Energy Efficiency and the Rebound Effect

Energy Efficiency and the Rebound Effect

Order Code RL31188
CRS Report for Congress
Received through the CRS Web
Energy Efficiency and the Rebound Effect
November 19, 2001
(nae redacted)
Science and Technology Analyst
Resources, Science & Industry Division
Congressional Research Service ˜ The Library of Congress

Energy Efficiency and the Rebound Effect
Summary
Several measures in the 107th Congress seek to increase energy efficiency as a
means to decrease dependance on foreign oil, cut electricity demand and to curb both
air pollution and greenhouse gas emissions. However some claim that these measures
may not be as effective as projected because of the rebound effect.
By definition, increasing a device’s energy efficiency decreases its consumption
of energy. However, a simple projection may overestimate the energy savings unless
it accounts for the consumer’s response to lower costs. For example, a company that
doubles the efficiency of an electric home heating system projects that the cost of
operating this device should be cut in half. But now that it is cheaper to heat his
house, the consumer may choose to increase the setting on his thermostat. Instead
of saving the money and reducing the demand for electricity which the increased
efficiency would allow, the consumer may choose to spend some of the money saved
to live at a more comfortable temperature. This is an example of the rebound effect.
The rebound effect is defined as the difference between the projected and the
actual savings due to increased efficiency. It is a combination of three components:
direct effects, indirect effects, and market or dynamic effects. The home heating
example cited above is an example of the direct effect. An example of the indirect
effect is the consumer choosing to spend the savings from a more efficient home
heater to purchase another electric device such as a new hair dryer. The market or
dynamic effect occurs when a decrease in aggregate demand causes the energy price
to fall. This, in turn, makes new uses economically viable or increases the market
penetration of existing devices, driving up demand. An example of this is the
introduction of a more efficient coal burning engine used in the extraction of coal in
the mid-1880s. The new engine was predicted to reduce overall consumption;
however, its use greatly lowered the price of coal. Thus more people could afford to
use coal heat in their homes, which greatly increased demand.
The size of a rebound depends on many factors, including the type of device
being improved, energy prices, consumer income, and the overall state of the
economy. For typical consumer end-uses, the rebound usually ranges between 0%
and 40%. That is, the actual energy savings ranges from 60% to 100% of the
projected amount.
Policymakers may be able to more accurately gauge the realistic benefits of
proposed efficiency programs by accounting for the rebound effect. For instance,
some may consider it desirable compensate for the rebound effect by increasing
appliance efficiency or fuel economy standards even further than previously
suggested. Alternately, others may feel that a lower energy savings estimate means
reduced program cost effectiveness. A third choice would be to slightly lower
expectations of the proposed program.
How the rebound effect changes projected reductions in greenhouse gas
emissions is controversial, although it is generally agreed that increases in efficiency
will reduce emissions per unit of Gross Domestic Product.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Interest and Role of Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
What is Energy Efficiency? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Definition of the Rebound Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Direct Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Indirect Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Market or Dynamic Effects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Theory Versus Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Factors Affecting Amount of Rebound . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Examples of Rebound . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Space heating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Automobile fuel efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Lighting in rural India – an example of overshoot . . . . . . . . . . . . . . . . 9
Effects on Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Energy Efficiency as a Means of Reducing Demand . . . . . . . . . . . . . . . . . 10
Energy Efficiency as a Means of Reducing Greenhouse Gas Emissions . . . 11
For Additional Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
List of Figures
Figure 1. Domestic Energy Use 1949-1999 and Projected Use at 1949
Use Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Figure 2. Energy Use per Dollar Gross Domestic Product . . . . . . . . . . . . . . . . . 3
List of Tables
Table 1. Measured Rebound Effects of Various Devices . . . . . . . . . . . . . . . . . . 6

