Rebound Redux

I’ve posted  previously about the rebound effect.  Improving energy efficiency frees up money, which can be used to purchase more of the same product or different products that use energy.  This “rebound” cuts away at the energy savings and correspondingly at the carbon reduction achieved through energy efficiency.  Everyone seems to agree that the rebound effect is real; the big dispute is over its size and significance.  Blake Hudson pointed me toward a new study of the issue on CO2 Scoreboard that concludes that critics of energy efficiency have exaggerated the extent of rebound.

Economists are found of paradoxical arguments, like the rebound effect or the claim that safer cars cause more deaths. (I’m not making up the auto safety claim.) Sometimes economists seem to be living n a kind of Bizarro World, where the best way to accomplish any goal is always to do the opposite. Making these claims takes a certain ingenuity, because there’s nearly always some feedback effect that tends to push back against the direct effects of a policy.  There are also feedback effects that strengthen the impact of a policy, but those are less fun to point out.  For instance, energy efficiency makes people better off economically, and the environmental Kuznets Curve holds that more affluence produces greater demand for pollution regulation, which will result in less use of dirty fuels such as coal and thereby cut carbon emissions.

The big issue is the size of the feedback effect, and that’s very difficult to establish empirically.  The problem is that determining the effect of an event such as a policy or technological change requires holding everything else constant.  Since other things rarely are constant, an empirical study has to estimate what would have happened in a world in which everything except the policy change was the same.  Not easy to do!

I’d like to suggest the relevance of two economic axioms to this debate.  One is familiar: there’s no free lunch.  Even something as seemingly desirable as improved energy efficiency does not come without some price.  The other is less familiar (because I just made it up): you can’t lose weight by eating more.  Call that the “no miracle diet” rule.  This means that the direct effects of an action are rarely completely negated or reversed by feedback effects.  Rarely does not mean never, but there’s a strong burden of proof on anyone who wants to argue for such exceptionally strong feedback.  In the case of energy efficiency, that means that the presumption should be in favor of the common sense conclusion: greater energy efficiency means less energy use.

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Reader Comments

4 Replies to “Rebound Redux”

  1. I think this debate has been unnecessarily complexified by unfortunate coinages like “rebound effect” and “backfire.” Rephrasing the debate in more standard economic terminology, it’s about how the “income effect” and “price effect” of energy efficiency investment affect the demand for energy. See, e.g., http://en.wikipedia.org/wiki/Consumer_choice#Income_effect. The speculations about the second- and third- and fourth-order economic ripples of these change is a debate about the magnitude of the “multiplier” (e.g. .9 or 1.1?) attached to this change in energy demand. This debate is similar to the debate over the multiplier attached to gov’t stimulus like ARRA.

    In many cases jargon is obscurantist, but in this case I suspect it would be clarificatory. It would remind people of how these effects play out in other sectors in the economy and inoculate against the hyperbolic claims that the phenomena are amazing new discoveries.

    The rebound idea seems most similar to supply side economics, which in its strongest incarnation says that lower tax rates will end up increasing tax revenue. Theoretically possible if you put extreme coefficients on the variables in the equations, but not what happens in reality. Reasonable-minded people like George H.W. Bush have an economic term for claims like these: “Voodoo Economics.”

    1. This is a very helpful comment. I agree that “income effect” and “substitution effect” are more precise terms, although they’re a bit opaque. The analogy to supply-side economics is also apt.

  2. I think this debate has been unnecessarily complexified by unfortunate coinages like “rebound effect” and “backfire.” Rephrasing the debate in more standard economic terminology, it’s about how the “income effect” and “price effect” of energy efficiency investment affect the demand for energy. See, e.g., http://en.wikipedia.org/wiki/Consumer_choice#Income_effect. The speculations about the second- and third- and fourth-order economic ripples of these change is a debate about the magnitude of the “multiplier” (e.g. .9 or 1.1?) attached to this change in energy demand. This debate is similar to the debate over the multiplier attached to gov’t stimulus like ARRA.

    In many cases jargon is obscurantist, but in this case I suspect it would be clarificatory. It would remind people of how these effects play out in other sectors in the economy and inoculate against the hyperbolic claims that the phenomena are amazing new discoveries.

    The rebound idea seems most similar to supply side economics, which in its strongest incarnation says that lower tax rates will end up increasing tax revenue. Theoretically possible if you put extreme coefficients on the variables in the equations, but not what happens in reality. Reasonable-minded people like George H.W. Bush have an economic term for claims like these: “Voodoo Economics.”

    1. This is a very helpful comment. I agree that “income effect” and “substitution effect” are more precise terms, although they’re a bit opaque. The analogy to supply-side economics is also apt.

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Dan Farber

Dan Farber has written and taught on environmental and constitutional law as well as about contracts, jurisprudence and legislation. Currently at Berkeley Law, he has al…

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