Energy & Environment

Rebound redux

Dan Farber

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 fond 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.

Cross-posted from the environmental law and policy blog Legal Planet.

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Comments to "Rebound redux":
    • GH

      I agree that energy efficiency is important, but we have to learn to be more sufficient (and just learn to use less) because over time (and with the increasing population) we will be faced with the same burning issues. One of the most important things to learn is to live within the capacity of carbon sinks.

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    • Anthony St. John

      A most astounding reality check was Front Page News in the LA Times today, proving how really, really bad the California economy is today:

      “Brown ordered firing of regulator who took hard line on oil firms

      By Michael J. Mishak, Los Angeles Times
      January 29, 2012

      Brown ordered firing of regulator who took hard line on oil firms
      The dispute centered on a risky method of extraction. California’s governor has sued oil companies throughout his career, but he now talks of tossing cumbersome regulations to revive the economy.

      —-

      “It’s not easy,” Brown said. “There are going to be screw-ups. There are going to be bankruptcies. There will be indictments and there will be deaths. But we’re going to keep going.” (This last paragraph could be the understatement of the year if not the century, we’re truly screwed.)

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    • Harry Saunders

      Dr. Farber:

      Very thoughtful post.

      First, let me alert you to the fact that I plan to blatantly steal Farber’s Second Law of Economics and pretend I invented it. Just so you know. (Probably imprudent to say that to an attorney, but I’m thinking I can pull this thing off…)

      On a serious note: I like your line of reasoning in general, but I question your assignment of the burden of proof. The stakes in this rebound discussion are extraordinarily high. Since climate change mitigation policy rests largely on forecasts that assume rebound is trivial to non-existent (the IPCC, to name an important player), any magnitude of rebound that is non-trivial means we have less time than is generally believed to devise climate change solutions.

      Further, the peer-reviewed literature (as opposed to various blogs) indicates that rebound magnitudes are substantial. To me, this would instead place the burden of proof on those who claim they are not. Given the stakes, shouldn’t the onus be on those who claim future energy efficiency gains will greatly reduce GHG emissions to demonstrate that rebound is small and nothing to worry about?

      The most up-to-date review of the peer-reviewed literature is available at: http://thebreakthrough.org/blog/2011/02/new_report_how_efficiency_can.shtml

      A response to the CO2 Scorecard blog you cite was posted today at: http://thebreakthrough.org/blog/2012/01/co2_scorecard_misrepresents_an.shtml

      The defense rests.

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