Energy Efficiency and the Rebound Effect
Introduction
Interest and Role of Congress
Increasing efficiency offers the benefits of decreasing energy consumption,
reducing greenhouse gas emissions, and preserving the limited resources used for
producing energy while lowering energy bills for the consumer. Because of this
observation, some have suggested that increasing energy efficiency could reduce the
need for increased domestic production while lowering dependence on foreign oil.1
Several bills under consideration in the 107th Congress focus on increasing energy
efficiency as part of a comprehensive national energy policy, including H.R. 4, the
Securing America’s Future Energy Act; S. 389, the National Energy Security Act of
2001; S. 596, the Energy Security and Tax Incentive Policy Act of 2001; and S. 597,
the Comprehensive and Balanced Energy Policy Act of 2001. Parts of these bills
encourage greater energy efficiency through a variety of means, including tax
incentives, grants, efficiency standard mandates, and increased money for energy
efficiency research.
Some articles in the popular press have suggested, however, that efforts to
conserve energy by increasing efficiency will produce less than the expected results
because of the rebound effect.2 This effect (also referred to as the “take-back” or
“snap-back”) was first described in 1865 when Stanley Jevons observed that the
introduction of the new efficient steam engine initially decreased coal consumption
which led to a drop in the price of coal. This meant not only that more people could
afford to heat their homes with coal, but also that coal was now economically viable
for new uses, which ultimately greatly increased coal consumption.3 More recently,
analysts have focused on the rebound effect in the electricity and gasoline markets.
Analysts disagree on the presence and magnitude of this phenomenon and ongoing
1 For a thorough discussion of these topics, see CRS Reports RL30414, Global Climate
Change: The Role for Energy Efficiency, RS31033, Energy Efficiency and Renewable
Energy Fuel Equivalents to Potential Oil Production from the Arctic National Wildlife
Refuge (ANWR) and CRS Issue Brief IB10020 Energy Efficiency: Budget, Climate Change,
and Electricity Conservation Issues by (name redacted).
2 See K. Strassel. Conservation wastes money. Wall Street Journal. May 17, 2001. Eastern
Edition. p. A26; F. Pearce. Consuming myth. New Scientist. September 5, 1998. p. 18-19;
and J. Glassman, The conservation myth as the latest (sub)urban legend,
[http://www.TechCentralStation.com/NewsDesk.asp?FormMode=MainTerminalArticles&
ID=68]
3 W.S. Jevons. The coal question: can Britain survive? First published 1865, Republished
Macmillan, London 1906.

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research continues to shape this debate. If a large rebound effect exists in these
markets, it might weaken arguments for increased efficiency requirements and
strengthen arguments to scale back government-supported efforts. This paper
describes the rebound effect, outlines the current thinking of experts in this field, and
discusses the possible energy policy ramifications of this effect.
What is Energy Efficiency?
Energy efficiency is the property of a device which describes how much energy
it requires to produce its product. For example, a typical incandescent lightbulb may
require 1 kilowatt-hour of electricity to stay lit for 10 hours. If a technological
change allows a new lightbulb to produce the same level of light for the same length
of time using only one-half kilowatt-hour, the new device is said to be twice as energy
efficient as the original device. The user of the new lightbulb would be expected to
use half the amount of electricity and to pay half the amount to operate the bulb
compared to the less efficient bulb. Although it is still using energy, because the new
bulb uses less, it is said to conserve energy. The consumer could also achieve the
same savings by leaving the less efficient bulb on for half as long. The reduction of
output to realize savings, as in this case, is an example of curtailment.4
Overall energy use in the United States, driven by economic and population
growth, has generally steadily increased throughout the nation’s history. However,
at least over the last several decades, total energy use has not risen as much as might
have been projected by the growth in Gross Domestic Product (GDP, see “projected”
in Figure 1). If energy had continued to be consumed at the same rate per dollar of
GDP as in 1949, the energy demand in 1999 would have been approximately 183
quadrillion British Thermal Units (Quad BTU) as opposed to the actual use of
approximately 97 Quad BTU. The amount of energy required to produce a dollar of
GDP has steadily decreased over this period (Figure 2). In 1949, the production of
the equivalent of a single 1996 dollar required nearly 21,000 BTU. By 1999, this
number had dropped to about 11,000 BTU. This is due to both structural changes in
the U.S. economy and great improvements in technology including energy efficiency.5
In spite of these changes, overall energy use has increased due to both increases in
population and energy use per person.6
4 For a more detailed discussion of energy efficiency, conservation and curtailment see CRS
Issue Brief IB10020, Energy Efficiency: Budget, Climate Change, and Electricity
Conservation Issues by (name redacted).
5 U.S. Dept. of Energy. Energy Efficiency in the U.S. Economy Energy Conservation Trends
Understanding the Factors Affecting Energy Conservation Gains and Their Implications for
Policy Development. DOE/PO-0034. Washington D.C., April 1995.
6 U.S. Dept. of Energy. Annual Energy Review 2000. DOE/EIA-0384.Washington D.C.,
2000. p. 38.

