The Rebound Effect and Energy Efficiency Policy

TLDR

The rebound effect refers to the phenomenon where energy‑efficiency improvements save less energy than expected, and there is debate over whether such improvements can actually increase overall energy use (backfire). This article clarifies the rebound effect, offers a guide for economists and policymakers, presents reliable evidence on its magnitude, and proposes a new macroeconomic perspective. The authors contrast studies that treat rebound as a costless exogenous efficiency increase with those that analyze specific energy‑efficiency policies, highlighting how this distinction yields different welfare and policy implications, and they provide evidence and.

Abstract

What do we know about the size of the rebound effect, the well-known phenomenon that improving energy efficiency may save less energy than expected due to a rebound of energy use? Is there any validity to the claims that energy efficiency improvements can actually lead to an increase in energy use (known as backfire)? This article clarifies what the rebound effect is and provides a guide for economists and policymakers interested in its existence and magnitude. We discuss how some studies in the literature consider a rebound effect that results from a costless exogenous increase in energy efficiency, whereas others examine the effects of a specific energy efficiency policy—a distinction that leads to very different welfare and policy implications. We present the most reliable evidence available about the size of the energy efficiency rebound effect and discuss situations where such estimation is extraordinarily difficult. With this in mind, we present a new way of thinking about the macroeconomic rebound effect. We conclude that overall, the existing research provides little support for the so-called backfire hypothesis. However, our understanding of the macroeconomic rebound effect remains limited, particularly as it relates to induced innovation and productivity growth. (JEL: H23, Q38, Q41)