In his famous treatise The Coal Question: An Inquiry Concerning the Progress of the Nation, and the Probably Exhaustion of Our Coal-Mines, published almost 150 years ago, the British economist William Stanley Jevons described a phenomenon whose importance today might be even higher than back in 1865–the so-called rebound effect, also known under the names of second-order effect, Khazzoom-Brookes effect, backfire or Jevons’s paradox. Jevons argued that the increased efficiency of steam engines shall lead to increased use of them and thus, counter-intuitively, to an increase in coal consumption. His insights have surprising relevance for today’s debates on economic growth and climate change.
The question whether there are rebound effects and how serious they are has obvious relevance for the growth debate–especially for the assessment of decoupling ideas. Mostly, rebound is invoked in the context of energy efficiency, which is crucial, as many growth critics have emphasised that energy is the foundation of modern economic growth. Since the late 18th century, the economy was able to grow both in quantity and quality mainly due to the increasing dependence of production processes on energy inputs–coal, oil, gas, nuclear and, more recently, renewables. As it is increasingly accepted, however, continued economic growth has become a social and environmental problem. Because our economy in its current shape is inherently growth-dependent, the idea came up that we might decouple growth from its negative impacts, particularly energy use. Unfortunately, the rebound literature suggests that this might be much more complicated than hoped. Also, this literature is of serious importance for climate policy–it is often called for in this context for measures that would promote energy efficiency increases, both at household and industry levels. Moreover, efficiency strategies are often described as “low-hanging fruits” or even “free meals”, in that they not only help protecting the stability of the climatic system, but also provide cost savings to those who apply these strategies. Here, too, matters become much more complicated when rebound effects are taken into account.
As already sketched in the introduction above, the rebound effect is a class of technological, psychological and economic phenomena that “eat up” the positive effects of increases in efficiency of the use of certain goods (we will focus on energy in the following, since this is the most common area for rebound effects and rebound effects in other areas can often be reduced to the level of energy consumption)–see picture. In most cases, the “eaten up” share of the original energy-saving effect is less than 100%, so energy is saved, but to a much lower extent than the original efficiency increase. If, however, the overall energy consumption increases as a result of the efficiency measure, we speak of “backfire”, a 100+% rebound effect.
In a report by Tilman Santarius, published by the Wuppertal Institute for Climate, Environment and Energy, the author classifies various sources of rebound and shows how multifaceted this phenomenon is. In fact, he distinguishes four large classes of rebound causes, with altogether 13 specific effects:
- financial rebound effects: income effect, re-investment effect, market-price effect;
- material rebound effects: embodied energy effect, new markets effect, consumption accumulation effect;
- psychological rebound effects: moral-hazard effect, moral-leaking effect, moral licensing effect;
- and cross-factor rebound effects: cross-factor effect, material cross-factor effect, multiple cross-factor effect, consumption rationalization effect.
The definition and discussion of each single effect is beyond the scope of my post–interested readers might take a look into Santarius report (however, it’s German) or into a related publication by Jeroen van den Bergh, who offers a list of 14 different rebound effects–however, contrary to Santarius’s list, they are not systematically grouped and clearly delineated. I will limit myself to a short exposition of the four classes proposed by Santarius:
- Under financial rebound effects he understands those that are caused by changes in the budget of households/firms as a result of efficiency measures. For example, energy savings translate into financial savings, which makes resources free that enable the household/firm to demand additional units of products and thus, additional energy. Or, when the energy-saving technology diffuses into the market, it might lower the price of the respective products and thus increase the demand for them, thus in the end limiting the original energy-saving effect. This is the most common and most intuitive mechanism of rebound. But there are others who are much more indirect but not necessarily less serious.
