth, H. E. Finman, and J. A. Laitner, (2003), 'Productivity benefits of industrial energy efficiency measures', Energy, 1081-98. Xiao, N., J. Zarnikau, and P. Damien, (2007), 'Testing functional forms in energy modeling: An application of the Bayesian approach to U.S. electricity demand', Energy Economics, 29(2), 158-66. Yoo, S. H., (2006), 'The causal relationship between electricity consumption and economic growth in the ASEAN countries', Energy Policy, 34(18), 3573-82. Zachariadis, T., (2006), 'On the exploration of causal relationships between energy and the economy', Discussion Paper 2006-05, Department of Economics, University of Cyprus. Zarnikau, J., (1999), 'Will tomorrow's energy efficiency indices prove useful in economic studies?' The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: The Energy Journal, 20(3), 139-45. Zarnikau, J., S. Guermouches, and P. Scmidt, (1996), 'Can different energy resources be added or compared?' Energy, 21(6), 483-91. Zein-Elabdin, E. O., (1997), 'Improved stoves in Sub-Saharan Africa: the case of the Sudan', Energy Economics, 19(4), 465-75. 106 S4134 12/10/07 Matt Sommerville Dennis Anderson ICEPT, ImperialCollege Karen Turner Kim Swales Peter McGregor Michelle Gilmartin Grant Allan Strathclyde Department Economics,Universityof Fraser ofAllanderInstituteand David Broadstock Lester Hunt (SEEC), UniversityofSurrey Surrey EnergyEconomicsCentre John Dimitropoulos Steve Sorrell, University ofSussex Sussex EnergyGroup(SEG), were asfollows: University ofSussex.Thecontributors Sorrell oftheSussexEnergyGroup, SPRU, The assessmentwas managedbySteve Project Team Annex 1:Project team,expertgroup andcontributors 13:57 Page 107 Paolo Agnolucci(Policy StudiesInstitute). Centre); Lester Hunt(SurreyEnergyEconomics Ken Double(EnergySaving Trust); Tina Dallman(DEFRA); Hunter Danskin(DEFRA); Horace Herring(OpenUniversity); Jim Skea (UKERC); members wereasfollows: search, synthesisanddrafting. The the initialframing oftheissues,literature course oftheproject,providing inputto rebound effect.Itmettwiceduringthe efficiency, energyeconomicsandthe combination ofexpertiseonenergy The expertgroupwas chosenforits Expert Group Jake Chapman University ofCambridge), Research Group, Faculty ofEconomics, Karsten Neuhoff(ElectricityPolicy Wirtschaftsforschung, Mannheim) Manuel Frondel(Zentrum fürEuropäische Peer Reviewers 107 The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency S4134 12/10/07 13:57 Page 108 Annex 2: Technical and Supplementary Reports The results of the full assessment are contained in five in-depth Technical Reports, as follows: Technical Report 1: Evidence from evaluation studies (Matt Sommerville, Steve Sorrell) Technical Report 2: Evidence from econometric studies (Steve Sorrell, John Dimitropoulos) Technical Report 3: Evidence from elasticity of substitution studies (David Broadstock, Lester Hunt, Steve Sorrell) Technical Report 4: Evidence from CGE modeling studies (Grant Allan, Michelle Gilmartin, Peter McGregor, Kim Swales, Karen Turner) Technical Report 5: Evidence from energy, productivity and economic growth studies (Steve Sorrell, John Dimitropoulos) In addition, there is a shorter Supplementary Note by Steve Sorrell on the graphical analysis of rebound effects. All these reports are available to download from the UKERC website. The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency energy efficiency improved an assessment of the evidence for economy-wide energy savings from The Rebound Effect: 108 S4134_cover 12/10/07 13:57 Page 1 The Rebound Effect: The Rebound Effect: an assessment of the evidence for economy-wide nassmn fteeiec o cnm-ieeeg aig rmipoe nryefcec UK Energy Research Cen an assessment of the evidence for economy-wide energy savings from improved efficiency energy savings from improved energy efficiency October 2007 UK ENERGY RESEARCH CENTRE 58 Prince’s Gate Exhibition Road London SW7 2PG tel: +44 (0)20 7594 1574 email: [email protected] www.ukerc.ac.uk UK ENERGY RESEARCH CENTRE tre