Report: energy-saving and efficiency efforts could add more emissions

The UK Energy Research Centre (UKERC) has unveiled a major new report on how 'Rebound Effects' can result in energy savings falling short of expectations, thereby threatening the success of climate policies.

UKERC's The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency [*.pdf], is the most thorough and in-depth review of rebound effects ever undertaken, reviewing over 500 papers and reports. It analyses the nature, operation and importance of rebound effects and provides a comprehensive review of the available evidence on this topic, together with closely related issues, such as the link between energy consumption and economic growth.

It recommends building 'headroom' into policy targets to allow for rebound effects, raising energy prices in line with energy efficiency improvements or imposing absolute caps on emissions.

An example of a rebound effect would be the driver who replaces a car with a fuel-efficient model, only to take advantage of its cheaper running costs to drive further and more often. Or a family that insulates their loft and puts the money saved on their heating bill towards an overseas holiday (schematic, click to enlarge). In economists' and peak oil circles, rebound effects are sometimes referred to as the 'Jevons Paradox', first formulated in the 19th century in the context of coal consumption.

Rebound effects have been neglected by both experts and policymakers - for example, they do not feature in the recent Stern and IPCC reports or in the Government's Energy White Paper. This is a mistake. If we do not make sufficient allowance for rebound effects, we will overestimate the contribution that energy efficiency can make to reducing carbon emissions. This is especially important given that the Climate Change Bill proposes legally binding commitments to meet carbon emissions reduction targets. We need to get the sums right. - Steve Sorrell, chief author, Senior Fellow at UKERC

The difficulty of developing policy to take rebound effects into account is exacerbated by disagreement over the significance of rebound effects. Some believe that they are insignificant, while others argue that energy efficiency measures lead to increased energy consumption - an outcome that has been termed 'backfire'.

The report argues that rebound effects vary widely between different technologies, sectors and income groups so that general statements about the size of such effects can be misleading:
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Rebound effects are notoriously complex. Generally speaking we expect rebounds will be large in energy intensive sectors and smaller for households or small businesses. This is important, since energy efficiency policy usually targets these smaller users. - Steve Sorrell

Rebound effects can be both direct (e.g. driving further in a fuel-efficient car) and indirect (e.g. spending the money saved on heating on an overseas holiday). The evidence is that direct rebound effects are usually fairly small - less than 30% for households for example (table, click to enlarge). Much less is known about indirect effects. However the study suggests that in some cases, particularly where energy efficiency significantly decreases the cost of production of energy intensive goods, rebounds may be larger.

Policy implications
The report formulates several implications on climate policy and recommendations which must allow policy makers to take rebound effects into account:

1. The potential contribution of energy efficiency policies needs to be reappraised.

• Energy efficiency may be encouraged through policies that raise energy prices, such as carbon taxes, or through non-price policies such as building regulations. Both should continue to play an important role in energy and climate policy. However, many official and independent appraisals of such policies have undoubtedly overstated the contribution of non-price policies to reducing energy consumption and carbon emissions.
• It would be wrong to assume that, in the absence of evidence, rebound effects are so small that they can be disregarded. Under some circumstances (e.g. energy efficient technologies that significantly improve the productivity of energy intensive industries) economy-wide rebound effects may exceed 50% and could potentially increase energy consumption in the long-term. In other circumstances (e.g. energy efficiency improvements in consumer electronic goods) economy-wide rebound effects are likely to be smaller. But in no circumstances are they likely to be zero.
• Taking rebound effects into account will reduce the apparent effectiveness of energy efficiency policies. However, many energy efficiency opportunities are highly costeffective and will remain so even when rebound effects are allowed for. Provided market and organisational failures can be overcome, the encouragement of these opportunities should increase real income and contribute to economic growth. They may not, however, reduce energy consumption and carbon emissions by as much as previously assumed.

2. Rebound effects should be taken into account when developing and targeting energy efficiency policy

• Rebound effects vary widely between different technologies, sectors and income groups. While these differences cannot be quantified with much confidence, there should be scope for including estimated effects within policy appraisals and using these estimates to target policies more effectively. Where rebound effects are expected to be large, there may be a greater need for policies that increase energy prices.
• ‘Win-win’ opportunities that reduce capital and labour costs as well as energy costs may be associated with large rebound effects. Hence, the implications of encouraging these opportunities need to be clearly understood and quantified. It may make more sense to focus policy on ‘dedicated’ energy efficient technologies, leaving the realisation of wider benefits to the market

3. Rebound effects may be mitigated through carbon/energy pricing – whether implemented through taxation or an emissions trading scheme

• Carbon/energy pricing can reduce direct and indirect rebound effects by ensuring that the cost of energy services remains relatively constant while energy efficiency improves. Carbon/energy pricing needs to increase over time at a rate sufficient to accommodate both income growth and rebound effects, simply to prevent carbon emissions from increasing. It needs to increase more rapidly if emissions are to be reduced.
• Carbon/energy pricing may be insufficient on its own, since it will not overcome the numerous barriers to the innovation and diffusion of low carbon technologies and could have adverse impacts on income distribution and competitiveness. Similarly, policies to address market barriers may be insufficient, since rebound effects could offset much of the energy savings. A policy mix is required. To avoid energy efficiency gains from undermining the benefits to climate policy, the report's authors recommend building 'headroom' into policy targets to allow for rebound effects, raising energy prices in line with energy efficiency improvements or imposing absolute caps on emissions.

The report from UKERC is the most thorough and in-depth review of rebound effects ever undertaken, reviewing over 500 papers and reports. It analyses the nature, operation and importance of rebound effects and provides a comprehensive review of the available evidence on this topic, together with closely related issues, such as the link between energy consumption and economic growth.

The UKERC research was led by the Sussex Energy Group (University of Sussex), with contributions from the Surrey Energy Economics Centre (University of Surrey), the Department of Economics at the University of Strathclyde, and the Centre for Energy Policy and Technology at Imperial College.

The UK Energy Research Centre's mission is to be the UK's pre-eminent centre of research, and source of authoritative information and leadership, on sustainable energy systems. The Centre takes a whole systems approach to energy research, incorporating economics, engineering and the physical, environmental and social sciences while developing and maintaining the means to enable cohesive research in energy. UKERC is funded by the UK Research Councils.

References:
UKERC: The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency [*.pdf] - October 2007

UKERC: The Rebound Effect: presentation [*.pdf] - November 1, 2007.

UKERC: 'Rebound Effects' Threaten Success of UK Climate Policy - November 1, 2007.