When Good Intentions Backfire

Policy analysts and commentators are fond of pointing out when good intentions can backfire—often for good reason. “The Energy Rebound Battle,” by Ted Nordhaus (Issues, Summer 2017), offers a case in point. While much of the world grapples with finding ways to reduce emissions from the burning of fossil fuels, policies that seek to promote energy efficiency play a central role. But the rebound effect signals a warning. Goods and services become cheaper when they require less energy, and this can stimulate greater demand, supply, or both. As a result, the energy and emissions savings may be less than expected, or may even increase under extreme circumstances.

That the rebound effect exists is not controversial, but there is a wide range of estimates on its magnitude. One take on the literature is that the estimates are smaller when measured more carefully, and larger when more speculative. But it is precisely the more speculative, macroeconomic settings where the potential consequences of the rebound effect are likely to be most important. Whether people leave LED lights on longer than incandescents may be less consequential than how energy efficiency shapes the overall means of production in an economy. The English economist Stanley Jevons raised the important questions back in 1865. Today, research is still needed to get empirical traction on his seemingly paradoxical result.

But there is arguably a more immediate challenge to our understanding of energy efficiency policy. A growing number of studies find wide gaps between the predicted energy savings that come from engineering models and the realized energy savings that arise after adopting new technologies. The rebound effect can explain some of the difference, but the magnitudes are large enough to raise important questions about whether many current efficiency forecasts are overly optimistic. Gaining a better understanding about the potential for such systematic bias is of first-order importance, as it takes place upstream of any subsequent rebound effects.

Finally, it worth noting the underlying reason why the rebound effect is a potential concern when the objective is to reduce emissions. The fact is that promoting energy efficiency is an indirect way to reduce emissions. Policies that instead seek to limit emissions directly or put a price on them (for example, a carbon tax) are not susceptible to rebound effects. In these cases, cost-effective compliance creates an incentive for greater energy efficiency without perverse secondary effects. In reality, politics may explain the focus on energy efficiency as a matter of expediency, but the long-term goal should be to promote a more direct linkage between our policies and objectives.

Matthew J. Kotchen