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Figure 1. Domestic Energy Use 1949-1999 and
Projected Use at 1949 Use Rates
200
175
projected
150
125
100
75
50
Energy Use (Quad BTU)
actual
25
0 '50 '55 '60 '65 '70 '75 '80 '85 '90 '95 '99
Year
Source: Adapted from Annual Energy Review 2000, DOE/EIA-0384(2000) p. 38
Figure 2. Energy Use per Dollar Gross Domestic Product
25
20
15
10
5
Thousand BTU per 1996 Dollar
0 '50
'55
'60
'65
'70
'75
'80
'85
'90
'95
'99
Year
Source: Adapted from Annual Energy Review 2000, DOE/EIA-0384 p. 38

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Definition of the Rebound Effect
The rebound effect is most simply defined as the difference between the
projected and the actual energy consumption following an increase in energy
efficiency. The projections can be made by simply calculating the difference in energy
required by the new device and the less efficient one to meet a fixed level of service
(e.g. amount of heat supplied). However, the actual amount of energy used also
depends on possible consumer or market responses to the lower costs. To account
for these changes, analysts use empirical studies and complex economic models. The
rebound effect consists of direct, indirect, and market or dynamic components that
can happen following the installation of more energy efficient equipment.
Direct Effects
Following the installation of a more energy efficient device, a consumer might
choose to use more of the service instead of realizing all of the potential cost savings.
In the previously introduced lightbulb example, the owner of a more efficient bulb
might choose to leave the light on longer if that adds to his utility since it is cheaper
to operate than the old one.
A more commonly cited hypothetical example of the direct rebound effect is that
of a person living in a cool climate who takes advantage of a tax incentive to purchase
a more efficient home heating system. Since the new system costs less to operate, the
user might choose to keep his energy bill constant but live in a warmer house by
setting the thermostat higher. In this case, the rebound effect completely erases the
energy savings expected from the increase in efficiency. The savings were converted
into an increase in comfort rather than a decrease in energy consumption.
Another oft-cited hypothetical example is that the owner of a highly fuel efficient
car may be more likely to drive further than owners of less efficient vehicles. Instead
of realizing the cost savings at the gasoline pump, the owner may realize the savings
as increased pleasure driving or by choosing to live in a community that requires a
longer commute. In this case, the direct rebound effect is unlikely to completely erase
the energy savings, since driving consumes time as well as fuel. For example,
consider a person who trades-in a sports utility vehicle for a hybrid gasoline-electric
car. This person is unlikely to choose to live four or five times further away from
work because of time constraints. A similar argument can be made for the
consumer’s pleasure driving.
In general, direct rebound effects are limited since a person will only leave a light
on for so long, increase the thermostat setting so high, or drive so far. Factors other
than cost often dictate energy use by individuals.
Indirect Effects
A consumer who saved money as a result of increased energy efficiency of one
device may choose to buy other consumer goods which use the same energy resource.
For example, a person with a more efficient air conditioner could spend the money
saved on a hair dryer or some electronic equipment.

