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Written by William Quinn   
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Thursday, 17 February 2011

Rebound Effect
Energy efficiency, we hear about it everywhere we go these days! By definition, something that is more energy efficient will use less energy, which sounds like a good thing, but is it really?

Here is a hypothetical situation: I buy a new hybrid car, say the Toyota Prius. Not only am I happy to own a Prius because they are trendy, but they also use substantially less gasoline per mile than a comparable vehicle, which equates to being more energy efficient. Sounds pretty good, especially with all of this global warming talk and my attempts to “lower my carbon footprint,” right? So let us suppose for a second that I do not consider the increased sticker price of a Prius, nor the environmental costs associated lithium mining for batteries, and I just care about how much it costs to drive places. What does the increased energy efficiency of a hybrid really do for me? If I drive the same amount, I will use less gasoline, save money, and emit fewer greenhouse gasses–go me! If I am used to paying $100 per month on gasoline, I may continue paying that much, and get the reward of driving more, which isn’t really a good thing. If I am an average American, which option would I choose?

Here comes the Jevons Paradox—a 19th century economic theory, which claims that increases in the efficiency with which we consume a resource will result in an increased rate of consumption of said resource. Under this premise, more efficient MPG equals more miles driven… So let’s taker a deeper look at the Jevons Paradox.

In 1865, the English economist William Stanley Jevons first identified the Jevons Paradox in his book The Coal Question. With inventor James Watt’s enormous improvements upon the coal-fired steam engine in 1769, came great improvements in its efficiency. This increased efficiency resulted in the increased cost-effectiveness of coal, which lead to broader application of the steam engine in a wide range of industries. As a result, the total demand for coal increased even as its efficiency per application decreased. The British Government was concerned that the country would run out of coal with the increased demand, but some economists claimed the increased efficiency would reduce coal consumption. Jevons stood out with his theory that validated the Government’s concern—he theorized that the increased efficiency would increase coal consumption by a greater factor than the new efficiency’s conservation. His observed “paradox” is an extreme form of the “rebound effect,” which addresses the tendency for demand to increase as price decreases due to efficiency increases.

Rebound Effect

Demand is greater than the gains from efficiency: The Jevons Paradox.

Rebound Effect

Gains from efficiency are greater than the increased demand: A mild rebound effect

The Debate:

Energy efficiency is pointless… It is easy to see where a debate would develop when looking at the previous two figures. Few debate the existence of the rebound effect, but many vehemently argue the extent of its impact. David Owen recently caused quite a stir with his New Yorker article: The Efficiency Dilemma: If our machines use less energy, will we just use them more? I Owen argued that the rebound effect, and perhaps even the Jevons Paradox, were alive and well. One example Owen pointed to involved refrigerators. He argued that while there have been enormous strides in the efficiency of refrigerators, since the 1970’s per-capita food waste in the U.S. has increased by more than half, and “more than a quarter of U.S. freshwater use goes into producing food that is later discarded.” His point being that we produce and waste more perishable foods now due to increased refrigeration efficiency, and the downsides may outweigh the energy efficiency improvements.

Owen also cites air conditioner efficiency as proof of an existing rebound effect. “In the United States, we now use roughly as much electricity to cool buildings as we did for all purposes in 1955.” Thus, Owen argues that increases in air conditioning efficiency have led to increases in its use, which is the rebound effect at play. The following statistic further emphasizes his point: “Between 1993 and 2005, air conditioners in the U.S. increased in efficiency by 28%, but by 2005, homes with air conditioning increased their consumption of energy for their air conditioners by 37%.” Along a similar vein, writer Kimberley Strassel pointed out in 2001 article that “energy consumption hasn't gone down; rather, it has stubbornly risen by an average of about 1.7% a year since the early 1980s, despite the increasing weight of conservation policies. So are they correct? Will a present-day rebound effect consume all, or even more than all, energy savings associated with increased energy efficiency?

Rebound Effect

We need more energy efficiency! I have been reading articles and blogs discussing the “rebound effect” and Jevons Paradox over the last several years, and I have come to the conclusion that people argue in favor of the paradox when they have something to gain beyond scientific or economic recognition. I would argue that Owen is simply tired of hearing how great energy efficiency is and wants to maintain his hip, independent New Yorker image by going against the grain. I believe Kimberley Strassel’s incentive in her 2001 article was political—that she wanted to support President Bush’s energy policy through theoretical economic theory, and found simplified correlations in the real world to support her point. Her aligning of “standard-issue conservationists” with “extreme environmentalists” was a tip off to me of her politically-minded approach. This is a perfect example of fact manipulation and over-simplification to argue one’s point.

