Gernot Wagner's Blog, page 7
November 19, 2014
Reconsidering the Rebound Effect
By Kenneth Gillingham, David Rapson, and Gernot Wagner.
The rebound effect from improving energy efficiency has been widely discussed—from the pages of the New York Times and New Yorker to the halls of policy and to a voluminous academic literature. It’s been known for over a century and, on the surface, is simple to understand. Buy a more fuel-efficient car, drive more. Invent a more efficient bulb, use more light. If efficiency improves, the price of energy services will drop, inducing increased demand for those services. Consumers will respond, producers will respond, and markets will re-equilibrate. All of these responses can lead to reductions in the energy savings expected from improved energy efficiency. And so some question the overall value of energy efficiency, by arguing that it will only lead to more energy use—a case often called “backfire.”
In a new RFF discussion paper, “The Rebound Effect and Energy Efficiency Policy” we review the literature on the rebound effect, classify the different types, and highlight the need for careful distinction between causal links—which are indeed worthy of the “rebound” label—and mere correlations, which are not. We find, in fact, that measures to improve efficiency, despite potential rebound effects—are likely to improve welfare, generally.
Among the key questions about the rebound effect are a) whether the net benefits of energy efficiency increases are positive (for a costless improvement, the answer is almost certainly “yes”), and b) whether the increase in demand for energy services uses so much additional energy that it leads to greater, rather than less, demand for energy itself (the answer is almost certainly “no”).
Our findings are clear: while it is possible for rebound effects to be large in some settings, there is no reliable evidence supporting rebound effects so large that improving energy efficiency leads to more energy use. Backfire is theoretically possible, but even the theoretical predictions rely on channels that are either a) second-order in magnitude (and thus unlikely to overwhelm primary effects), or b) lacking in empirical evidence of their existence and magnitude. Globally, we have little reason to worry about backfire. While there is much uncertainty about the size of the so-called “macroeconomic rebound” (how re-equilibration of markets and such hypothesized effects as induced innovation from the energy efficiency improvement may lead to a rebound), we consider a plausible upper bound of the total effect to be in the range of 60 percent (that is, 60 percent of the potential energy savings will be lost to rebound), with most studies pointing to a smaller effect.
Regardless of its size, we find that the rebound effect is very likely to be welfare-improving. In fact, in the extreme, energy efficiency improvements that come about from innovations or otherwise have no cost are unequivocally welfare-enhancing. If the improvements come with costs, such as air pollution from more driving or more expensive technology, those need to be weighed against the energy savings, emissions savings, and welfare benefits from the policy.
In short, undue emphasis on backfire is a mere distraction. Or as we put it in a recent letter to the editor of the New York Times: energy efficiency improvements such as “LEDs alone won’t solve global warming or global poverty, but they are a step in the right direction for both.”
Published on Common Resources. The RFF Discussion Paper is here: “The Rebound Effect and Energy Efficiency Policy.”
October 27, 2014
The Rebound Effect and Energy Efficiency Policy
Abstract:
What do we know about the size of the rebound effect? Should we believe claims that energy efficiency improvements lead to an increase in energy use? This paper clarifies what the rebound effect is, and provides a guide for economists and policymakers interested in its magnitude. We describe how some papers in the literature consider the rebound effect from a costless exogenous increase in energy efficiency, while others examine the effects of a particular energy efficiency policy—a distinction that leads to very different welfare and policy implications. We present the most reliable evidence available quantifying the energy efficiency rebound, and discuss areas where estimation is extraordinarily difficult. Along these lines, we offer a new way of thinking about the macroeconomic rebound effect. Overall, the existing research provides little support for the so-called “backfire” hypothesis. Still, much remains to be understood, particularly relating to induced innovation and productivity growth.
Full text of working paper: “The Rebound Effect and Energy Efficiency Policy” (updated November 19, 2014)
Joint with: Kenneth Gillingham and David S. Rapson, revise & resubmit at Review of Environmental Economics and Policy.
Citation:
Gillingham, Kenneth, David S. Rapson, and Gernot Wagner. “The Rebound Effect and Energy Efficiency Policy.” E2e Working Paper WP-013, October 2014. RFF Discussion Paper 14-39, November 2014.
October 22, 2014
Is energy efficiency a good thing even with rebound?
By Inês Azevedo, Kenneth Gillingham, David Rapson, and Gernot Wagner.
Lighting is critical to our livelihoods. Humans have used lighting technology since long before industrialization. For many centuries, this lighting was extremely inefficient, with over 95% of the energy consumed wasted as heat. Recently, the Nobel Prize in Physics was awarded to Isamu Akasaki, Hiroshi Amano and Shuji Nakamura for their remarkable contributions towards highly efficient light emitting diode (LED) technology. A day later, Michael Shellenberger and Ted Nordhaus reignited a long standing debate with an Op-Ed in The New York Times claiming that these developments are not likely to save energy and instead may backfire. (TheTimes has since corrected a crucial point of the article, and it has published three letters to the editor, including one by a subset of co-authors here.)
As evidence for these claims, Shellenberger and Nordhaus cite research that observes the vast improvements in the efficiency of lighting over the past two centuries having resulted in “more and more of the planet [being] dotted with clusters of lights.” They take this as evidence of how newer and ever more efficient lighting technologies have led to demand increases and, thus, have “led to more overall energy consumption.” Further, they refer to “recent estimates and case studies” that suggest “energy-saving technologies may backfire, meaning that increased energy consumption associated with lower energy costs because of higher efficiency may in fact result in higher energy consumption than there would have been without those technologies.”