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As is the case with direct effects, indirect effects could theoretically erase all the
projected energy savings but are unlikely to cause an overshoot; i.e. an increase in
efficiency is unlikely to cause an increase in energy demand through direct or indirect
rebounds. For example, a person who was sufficiently constrained by his energy
budget to limit the use of the less efficient device is likely to use the new devices only
up to the same budget constraints.
Market or Dynamic Effects
Direct and indirect effects result from a change in behavior of the consumer. In
contrast, market or dynamic effects arise from a change in the behavior of the market.
For example, an improvement in the energy efficiency of a device could be large
enough to significantly decrease the demand for a resource, leading to a lower market
price, making new uses for that resource economically viable.
An example of this type of effect was the first example of rebound observed by
Jevons in the British coal trade 1800s.7 The introduction of a more efficient coal-
fired water pumping engine made coal mining much more productive. Coal mines
were now burning much less coal themselves to produce coal. This greatly decreased
the price of coal, which allowed more people to use coal to heat their homes, which
in turn greatly increased the demand for coal. In many ways this may be parallel to
the recent large increase in the efficiency of combustion turbines that some believe
has been a principal reason for the growth in demand for natural gas for electricity
generation.
Theory Versus Practice
Under certain circumstances, the rebound effect could actually turn an increase
in efficiency into an increase in consumption. However, this has only happened in
very special cases such as in some developing countries or in new markets such as the
coal market of the mid-1800s. In mature markets, it is generally accepted that
although real, the rebound effect is limited.8 One recent survey of seventy-five
empirical studies found the size of the rebound effect for typical electric end-use
equipment to be between 0% and 40%.9 That is, the actual decrease in energy use can
range from 60% to 100% of the projected amount (see Table 1).
Most studies generally are not designed to include the market or dynamic effects
because they are very difficult to measure. There have been few attempts to measure
these market effects, leaving their magnitude open for debate among analysts. For
example, Leonard Brookes argues that this type of rebound is very large and has
7 See Jevons, 1905 or for a summary using modern economic language see L. Brookes Energy
efficiency fallacies revisited. Energy Policy. June 2000. Vol 28. No. 6-7. p. 359.
8 L. Schipper. On the rebound: the interaction of energy efficiency, energy use and economic
activity. An introduction. Energy Policy. June 2000. Vol 28. No. 6-7. pp. 351-353.
9 Ibid. p. 353 and L. Greening D. Greene and C. Difiglio, Energy efficiency and consumption
– the rebound effect – a survey. Energy Policy. June 2000. Vol 28. No. 6-7. p. 398.

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permitted the population growth and ever-increasing energy demands that have
occurred since the early 19th century.10 Others strongly disagree, suggesting exactly
the opposite, that the increasing population and higher living standards drive the
increase in energy demand. Furthermore, they argue, without the past efficiency
improvements, demand would much greater (see “projected” in Figure 1).11
Table 1. Measured Rebound Effects of Various Devices
End-Use Device Category
Size of Rebound a
Space Heating
10 - 30%
Space Cooling
0 - 50%
Water Heating
10 - 40%
Residential Lighting
5 - 12%
Home Appliances
0%
Automobiles
10 - 30%
Source: Adapted from L. Greening et al., Energy efficiency and consumption – the rebound effect
– a survey. Energy Policy. June 2000. Vol 28. No. 6-7. p. 398.
a These studies generally excluded market rebound effects.
The few attempts to project market effects suggest that in the domestic
marketplace even large increases in the efficiency of the entire economy would
produce only a small to moderate rebound.12 For example, one of the higher estimates
was found by the U. S. Department of Energy (DOE). The DOE model predicted
that a 6.7% increase in the overall energy efficiency of the U.S. domestic economy
between 1995 and 2015 would produce a 5.5% decrease in demand; i.e. a market
rebound about 18%.13 It is interesting to note that in this model, the increase in
efficiency would also produce an increase in GDP of about one-half percent by 2015.
Factors Affecting Amount of Rebound
10 L. Brookes, p. 359
11 L. Schipper and M. Grubb, On the rebound? Feedback between energy intensities and
energy uses in IEA countries. Energy Policy. June 2000. Vol 28. No. 6-7. pp. 367-399.
12 L. Greening et al., p. 398.
13 A. Kydes, Sensitivity of energy intensity in U.S. energy markets to technological change
and adoption. Issues in Midterm Analysis and Forecasting. DOE/EIA 060797. U.S. Dept of
Energy, Washington DC. pp. 1-42.

