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July 12, 2012

IER STUDY: ENERGY EFFICIENCY MANDATES HAVE 'REBOUND EFFECT'

July 12, 2012
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WASHINGTON D.C. — The Institute for Energy Research released today a new study by IER Senior Fellow and Professor of Economics at Cal State University, Robert Michaels, detailing the ‘rebound effect’ of energy efficiency regulations. The report summarizes recent findings on ‘rebounds’ — the idea that the more efficient an appliance is, the more people will use it and thus negate the efficiency gains — and explores the global consequences of greater energy usage, particularly in the developing world.

“This study demonstrates anew the folly of directing energy policy through regulation, which often has unintended consequences that negate the efficiency goals and result in more energy consumption, not less,” IER President Thomas Pyle said of Michaels’ research.

“Instead of forcing more energy efficiency requirements on American consumers, policy makers and government regulators should allow market prices and disruptive innovations to guide energy use. A serious re-thinking of America’s energy policy is in order, and we can no longer assume that more regulation of energy will reduce consumption. A sensible energy policy is needed — one that considers efficiency mandates in light of ‘rebounds’ and gives Americans the choices of affordable energy they want.”

Among the study’s key highlights:

  • Rebounds have a direct implication for energy efficiency mandates and incentives. If rebounds are substantial, efficiency policies will be less effective at reducing air pollutants, for example, as any energy “saved” can easily find other uses, and energy consumption may even increase in the event of backfires. This paper explores the literature on energy efficiency rebounds and provides a framework for how to think about energy efficiency policy.
  • There are four basic types of rebound that might result from improved energy efficiency, defined by the markets in which their effects occur: direct rebound, indirect rebound, economy-wide rebound, and embedded energy.
  • Direct rebounds are well documented: more than 200 studies exist on the subject.
  • For example, studies on direct rebound have found that household behaviors before and after installation of energy-efficient appliances produce wide ranges of rebounds, for example between 10 and 60 percent for electric heating in the short run. In particular, studies have found that wealthy households that already own all major appliances do not reduce energy consumption after buying more efficient ones.
  • A high percentage of utility-sponsored conservation and efficiency programs have found that actual savings fall short of projected ones, a possible manifestation of rebounds.
  • For economy-wide estimates of rebound using “computable general equilibrium” models, over half the available studies show that rebounds approach or exceed 100 percent. In other words, their net result is that more energy was consumed than saved.

To read the full report, click here.

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