Energy Efficiency’s role in the mix of tools we use to reduce carbon emissions is crucial. But Energy Efficiency gains can have a rebound effect: as your bills reduce, you have more money to spend on more energy. We need incentives and policies to reduce actual consumption, otherwise we’re making it harder to cut emissions, argues Parakram Pyakurel of Southampton Solent University, UK.

Energy efficiency is viewed as a powerful approach to combat climate change and the International Energy Agency has estimated that the right efficiency policies could allow the world to achieve more than 40% of the greenhouse gas emissions cuts needed to reach its climate goals without new technology. Energy efficiency policies are implemented across Europe, the U.S. and globally with a hope that improved energy efficiency will reduce energy consumption. However, the relationship between improved energy efficiency and demand reduction, which is eventually supposed to reduce greenhouse gas emissions, is not very straightforward.

Back in 1865, the economist William Stanley Jevons argued that technological efficiency gains, particularly the efficiency improvement of coal powered steam engines, actually increased the overall consumption of coal, iron, and other resources, instead of reducing them. He observed that efficiency improvements of steam engines led to economic expansion that accelerated coal consumption. This is called the Jevons Paradox and it is very relevant today in the context of energy efficiency policies that are meant to reduce energy consumption and thereby fight climate change. In the U.S., a general equilibrium growth theory based model has shown that higher energy efficiency increased rather than reduced energy use.

The rebound effect: weakening our efficiency gains

Improved energy efficiency reduces electricity cost which then encourages higher electricity consumption. This effect where energy efficiency leads to increased consumption is known as the rebound effect. Basically, the rebound effect is the consumer’s inclination to consume more energy due to potential economic benefit from efficiency improvement. Let us assume energy efficiency reduces the power rating of an appliance from 100 W to 90 W. Without the rebound effect, 10 W (100 W – 90 W) would be saved. But let us say that only 7 W is saved because of the rebound effect. Then, the rebound effect is 30% (since (10-7)/10 = 30%) in this case.

It is interesting to note that a rebound effect as large as 60% has been shown in the residential heating sector: one third of the potential savings have been found to be lost due to rebound effects in Switzerland whereas rebound effects of 41.3% among tenants have been observed in the Netherlands. Likewise, according to one computable general equilibrium model, economy-wide rebound would amount to nearly 40% in Norway if it followed the EU’s 2030 Energy Strategy.

In China, long-term rebound effects ranging from 46% to 56% for residential electricity consumption in Beijing have been estimated. All these data cast doubt on the sole reliance on energy efficiency policies to reduce energy demand. Another issue identified with energy efficiency policy has been that it maintains the status quo, and helps continue unsustainable ways of life.

The debate on the rebound effect is actually ongoing and the counterargument has been made that existing literature does not support claims that energy efficiency gains will be reversed by the rebound effect. However, the fact that a substantial amount of rebound effect and unintended consequences exist indicate that energy efficiency alone is not enough. It needs a decoupling between human development and energy consumption, and ethical consumption in general, to effectively combat climate change.

We all need to change our behaviour

Changing the behaviour of ordinary people is just one of the challenges. A bigger challenge will be to change the mindset of industry, driven by commercial pressures. A rebound effect in the industrial sector needs to be monitored carefully, given that sector will continue to account for the largest share of energy consumption.

Energy efficiency must combine with a reduction in energy consumption

Energy efficiency improvements are important but need something more. A policy approach that clearly and strongly discourages unnecessary and wasteful energy consumption is required. A holistic approach that encourages, and maybe even directs, reduction in energy consumption in industrial, transportation, commercial and residential sectors is needed.

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Dr Parakram Pyakurel specialises in renewable energy, sustainability and energy planning and policy at the Warsash School of Maritime Science and Engineering, Southampton Solent University, UK.