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As evident from Table 1, not only does the size or presence of a rebound depend
on the broad end-use category but there can be a large variation within categories as
well. This reflects the large number of factors that can contribute to the presence and
size of a rebound.14
The principal factor in determining the presence and size of a direct rebound is
the existence of unmet demand. The larger the degree of unmet demand, the more
likely there is to be direct rebound effect. For example, there is more likely to be a
rebound effect when increasing furnace efficiency in poorly insulated homes in cold
climates than in well insulated homes in mild climates.15 In the absence of unmet
demand, the direct rebound effect may be zero, although indirect and dynamic
rebounds may exist.
Cost of operation of the device may play an important role in determining if there
is unmet demand. If the energy cost of operating a particular device plays a negligible
role in determining the consumer’s utility bill, there may be little or no rebound effect.
For example, if a new toaster uses half the energy of the old one, the consumer might
be unlikely to make more toast than previously, since it is unlikely that the cost of
operating the toaster was restraining its use. In contrast, in climates in which the
heating bill contributes a large portion of a consumer’s energy budget, cost may be
restricting use. In this case, a large increase in efficiency may result in the consumer
using some of the savings to increase comfort.
A related factor is the contribution of energy costs to the total cost of operation
of the device. For example, the cost of operating a furnace is largely determined by
the cost of energy, whereas, in the toaster example, the cost of operation also relies
to a large degree on the cost of bread. Therefore, even if there was an unmet demand
for toast, the rebound may be smaller for a more efficient toaster than for a similarly
improved furnace.
In a slightly different manner than with direct rebounds, unmet demand also plays
a role in determining the presence and size of indirect and market rebounds. For
example, a consumer may not have any unmet demand for furnace use, but the
reduction of the consumer’s energy budget allows the use of other energy-using
devices to meet an unmet demand elsewhere in their energy budget. This would
produce an indirect rebound effect. A market effect could be produced if the
consumer used the savings to purchase other devices to satisfy previously
unrecognized demands. For example, the savings on energy may allow a family to
purchase a VCR or computer which had not been considered under their previous
budget constraints. On the other hand, it may allow a family to replace another old
energy consuming product with a more efficient one.
Because of the importance of unmet demand in determining the presence and
size of a rebound, large rebounds are more likely to occur under conditions where
14 L. Greening et al., pp. 389-401.
15 G. Milne and B. Boardman, Making cold homes warmer: the effect of energy efficiency
improvements in low-income homes. Energy Policy. June 2000. Vol 28. No. 6-7. pp.411-
424.

