How do changes in Efficiency affect overall energy consumption? Below is NOT the Rebound Effect…

The Rebound Effect The potential ‘energy savings’ from increased energy efficiency are typically estimated using basic physical principles and engineering models. However, the energy savings that are achieved in practice generally fall short of these engineering estimates. One explanation is that improvements in energy efficiency encourage greater use energy intensive services (examples = heat or transportation). This behavioral response is known as the rebound effect. When the rebound effect is so large that it leads to an overall increase in energy consumption – this is called ‘backfire’.

What is the Rebound Effect? Direct Rebound Effect – Improving energy efficiency makes energy services cheaper, resulting in increased consumption of those services, offsetting some of the energy savings achieved from increased efficiency Indirect Rebound Effect – Economy-wide reduction in energy is less than efficiency gain as $ saved from efficiency may be spent on other energy intensive goods and services – even an airplane ticket!

Why do we care? Help determine effective Policy – Should energy efficiency measures be used as policy instruments to meet CO 2 emissions reductions targets? – If we do not take rebound effect into account –both direct and indirect - we risk overestimating the energy savings (and emissions reductions) gained from policy and technology aimed at increasing energy efficiency. Increased time spent driving can exacerbate congestion and air pollution

To Gauge Oil Savings, Economists Road Test the 'Rebound Effect' (Wall Street Journal, 5/27/09) 'Rebound effects' of energy efficiency could halve carbon savings, says study * guardian.co.uk, Thursday 14 May BST Research urges governments and climate policymakers to look beyond simple energy solutions and consider the indirect and economy-wide effects when forming legislation From The Sunday Times May 31, 2009 Rebound effect will raise fossil fuel use Filling a car with unleaded petrol England UK Getting More Efficient, But Using More Energy Posted by admin / Under Rebound Effect (conservation) Subtitle: How the Rebound Effect Undermines Energy Conservation - Who else cares?

How do we talk about Rebound Effect? Rebound effect, expressed as % of energy savings from an efficiency improvement – so if rebound effect = 20%, then only achieve 80% of the expected energy savings This means that total energy consumption changes less than proportionally (not 1:1) to changes in physical energy efficiency

Personal transport by private car is the best studied area of the direct rebound effect Source: UK ERC Rebound Report, October, 2007

Autos: Just a little bit of math…. Rebound Effect exists because M depends on the variable cost per mile of driving (among other things). The per-mile fuel cost is obviously a component of the per mile cost of driving.

Autos: Just a little bit of math (cont’d) Elasticity Equation

Fuel Efficiency and Motor Vehicle Travel: The Declining Rebound Effect Small and Van Dender US States from Change in Fuel Efficiency as Endogenous (typically, rebound effect defined by exogenous change in fuel efficiency) Increased Income and falling fuel prices result in declining Rebound Effect (elasticity of demand is important) Little consensus on Short-Run rebound effect, think 20-30% estimate is reasonable for Long-Run Small and Vender estimate for rebound effect: 4.5% short-run, 22% Long Run

Going Forward… Continued decline in the rebound effect? If income is expected to rise faster than the price of gasoline, so that the time spent in the car will be an increasingly large driver of economic decisions versus the cost of fuel. Few studies of rebound effect in developing countries – where it may be much larger because demand for energy services not saturated. Direct rebound effect for energy sources is lower at high income levels, because they are less price sensitive. Price of carbon/energy – tax away the cost savings from efficiency gains – needs to increase at a rate sufficient to accommodate both income growth and rebound effects, to prevent carbon emissions from increasing. Carbon/energy price needs to increase more rapidly if emissions are to be reduced.