The Corner

The Paradox of Energy Efficiency

Over at Reason, Ron Bailey asks a very good question: why is it that improvements in energy efficiency achieved over the last twenty years haven’t translated into reduced energy consumption? His answer: As we have managed to use less energy to provide the same service, we have actually increased our demand for energy by demanding more of that service, for instance, using more powerful cars. He gives other examples:

Lighting efficiency has improved during the last three centuries by many thousand-fold, from sputtering candles to modern LEDs, as Jeff Tsao and his colleagues from the Sandia National Laboratory note in the July 2012 issue of the journal Energy Policy. But the result “has been an increase in demand for energy used for lighting that nearly exactly offsets the efficiency gains.” The authors note that “when lighting becomes cheaper, economic agents become very creative in devising new ways to use it,” such as illuminating office ceilings with LED virtual skies. In coming decades, Tsao et al. predict, increased demand for lighting probably will again swallow up any new gains in energy efficiency.

In another recent study, reported in the July 2012 issue of the journal Sustainability, Graham Palmer, technical director of an Australian heating and cooling company, looked at trends in space heating efficiency during the last 50 years in Melbourne. Modern houses are up to 10 times more energy efficient, Palmer found, yet Australians are collectively using just as much energy to heat their homes as they did a half-century ago. Why? New houses are much bigger, people heat larger areas for longer, and fewer people live in each dwelling. Of course, modern Australians are much more comfortable in the winter than their grandparents were. 

What’s the scale of this “rebound effect”? Bailey says that studies have found the effect associated with increases in household energy efficiency is around 30 percent, while the effect could be much more complicated to measure and much higher in other areas. 

Robert Michaels’ review of research on the rebound effect associated with increases in household energy efficiency turned up varying results, but a quick look at the numbers shows a direct rebound rate hovering around 30 percent. If an appliance that used 100 kilowatt-hours per month is replaced by one that uses just 50 kilowatt-hours, a 30 percent rebound implies that energy consumption would fall not to 50 kilowatt-hours but to 65 (i.e., 30 percent more than 50), for a total reduction of 35 kilowatt-hours. Still not bad, since the consumer gets equivalent (or more) benefits from the new appliance while saving on electricity. 

Economy-wide rebounds are much harder to calculate. The money saved from driving a fuel-efficient car, for example, may now be spent on flying to a Caribbean beach vacation. Compounding indirect rebounds throughout the economy can lead to so much additional energy use that the net result of improved efficiency is higher consumption.

In the IER study, Michaels cites 11 econometric analyses that found economy-wide rebounds ranging from 23 percent to 177 percent; five of the studies reported economy-wide rebounds of more than 100 percent. In other words, the long-run result is higher energy consumption.

This piece throws an interesting light on the numerous government efforts to achieve energy efficiency. As it turns out, if successful, these efforts could contribute to increases in energy consumption. 

There’s much more here.

Veronique de Rugy — Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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