What is the Rebound Effect?

Energy efficiency by itself does not necessarily reduce emissions, but it does give us the resources to clean up our energy supply. One complicating factor in projecting energy savings from efficiency is the “rebound effect.” Here’s what it is, how it works, and what it means for efficiency.

Direct rebound

The rebound effect has two components. The first is direct rebound. This is the percentage of energy savings from efficiency that are offset by increased use. Efficiency makes an energy-consuming technology less expensive to use, so people use it more often.

Direct rebound is acknowledged by a wide range of energy economists. It is generally small in developed countries, so a 10% improvement in efficiency might provide “only” a 9% reduction in energy use.

Indirect Rebound

The other component is indirect rebound. This results from how you spend the money you save.

Let’s assume your new car cuts fuel consumption by 50% and you drive 6% more. You buy 53% as much gasoline as before. You spend some of those savings on other goods and services, which require energy to produce.

But if you save $100 on gasoline costs, whatever else you buy with that $100 is not 100% energy; that expenditure also covers labor, materials, and capital. The energy share of your re-spending is typically on the order of 10%.