Rebound and Backfire as Emergent Phenomena
A review of the Literature
Ted Nordhaus and
The authors are grateful Dr. Karen Turner, Dr. Terry Barker, Dr. Taoyuan Wei, and Dr. Horace Herring for their review of this report, as well as their pioneering research in the field. We are particularly indebted to Dr. Harry Saunders for his guidance and assistance through multiple drafts of this document.
We would also like to acknowledge Dr. Christopher Green, Dr. Roger Pielke, Jr., and Robert Nordhaus for offering helpful comments and edits on early drafts.
This literature review attempts to summarize the work of dozens of economists and analysts, without which our efforts would not have been possible. Prior literature reviews by Steve Sorrell, Jim Dimitropoulos, Horace Herring, Blake Alcott and others were particularly helpful in guiding and informing this work.
Finally, the authors of this document are solely responsible for its content and conclusions (including, of course, any errors or inaccuracies within).
Energy efficiency is widely viewed as an inexpensive way to reduce aggregate energy consumption and thus greenhouse gas emissions. Many national governments, the International Energy Agency, and the United Nations Intergovernmental Panel on Climate Change have each recommended energy efficiency measures as a way to reduce significant quantities of greenhouse gas emissions without substantial cost (and with potential net benefits) to economic welfare (e.g., IPCC, 2007; IEA, 2009).
These recommendations have been supported and informed by several non-governmental analyses (e.g., Lovins, 1990, 2005; ASE et al., 1997; McKinsey, 2009a, b) which conclude that numerous energy efficiency opportunities are available at ‘below-cost’ – that is, the efficiency opportunities pay back more in net savings than they cost and represent a net improvement in total factor productivity and economic welfare. These studies assume a linear and direct relationship between improvements in energy efficiency or energy productivity and reductions in aggregate energy consumption.
Economists, however, have long observed that increasing the efficient production and consumption of energy drives a rebound in demand for energy and energy services, potentially resulting in greater, not less, consumption of energy. Energy productivity improvements over time reduce the implicit price and grow the supply of energy services, driving economic growth and resulting in firms and consumers finding new uses for energy (e.g., substitution). This is known in the energy economics literature as energy demand ‘rebound’ or, when rebound is greater than the initial energy savings, as ‘backfire.’
This review surveys the literature on rebound and backfire and considers the implications of these effects for climate change mitigation policy. We summarize how multiple rebound effects operate at various scales, and describe rebound as an ‘emergent property’ with the greatest magnitude at the
macroeconomic, global scale relevant to climate change mitigation efforts. Rebound effects are real and significant, and combine to drive a total, economy-wide rebound in energy demand with the potential to erode much (and in some cases all) of the reductions in energy consumption expected to arise from below-cost efficiency improvements. Consequently, rebound effects have important implications for emissions mitigation efforts.
We illustrate how rebound effects render the relationship between efficiency improvements and energy consumption interrelated and non-linear, challenging the assumptions of commonly utilized energy and emissions forecasting studies. We conclude by offering a new framework for envisioning the role of below-cost efficiency improvements in driving
energy modernization and decarbonization efforts.
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