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large degrees of unmet demand exists, such as in low-income countries and among
low-income consumers in wealthy countries.16 To use the example of home heating
in a cold climate, energy costs are more likely to restrain heater use by low-income
families than by more wealthy families. This would likely lead to a larger rebound in
the low-income family since they have a larger unmet demand than the wealthy family.
Other factors that can play a role in the presence or size of a rebound include the
state of the economy and state of the energy market. Market or dynamic effects are
more likely to occur in developing economies since they will tend to have high levels
of unmet demand. As seen in the coal market in the 1800s, in emerging energy
markets, small efficiency increases in either production or distribution can lead to
decreases in price that may lead to large increases in market penetration and demand.
Examples of Rebound
Space heating. Because the majority of residential energy used is for space
heating (51% in the U.S. in 1997)17, many studies have looked for the rebound effect
in this sector. These studies vary in which device was examined (e.g. better insulation
or more efficient heaters) as well as geographic location. The studies generally found
that the amount of the rebound effect depended on the unmet demand for heating
before the improvements were made. This section describes the findings of two
representative peer-reviewed studies that found evidence of a rebound.
In Great Britain, a study examining the results of sixteen energy conservation
programs between 1971 and 1992 found that the amount of the rebound was directly
related to the average temperature inside the home before the improvements.18 These
improvements typically doubled the heating efficiency of the house through various
means such as draft proofing and adding attic or wall insulation. The authors found
that in homes with an initial average temperature of 57º F, not uncommon in low-
income families, there was a rebound effect as high as 50%. On the other hand in
higher income homes with initial temperature of 68º F there was no rebound effect.
They found that although some low-income consumers increased the setting on the
thermostat, many did not change the thermostat but chose to heat additional rooms
of their houses.
In a much broader analysis of the space heating sectors in many different
countries, another study showed that although home heating efficiency greatly
improved between the early 1970s and the mid 1990s, energy demand for home
16 L. Schipper, On the rebound: the interaction of energy efficiency, energy use and
economic activity. An introduction. Energy Policy. June 2000. Vol 28. No. 6-7. p. 353.
17 Energy Information Administration, A look at residential energy consumption in 1997.
DOE/EIA-0632. U.S. Dept. of Energy, Washington DC, p. 9.
18 G. Milne and B. Boardman, Making cold homes warmer: the effect of energy efficiency
improvements in low-income homes. Energy Policy. June 2000. Vol 28. No. 6-7. pp. 411-
424.

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heating outpaced GDP growth in Great Britain and Japan.19 In contrast, in most other
countries examined, including the United States, the demand for home heating energy
decreased in relation to GDP growth, suggesting little or no sector-wide rebound.
The authors attribute the differences to the very high degree of unmet heating demand
in both Great Britain and Japan in the early 1970s.
Many other studies find similar results, with some noting other factors in the
presence and size of rebound including household income, geographic location, type
of improvement (e.g. better insulation or better heaters), and the presence of elderly
or children in the home.
Automobile fuel efficiency. In recent years there has been much debate
concerning calls to increase the Corporate Average Fuel Economy (CAFE) standards
for motor vehicles.20 Most of the economic studies have found that a 10% to 30%
rebound followed a 10% increase in fuel efficiency.21 In other words, instead of fuel
consumption dropping 10% following a 10% improvement in fuel efficiency,
consumption only dropped by 7% to 9% because of the rebound effect. One of the
most thorough studies recently made use of the massive amount of information on
domestic car use compiled by the U.S. Department of Energy and the U.S. Energy
Information Administration.22 The study found that the long-term direct rebound
associated with increasing domestic fuel efficiency is likely 20%. This figure, based
on the assumption that the improvements came at a cost to the consumer, could rise
to 30% if there was no added cost.
Lighting in rural India – an example of overshoot. As discussed above,
in theory it is possible for an increase in efficiency to produce an increase in the
demand for an energy resource. However, in practice this has been very rare.
One example is found in a recent examination of a pilot program in non-
electrified rural Indian villages that provided solar powered lanterns to homes to use
instead of their kerosene lamps.23 One of the main aims of the program was to reduce
the use of kerosene to near zero except during the seasons when there was insufficient
sunshine to charge the solar lanterns.
The researchers found that because of the much brighter light generated by the
new lamps, the families increased the number of hours lighting was used by two to
19 L. Schipper and M. Grubb, p. 371.
20 For review of this issue please see CRS Issue Brief IB90122: Automobile and Light Truck
Fuel Economy: Is CAFE Up to Standards? by Robert Bamburger.
21 L. Greening et al., p. 398.
22 D. Greene, J. Kahn and R. Gibson, An econometric analysis of the elasticity of vehicle
travel with respect to fuel cost per mile using RTEC survey data. Oak Ridge National Lab
ORNL-6950. March 1999. U.S. Dept of Energy. Washington DC. This complex economic
model included independent variables for fuel efficiency (milage) and fuel cost, so that it could
distinguish the effect changes to either had on vehicle miles traveled.
23 J. Roy, The rebound effect: some empirical evidence from India. Energy Policy. June
2000. Vol 28. No. 6-7. pp. 433-438.