- Material rebound effects can be summarized as those effects that are caused by the need to produce energy-saving devices: when their whole life-cycle is considered, they can actually cause negative energy consumption results, as their production assumes the creation of new (additional) industries and new markets. In a similar vein, Jeroen van den Bergh argued that the increased energy efficiency in one phase of the production life-cycle may have negative influence on other phases (when, e.g., durability and recyclability of a product are in conflict). The consumption accumulation effect is a similar effect on the consumer side: consumers buy additional, energy-efficient devices and keep using the old, energy-intensive devices elsewhere.
- What Santarius calls psychological rebound effects is probably the most interesting category: it summarizes effects that result from a feeling that one as a consumer has done something “good”, which might lower the perceived need to act pro-environmentally in other areas. This “good feeling” has also been called “warm glow” in another context. For example, one might feel “absolved” after the purchase of, say, an organic product, and therefore have less scruple to go shopping at a discount shop.
- Cross-factor rebound effects have to do with the way production is organized in a modern capitalist economy: increases in productivity of labour often lead to increases in demand for energy and other production factors, which in the end increases energy consumption. More generally, interactions between sectors within an economy and between economies (through international trade) can have detrimental effects on overall energy consumption. Also, on the consumption side, empirical studies have revealed that people invest more or less constant amounts of time in certain activities–e.g., transportation and internet consumption–regardless of the time-efficiency of the respective activity. If we have more efficient (faster) computers, we just surf more intensely, thus creating more energy demand for servers whose services we use.
There exist many empirical studies in which the attempt was made to estimate the magnitude of rebound effects unleashed by particular policies. Due to the large number of effects and the complexity of the systems involved, these estimates exhibit a large variance. However, it is often assumed that common policy measures aiming to increase energy efficiency should expect an overall rebound of around 50%, meaning that half of the efficiency gain will be “eaten up” by overall increases in energy consumption. This means that, while such policies do have an effect, this effect is mostly significantly smaller than expected. On the other hand, the potential saving remains large–if rebound effects could be prevented.
How can we prevent rebound effects? Basically, there are four possible kinds of policies which attempt to increase energy efficiency: efficiency standards, environmental taxes, caps and sustainability education. Alas, none of these can realistically prevent rebound. Efficiency standards and taxes encounter similar problems: they set incentives only for a limited number of specific cases/goods and are not able to contain indirect spillover effects which lead to rebound. Sustainability education would likely be the best option–if it would work. That it does not, or that it does only to a very limited extent, is well-known. Environmental awareness, even if existent, does not necessarily translate into environmentally friendly behaviour. Theoretically, caps would be the second-best option: set a binding cap for an energy-consumption-relevant magnitude (e.g., CO2-emissions), issue permits and let those involved trade them so as to maximize efficiency. However, as pointed out by critics of emissions trading schemes, there is a large gap between theory and practice of cap-and-trade. The most important problem from the perspective of rebound effects is that cap-and-trade systems are mostly incomplete–they cover only a few industries in a limited number of countries. Cross-industry and cross-border spillovers lead to rebound effects and even to backfire.
So, how can we prevent rebound effects? Well, the answer to this question has two parts. The first one is: we can’t. We cannot prevent rebound in general. There are too many sub-effects–controlling them all, even if possible in theory (and I doubt even that), would place an extreme burden on both societal resources and our psyche. However, and that is part two of the answer: we know means that might help. In some cases caps might be the best choice, in other it is taxes or the soft instruments of environmental education. There exists no panacea, but we have enough instruments to at least limit the extent of rebound effects. What seems to be lacking most is the political will and awareness of the problems at stake.
- Tilman Santarius. 2012. ‘Der Rebound-Effekt: Über die unerwünschten Folgen der erwünschten Energieeffizienz’. Impulse zur Wachstumswende 5. Wuppertal: Wuppertal Insitut für Klima, Umwelt, Energie.
- Jeroen van den Bergh. 2011. ‘Energy Conservation More Effective With Rebound Policy’. Environmental and Resource Economics 48. pp. 43-58. [Open Access]
- Clive Spash. 2010. ‘The Brave New World of Emissions Trading’. New Political Economy 15(2). pp. 169-195.