Understanding the rebound effect

Definitions and mechanisms of the rebound effect

From Jevons’ paradox to the rebound effect

It was Williams Stanley Jevons who first highlighted the rebound effect. ³ . Drawing on the debates surrounding the fear of a coal shortage in England in the 1860s ⁴ in his book The Coal Question (1865), he noted a paradox: despite the improved energy efficiency of the steam engine, total coal consumption had increased. This became known as “Jevons’ paradox”: an improvement in energy efficiency could lead to an increase in energy consumption.

For Jevons, this paradox is only apparent: it is, in fact, the greater energy efficiency of steam engines that encourages and enables entrepreneurs to produce more, and thus ultimately leads them to use more coal than before.

It wasn’t until the late 1970s that Jevons’ reasoning was taken up again and the rebound effect was truly theorized. The work of economists Leonard Brookes and Daniel Khazzoom ⁵ marked the beginning of a vast literature on this key topic of ecological transition.

The rebound effect occurs as soon as energy consumption gains are less than proportional to individual efficiency gains. This effect can vary in magnitude. If a machine saves 10% fuel, but fuel consumption only drops by 8%, we’re already talking about a rebound effect.

The extreme case, as described by Jevons in 1865, is when individual efficiency gains (per appliance) result not in energy savings (even lower than expected), but in higher energy consumption. The income effect and general equilibrium mechanisms described below then come into full play, and energy efficiency, far from bringing about an ecological improvement, actually worsens the situation. This is known as the “backfire effect”.

The different types of rebound effect

Researchers distinguish three types of rebound effect. ⁶

The first two are microeconomic: it is possible (especially for the direct effect) to observe them empirically at the level of economic players. There is also another effect that concerns the economy as a whole.

1. The direct rebound effect (or price effect): an increase in the energy efficiency of a product lowers its price and leads to greater consumption of that good (or the service it provides). For example, the fall in the price of lighting as a result of efficiency gains in this area can encourage people to be careless about turning off unnecessary lights. Other examples include cars (lower fuel consumption per km thanks to improved engines may encourage people to travel more), or home insulation (lower heating consumption thanks to better insulation may encourage people to raise the average temperature).

2. The indirect rebound effect (or income effect): the financial savings made possible by lower energy consumption (of the car, heating, electricity) are used to consume other goods requiring energy (e.g. to take a plane trip).

3. The macroeconomic rebound effect, which can result from two mechanisms:

• the reduction in total energy demand made possible by energy efficiency leads to lower energy prices, which can stimulate energy-intensive sectors of the economy
• improved energy efficiency generates economic growth, which in turn leads to higher energy consumption across the economy as a whole.

4. The total rebound effect: this is the sum of the direct, indirect and macroeconomic effects.

Note that there are differences in terminology among economists studying the phenomenon. For example, in the diagram below, the macroeconomic rebound effect is referred to as the ” Economy-wide rebound effect “, whereas in the table below, this expression refers to the total rebound effect.

It can be confusing!

Estimates of the total rebound effect

While the average direct rebound effect is now relatively well studied ⁷ the indirect and macroeconomic effects are more difficult to measure.

In an article published in 2021, several economists reviewed various academic studies aimed at estimating the economy-wide rebound effect, using a wide variety of methodologies. The conclusion of this literature review is very clear: the total rebound effect can erode by at least half the energy savings expected from improved energy efficiency.

An example of the rebound effect: the UK lighting sector

In their article ” Seven Centuries of Energy Services: The Price and Use of Light in the United Kingdom (1300-2000) “, published in 2007 in The Energy Journal, Roger Fouquet and Peter J.G. Pearson analyze the evolution of lighting production technologies and consumption over several centuries in the UK.

