Reduce Energy Use and Beware of the Rebound Effect

Feb 10, 2014

Matthew Kotchen 
Professor of environmental economics and policy at Yale University.


To ask whether it is useful for consumers to focus on energy efficiency is like asking whether it is useful for consumers to focus on price. In practice, a cost-effective improvement in energy efficiency operates like a decrease in price. When you can drive more miles for every gallon of gas and run your household with lower utility bills, the price of these energy services is lower. In many cases, energy efficiency saves you money — even if you don’t care about the environment.

If you want to reduce your carbon footprint, efficient products can help. Just be vigilant after making the switch.

But what if you do care about the environment and want to reduce your carbon footprint by using less energy? Then you should also be aware of your potential behavioral response. Basic economics tells us that lower prices increase demand, meaning that people tend to drive more when it costs less to go each mile. People are also more likely to purchase and use things like air-conditioners when they cost less to operate. These so-called rebound effects eat into the initial energy savings of efficiency — because when things become more efficient, we tend to use them more.

While studies have shown that rebound effects are real and potentially important, they are not an argument for dismissing the importance of energy efficiency. Most of the evidence suggests that rebound effects offset only a fraction the environmental benefits. And we should not forget that beyond the benefit of saving money, people benefit from choices like driving more and keeping their homes at more comfortable temperatures.

Perhaps the most important question when it comes to energy efficiency is why consumers do not focus on it more. This is the energy paradox. While there are many explanations for why it exists, a simple one is that most of us are unaware of efficiency when shopping for goods that we buy. One way to address this problem is improved product labeling that reports efficiency in terms that people care about — money saved and pollution avoided. Recent changes to the E.P.A.’s efficiency labels for new vehicles and appliances are a step in the right direction and should help consumers make more informed decisions.

And for those individuals looking to have an impact beyond their own consumption choices, it would be useful to encourage political support for energy efficiency as part of a national energy policy. The Obama administration’s more aggressive fuel economy standards for passenger vehicles are taking effect this year. But transportation accounts for less than 28 percent of our energy consumption. Future policies across sectors of the economy should focus on establishing carefully designed economic incentives that promote energy efficiency more generally.