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three times. The families became accustomed to brighter light for longer periods of
time, which caused an increase in demand for kerosene during the seasons when the
solar lanterns could not fully meet the new lighting demand. Furthermore, the
reduction of the cost of lighting allowed many families to switch from traditional,
labor intensive cooking fuels (e.g. firewood and animal dung) to kerosene. These
changes in lifestyle eventually produced, in some villages, a doubling of the demand
for kerosene.
This example emphasizes the role of unmet demand in determining a rebound as
well as the special circumstances required for an increase in efficiency to produce an
increase in demand.
Effects on Policy
Energy Efficiency as a Means of Reducing Demand
As noted above, there has been much debate on the role that government-
supported increases in energy efficiency – through incentives and/or mandates –
should play in the development of national energy policy. Although some analysts
have argued that rebounds will erase most or all of the decreases in demand created
by such increases in efficiency, as seen above, the best empirical information now
available suggests that in the domestic electricity and gasoline markets, increases in
efficiency will decrease demand.
Because many factors determine whether there is a significant rebound, it may
be impossible to predict its presence or size, a priori. However, previous studies
suggest that some consumer end-uses are more likely to have a rebound and provide
some indication of its potential size. For example, as seen in Table 1, increasing the
energy efficiency of home appliances (“white goods”) is likely to have a smaller
rebound than increasing the efficiency of space heating.
In objectively evaluating the impact of a proposed increase in energy efficiency,
it may be helpful for policymakers to know if the proponents of efficiency programs
have included potential rebound effects in their projections. Similarly, policymakers
may find it helpful to evaluate the claims of large rebounds predicted by opponents
of programs to increase efficiency.
If previous studies have suggested that a significant rebound is likely to occur
under a particular program, policymakers may find it desirable to account for its
presence. For instance, some may consider it desirable to increase appliance
efficiency or fuel economy standards even further than originally suggested to
compensate for the predicted rebound effect. On the other hand, some policymakers
may feel that the likely energy savings have been reduced to a point that makes the
proposed program no longer cost effective. Another choice could be to keep the
same program but slightly lower expectations of the projected energy savings.

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If a rebound is projected, this may complicate interpretation of legislation written
with specific savings goals. For example, the language of H. R. 4 instructs the
Secretary of Transportation to establish
“... average fuel economy standards for automobiles (except passenger
automobiles) manufactured in model years 2004 through 2010 that are calculated
to ensure that the aggregate amount of gasoline projected to be used in those model
years by automobiles to which the standards apply is at least 5 billion gallons less
than the aggregate amount of gasoline that would be used in those model years by
such automobiles [under the 2002 standards]....”
Because previous studies strongly suggest that there will be a rebound between 10%
and 30%, some policymakers might find it useful to explicitly instruct the Secretary
of Transportation to take the likely rebound effect into account when calculating the
average fuel economy required to save the five billion gallons of gasoline.
It is important to remember that losses in energy savings due to the rebound
effect are generally associated with gains in quality of life of the consumer. That is,
the owner of a more efficient heater can choose to live in a warmer house or spend
the energy cost savings on some other consumer good. This observation leads some
to argue that the ultimate goal should be increasing overall economic efficiency rather
than just focusing on increasing energy efficiency.24
Energy Efficiency as a Means of Reducing Greenhouse Gas
Emissions
The rebound effect can increase the difficulty of projecting the reduction in
greenhouse emissions from an improvement in energy efficiency. For example, a
consumer who saves money on his heating bill may spend it on another carbon-
intensive activity. Alternatively, the money could be spent on a less carbon-intensive
activity.
Both the believers in very large rebounds and their critics agree that increases in
efficiency are unlikely to be enough to meet calls for large reductions in greenhouse
gas production, but for different reasons. Believers in large rebounds predict that
since increases in efficiency will increase consumption, they will also lead to increases
in greenhouse gas emissions.25 Those who believe in small rebounds agree with the
majority of studies that suggest that increases in energy efficiency have a large
potential to reduce greenhouse gas emissions,26 but in the absence of additional
24L. Brookes, p. 362.
25L. Brookes, pp. 359-365.
26For a thorough discussion of the role for energy efficiency in reducing greenhouse gas
emissions see CRS Issue Brief IB10020, Energy Efficiency: Budget, Oil Conservation, and
Electricity Conservation Issues and CRS Report RL30414, Global Climate Change: the Role
for Energy Efficiency by (name redacted).