As another blogger and environmental entrepreneur has pointed out, many of Owen’s claims are based entirely upon correlation and very little upon causation, a classic issue when attempting to draw conclusions from social observations. The point being, the world is a very complicated place, and it should not be simplified to the point where one can claim increasing energy efficiency has no merit. To address Owens “fact based” claims concerning efficiency and consumption, James Barrett wrote an excellent rebuttal for his National Geographic blog. Barrett addressed Owen’s issue with air-conditioner efficiency increasing by 28%, but consumption increasing by 37%, by noting other extenuating factors: 1) “real (inflation adjusted) per capita income increased by just over 30% over that time period” meaning people are likely willing to buy more stuff, including cooler air, 2) the average home size increased by 16%, so more central air was installed, and 3) Owen assumed a new air-conditioner replaced each old one, which is most likely false. Taking these factors into account—especially the increase in average real income—it is easy to see why energy consumption increased. Barrett argued that increased consumption is completely unrelated to increased energy efficiency, without which, the energy consumption would have been substantially higher.

Probably the best rebuttal to Owen’s article was written by Amory Lovins, a leading energy expert in the world, and Chairman and Chief Scientist of the Rocky Mountain Institute, “an independent, entrepreneurial, nonprofit think-and-do tank.” Lovins points out that the rebound effect in energy savings is “usually between zero and a few per cent, rarely ten to thirty per cent, and never more than a hundred per cent,” as Owen would lead us to believe. He also reminds us that Owen seems to have mixed up the rebound effect and the wealth effect, which explains that increased wealth, not efficiency, allows people to purchase more air-conditioners. Lastly, Lovins says, “Energy savings have also offset eighty-one per cent of the energy consequences of U.S. economic growth since 1975, and effectively “fuel” half of today’s G.D.P.” This is a strong statement based in fact concerning the fiscal benefits of energy efficiency. For these reasons, I am inclined to believe that while the rebound effect may exist, it is nowhere near as significant in the real world as Owen would lead us to believe.

What Role Should the Rebound Effect Play in Policy?
The rebound effect is truly a complex issue that policy makers should take into account when designing legislation and rebates for future energy efficiency. As Dan Charles illustrates in a wonderfully educational article written for Science Magazine, there are many factors when considering energy efficiency, and substantial reductions in consumption may require more than “designing better light bulbs and refrigerators…it will need a mixture of persuasion, regulation, and taxation.” This article also highlights the “Rosenfeld effect,” which is an empirical fact that “per capita electricity consumption in California stayed flat for the past 30 years yet rose 40% in the rest of the United States.” The effect is attributed to energy efficiency, a cause pioneered by Arthur H. Rosenfeld. This effect further debunks the rebound effect and adds credence to increasing energy efficiency nationwide. While the rebound effect can be seen when prices decrease due to increases in efficiency, this effect should not be overstated or exaggerated. Like all economic theories, the rebound effect should be studied and accounted for, but never treated as a roadblock to future energy efficiency.

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1http://www.sciencedirect.com/science/article/B6VDY-4G7GFMG-1/2/5da4f921421a31032f8fcd6971b0e177
2http://www.econlib.org/library/YPDBooks/Jevons/jvnCQ0.html
3http://inventors.about.com/library/inventors/blsteamengine.htm
4http://upload.wikimedia.org/wikipedia/commons/b/b8/JevonsParadoxA.png
5http://upload.wikimedia.org/wikipedia/commons/b/b6/JevonsParadoxB.png
6http://www.newyorker.com/reporting/2010/12/20/101220fa_fact_owen
7Id.
8Id.
9http://www.greatenergychallengeblog.com/blog/2010/12/20/rebounds-gone-wild/
10http://web.archive.org/web/20051113194327/http://www.opinionjournal.com/columnists/kstrassel/?id=95000484
11http://www.vu1corporation.com/eslupdate/
12http://web.archive.org/web/20051113194327/http:/www.opinionjournal.com/columnists/kstrassel/?id=95000484
13http://www.grist.org/article/2010-12-22-on-david-owens-and-william-jevons
14http://www.greatenergychallengeblog.com/blog/2010/12/20/rebounds-gone-wild/
15http://www.rmi.org/rmi/Library/2011-01_ReplyToNewYorker
16http://www.rmi.org/rmi/Amory+B.+Lovins
17http://www.rmi.org/rmi/Library/2011-01_ReplyToNewYorker
18Id.
19http://www.sciencemag.org/content/325/5942/804.full
20Id.




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