The table above shows the order of the columns:

• A drop in the average price of the energy sources that generate light from 25 pence per kWh in 1800 to 4 in 2000, a division by more than 6 (in constant currency).
• A major improvement in lighting efficiency, from 35 lumens per kWh in 1800 to 25,000 lumens per kWh in 2000. ⁸ a more than 700-fold increase in efficiency.
• A concomitant fall in the price of lighting services: in the year 2000, British consumers paid 160 times less for access to a million lumens than in 1900, and almost 4,000 times less than in 1800.
• At the same time, light consumption has increased massively, both per capita (a 6,566-fold increase since 1800) and in total, reaching over 1270 trillion lumens (a 25,000-fold increase).

This can also be seen in the following graph, which also shows the succession of different energy sources used for lighting (candle, gas lamp, kerosene lamp and electric bulb).

As costs have fallen, the demand for and use of artificial light has risen sharply, not only by individuals, but also through the development of outdoor lighting for streets and buildings.

On average, a UK resident consumed 75 times more artificial light in 2000 than in 1900, and 6,600 times more than in 1800.

It’s a perfect illustration of Jevons’ paradox: sharp increases in energy efficiency have led to a sharp reduction in lighting costs, leading to an increase in lighting demand and total energy consumption.

How to explain the rebound effect and how to reduce it

Explaining the rebound effect: theoretical and empirical perspectives

From a theoretical point of view, the rebound effect has an intuitive explanation: in a production process, individual energy efficiency gains translate into lower energy-related unit costs (less energy is needed to produce a unit of good, so it’s cheaper), which creates an incentive to produce more goods or consume more energy elsewhere.

Here, price acts as an unfavorable signal.

However, the rebound effect is above all an empirical subject, and from this point of view, the question is more delicate.

If we observe rebound effects in a given sector, we can’t claim that technical progress will be the only solution for reducing energy consumption. This is illustrated by the above example of the lighting sector in the UK, which has been subject to significant rebound effects. In 200 years, the price of energy for lighting purposes has been divided by more than six. The technical efficiency of lighting (in lumens) has improved considerably, but this has not led to a reduction in lighting consumption – quite the contrary. In fact, the efficiency gains achieved have been more than offset.

In the same way, between the 1950s and today, vehicle combustion engines have made extraordinary progress, but the consumption associated with transporting people and goods has, on the contrary, increased. Why did this happen? Because instead of reducing the amount of fuel consumed by each vehicle, efficiency gains have been used to make vehicles heavier, more comfortable, more powerful and, above all, to cover greater distances.

For other sectors, such as digital ⁹ the rebound effect is linked to the relentless development of the services and uses offered thanks to the ever-increasing power of the chips present in computers and many everyday objects. Energy efficiency gains are “absorbed” by the multiplication of uses. ¹⁰

In key sectors of the ecological transition, such as construction, questions remain unanswered. Better materials and insulation are undeniably necessary. But how can we guarantee that better boilers or windows won’t lead users to turn up their thermostats or heat rooms previously left cold, thus generating a rebound effect? ¹¹ In fact, this is sometimes desirable in the case of “thermal flats”, whose inhabitants may suffer from insufficient temperature and/or excessive humidity, because they simply can’t afford the price of sufficient heating. In this case, energy efficiency allows the occupant to improve his or her comfort at a constant cost, although it’s not certain that he or she will consume less energy (in this case, it all depends on the depth of the renovation).

How to get around the rebound effect?

This is why, in many fields, researchers are suggesting that technical gains in energy efficiency should be accompanied by regulatory mechanisms or behavioral incentives. ¹² to ensure that they translate into real reductions in consumption, rather than rebounds. ¹³

The rebound effect, a simple economic mechanism that has been identified for over a century, shows that technical change (not to mention “progress”) in the energy field cannot be the only lever in an ecological transition strategy. The risk of rebound means that the best, most economical technologies do not guarantee less pressure on natural resources.

Action on energy demand, and more general forms of regulation, are needed to ensure that engineers’ efforts don’t come up against the wall of economic reality.