A Microeconomic Framework for Evaluating Energy Efficiency Rebound and Some Implications

• Published in: The Energy journal (Cambridge, Mass.) Vol. 36; no. 1; pp. 1 - 21
• Main Author: Borenstein, Severin
• Format: Journal Article
• Language: English
• Published: Los Angeles, CA Energy Economics Education Foundation 01.01.2015; SAGE Publications; International Association for Energy Economics; Sage Publications Ltd. (UK)
• Subjects: Computational efficiency; Computing time; Cost control; Cost engineering; Economic models; Economics; Energy conservation; Energy consumption; Energy efficiency; Energy industries; Energy management; Energy management systems; Energy use; Evaluation; Fuel economy; Investments; Microeconomics; Power efficiency; Prices and rates; Backfire; Conservation; Fuel economy; Energy services; Energy efficiency gap; Lighting efficiency; Takeback
• ISSN: 0195-6574; 1944-9089
• DOI: 10.5547/01956574.36.1.1

Improving energy efficiency can lower the cost of using energy intensive goods and may create wealth from the energy savings, both of which lead to increased energy use, a "rebound" effect. I present a theoretical framework that parses rebound into economic income and substitution effects. The framework leads to new insights about the magnitude of rebound when goods are not priced at marginal cost and when consumers are imperfect optimizers, as well as the role of technological progress in rebound. I then explore the implications of this framework with illustrative calculations for improved auto fuel economy and lighting efficiency. These suggest that rebound is unlikely to more than offset the savings from energy efficiency investments (known as "backfire"), but rebound likely reduces the net savings by roughly 10% to 40% from these energy efficiency improvements.