Quick quiz: If you improve the productivity of energy use at a steel plant in China, will that plant save energy, or produce and sell more of its now-cheaper steel? If ultra-efficient lightbulbs spread across rural India, will we see energy consumption there decline or rise?
With about two-thirds of global energy consumed in the refinement and transport of energy and the production of goods and services and over 90 percent of growth in energy demand spurred by the so-called “Rise of the Rest” in the emerging economies, these two examples should be at the front of our minds as debate spreads across the blogosphere aboutrebound effects – the economic dynamics by which energy efficiency improvements lead to a rebound in demand for now-more-efficient energy services (see an FAQ on rebound here).
Author and reporter David Owen’s new book, The Conundrum has sparked this latest round of rebound debate (see e.g. Bryan Walsh, Matt Yglesias, and David Roberts). Much of this debate has (understandably) centered around some of the most readily understandable examples of rebound drawn from our personal experiences — efficient cars, appliances, home electronics, etc.
Unfortunately, these examples of personal energy use in wealthy countries are also precisely the cases where rebound effects are the smallest, leading some observers of this debate to conclude rebound is a smaller deal that it truly is.
Witness the focus on the so-called “Prius Fallacy” which Time‘s Bryan Walsh describesas this:
[A]s we become more efficient at using energy, we can save money — which then allows us to use more of that energy than we did before. Picture it this way: you trade in your gas-guzzling SUV for a new efficient hybrid, end up paying less per mile for gasoline, and use some of the savings to drive more than you did with the SUV. The efficiency has rebounded.
Its a good clear explanation of how rebound effects work, but unfortunately, it focuses on one of the sectors where rebound effects are smallest: consumer demand for end-use energy services in rich countries.
Several readers at The Dish quickly pushed back on this “Prius Fallacy,” most drawing on their own personal experiences.
Its easy for each of us to understand why any rebound in driving after the purchase of a more efficient car will probably be fairly small: most of us in the rich nations already drive as much as we need to, or close to it. In economics-speak, our demand for driving is “saturated,” and thus is pretty “inelastic” or non-responsive to changes in the marginal price of driving.
Studies of direct rebound in vehicle miles driven after improvements in fuel economy for personal vehicles generally show rebounds eroding only about 10-20 percent of the initially expected energy savings. Additional indirect and macroeconomic effects may mean total rebound erodes roughly one quarter to one third of expected energy savings from more efficient vehicles. That’s still a pretty decent net gain in terms of reduced energy demand, which is why improvements in personal vehicle fuel economy in rich nations like the United States still make a lot of sense from an energy conservation perspective, even as we should revise our estimate of the net impacts of more efficient vehicles in light of this not-insignificant rebound.
Unfortunately, all this focus on examples from our personal lives here in the United States — refrigerators, air conditioners, electronics, driving — misses the real heart of the rebound debate. Only about one-third of all energy use is consumed in these end-use activities, while the rest of the energy we use is hidden, embedded in the goods and services we consume.