Does the Rebound Effect Undercut Savings from Energy Efficiency Standards?

There are plenty of reasons to oppose Department of Energy (DOE) efficiency standards for home appliances such as those for air conditioners, refrigerators, clothes washer/dryers, dishwashers, and furnaces. The track record for these standards shows that some hurt rather than help consumers because they can boost the purchase price above the accrued energy savings. Others compromise product quality and performance, such as the rule for dishwashers that greatly increased the time it takes to clean a load of dishes.

Now a new study published in Renewable and Sustainable Energy Reviews, “Energy Efficiency and Economy-Wide Rebound Effects: A Review Of The Evidence And Its Implications,” finds another reason to question the merits of such regulations—more than 50 percent of the energy “saved” may get used anyway. These findings should not be ignored by the Biden administration as it considers new rounds of such standards in the name of fighting climate change.

It is called the rebound effect—the tendency for improvements in energy efficiency to be offset by changes in behavior that undercut the energy savings. For example, those buying a more energy-efficient air conditioner may then set the thermostat lower than otherwise and enjoy a little extra cooling. Or homeowners installing a more energy-efficient refrigerator may decide they can now afford more lighting, and thus their energy bill does not go down very much, if at all.

Most proponents of energy efficiency mandates—including a sizable contingent of Washington, D.C.-based pressure groups—downplay the rebound effect and insist that efficiency regulations are reducing energy use and thus also reducing the greenhouse gas emissions associated with that energy use. However, this study finds that absolute energy consumption continues to increase even in economies that have adopted energy efficiency measures. It concludes that “the evidence reviewed in this paper suggests that economy-wide rebound effects could erode more than half of the anticipated energy savings.”

These findings have particular significance now that the Biden administration wants to launch a number of new appliance efficiency standards, and will likely justify them at least in part by the climate benefits as measured by the social cost of carbon (SCC).

SCC attempts to quantify the dollar value of damage done by an additional ton of carbon dioxide emitted into the air from fossil fuel use, or by the benefits of avoiding that ton of emissions via interventions like appliance efficiency standards. As it is, there are numerous flaws with the administration’s newest version of the SCC, all of which are slanted towards overstating it. This includes highly speculative and even implausible assumptions about future climate change-induced harm carried out over the next three centuries, extremely low discount rates that inflate the present value of the assumed harm, and failure to consider the offsetting agricultural benefits of increased carbon dioxide levels.

And now, if the study’s findings are correct, more than half of the energy purportedly saved by efficiency standards is going to be used anyway. For this reason, any SCC benefits attributed to such measures are even further overstated unless they are adjusted to incorporate realistic assumptions about the rebound effect.