CRS-12
measures efficiency improvements may be insufficient to reach Kyoto Protocol goals,
especially in the face of relatively cheap energy and economic growth.27
Both groups agree that increases in efficiency will decrease greenhouse gas
emissions per unit of GDP. However, there is disagreement over whether the
government should support efficiency programs as a major strategy for reducing
emissions.28 Believers in large rebounds argue that since increases in efficiency are
likely to increase the output of greenhouse gases, government efforts in this area are
misdirected.29 On the other hand, believers in small rebounds argue that since
governments tend to support the growth in GDP, it is only reasonable that they also
support efforts to minimize the concomitant increase in greenhouse gas emissions.30
They also point to the many studies that credit government-supported efficiency
programs with decreases in energy demand. For example, at least 25% of the energy
saved by more efficient appliances is attributed to increased government-mandated
standards.31 Similarly, the Green Lights program, an EPA sponsored voluntary
participation program, is credited with forestalling the production of 5 billion pounds
of carbon dioxide emissions and 17 million pounds of nitrogen oxide emissions
between 1991 and 1996.32
27 L. Schipper, p. 351, L. Greening et al., p. 399, C. Sanne, Dealing with environmental
savings in a dynamical economy – how to stop chasing your tail in the pursuit of
sustainability. Energy Policy. June 2000. Vol 28. No. 6-7. pp. 487-495.
28L. Schipper, p. 351, L. Brookes, p. 359, C. Sanne, pp. 487-495.
29L. Brookes, p. 359.
30L. Schipper, p. 351, C. Sanne, 487-495.
31L. Schipper et al., Energy Efficiency and Human Activity: Past Trends, Future Prospects.
Cambridge University Press. Cambridge, England. 1992. p. 214.
32R. Howarth et al., The economics of energy efficiency: insights from voluntary
participation programs. Energy Policy. June 2000. Vol 28. No. 6-7. p. 479.

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For Additional Reading
Energy Policy, On the Rebound: The Interaction of Energy Efficiency, Energy Use
and Economic Activity. June 2000. Vol 28. No. 6-7. pp.351-500, L. Schipper,
ed.
U. S. Dept. of Energy, An Econometric Analysis of the Elasticity of Vehicle Travel
with Respect to Fuel Cost Per Mile Using RTEC Survey Data. Oak Ridge
National Lab, ORNL-6950. March 1999. U.S. Dept of Energy. Washington DC.
CRS Report RL30414, Global Climate Change: The Role for Energy Efficiency, by
(name redacted).
CRS Issue Brief IB10020, Energy Efficiency: Budget, Oil Conservation, and
Electricity Conservation Issues, by (name redacted).
CRS Report RL31049, Energy in 2001: Crisis Again? by Carl Behrens.
CRS Issue Brief IB90122, Automobile and Light Truck Fuel Economy: Is CAFE Up
to Standards? by (name redacted).

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