First off, yes, it is likely that many efficiency improvements are associated with some rebound effect. It’s been with us forever, and it’s been known for over a century. More efficient lighting leads to people using more light. Key here is “leads to.” Causality matters. More on that in a minute.
For now, a quick look at the actual technology in question. It turns out the technology developments for LED lighting are, in fact, much greater than previous advances in lighting. Figure 1 [see the pdf] shows the dramatic pace of technology change in LED efficacy. The Nobel Prize was well-deserved: LEDs provide a major energy-saving innovation.
But what about the claim that this efficiency improvement will only lead to more energy use? This claim is simply not justified. Noting that lighting dots the globe at night today when it did not in the 19th century may be confounding correlation with causation. The world is also much wealthier today and the service provided by light from electricity is very different than candlelight. Perhaps earlier lighting would have dotted the globe at night in 1850 too had we been as wealthy as today and had consistent lighting. We cannot say without looking at the evidence.
The evidence we have is quite clear. Shellenberger and Nordhaus say “The I.E.A. and I.P.C.C. estimate that the rebound could be over 50 percent globally,” and they then proceed to talk about “backfire,” a rebound effect of over 100 percent. That’s quite a jump from 50 to 100. What’s missing here is that most studies, including the IEA’s and their own(!), take 60% as an upper bound. The IPCC summarizes the evidence as thus:
“A comprehensive review of 500 studies suggests that direct rebounds are likely to be over 10% and could be considerably higher (i.e., 10% less savings than the projected saving from engineering principles). Other reviews have shown larger ranges with Thomas and Azevedo (Thomas and Azevedo, 2013) suggesting between 0 and 60%. For household‐efficiency measures, the majority of studies show rebounds in developed countries in the region of 20-45% (the sum of direct and indirect rebound effects), meaning that efficiency measures achieve 65-80% of their original purposes.”
We have each performed our own detailed surveys of the literature (Azevedo 2014; Thomas & Azevedo, 2013; Gillingham et al. 2013; Gillingham et al. 2014) and largely agree with these statements from the I.P.C.C. The bottom-line: the evidence for a “backfire” is weak. The rebound effect is clearly there, but first it’s generally relatively small—especially in developed countries. Perhaps most importantly, where it does exist—and it does—it’s good.
Energy inefficiency can’t be good. That doesn’t yet mean that efficiency alone is sufficient. Every economist worth his or her degree would conclude that we need a price on carbon or a similar instrument. Bonus fact: there’s no direct rebound effect with pricing mechanisms.
As the Nobel Committee notes in its press release: “The LED lamp holds great promise for increasing the quality of life for over 1.5 billion people around the world who lack access to electricity grids.” In short, and as two of us say in a shorter letter to the editor, LEDs alone clearly won’t solve global warming, nor will they solve global poverty. But they are a step in the right direction for both. Thank you, Isamu Akasaki, Hiroshi Amano, and Shuji Nakamura, and to the Nobel Committee for recognizing their work.
Published in full as part of a broader post on "Is There Room for Agreement on the Merits and Limits of Efficient Lighting" by Andrew Revkin on the DotEarth blog of The New York Times. For a shorter take, see our letter to the editor of The New York Times. For a longer take, see "The Rebound Effect and Energy Efficiency Policy."
October 21, 2014
AGU Fall Meetings
Panel discussion with Katherine Hayhoe:
To make effective and robust choices, decision makers must understand inherent uncertainties surrounding scientific knowledge – including ‘known unknowns,’ or deep uncertainties. Yet, because many non-scientists perceive uncertainty as a lack of knowledge, communicating uncertainty to the public can lead to misunderstanding of core scientific conclusions. To add to the confusion, some special interest groups misrepresent uncertainty to manufacture doubt, while others may minimize it to highlight particular conclusions. Both means of mishandling uncertainty can lead to high risks to society’s health, economy and environment.
This panel will explore the challenges and opportunities for communicating the deep uncertainty often embedded in scientific conclusions, especially when dealing with charged science topics such as climate change and GMOs. Does the gap between an expectation of no uncertainty and the recognition that science always comes with uncertainty create a valley of death for dealing with critical environmental crises? How can scientists and science communicators best bridge this chasm?
Is energy efficiency a good thing even with rebound?
By Inês Azevedo, Kenneth Gillingham, David Rapson, and Gernot Wagner.
Lighting is critical to our livelihoods. Humans have used lighting technology since long before industrialization. For many centuries, this lighting was extremely inefficient, with over 95% of the energy consumed wasted as heat. Recently, the Nobel Prize in Physics was awarded to Isamu Akasaki, Hiroshi Amano and Shuji Nakamura for their remarkable contributions towards highly efficient light emitting diode (LED) technology. A day later, Michael Shellenberger and Ted Nordhaus reignited a long standing debate with an Op-Ed in The New York Times claiming that these developments are not likely to save energy and instead may backfire. (TheTimes has since corrected a crucial point of the article, and it has published three letters to the editor, including one by a subset of co-authors here.)
As evidence for these claims, Shellenberger and Nordhaus cite research that observes the vast improvements in the efficiency of lighting over the past two centuries having resulted in “more and more of the planet [being] dotted with clusters of lights.” They take this as evidence of how newer and ever more efficient lighting technologies have led to demand increases and, thus, have “led to more overall energy consumption.” Further, they refer to “recent estimates and case studies” that suggest “energy-saving technologies may backfire, meaning that increased energy consumption associated with lower energy costs because of higher efficiency may in fact result in higher energy consumption than there would have been without those technologies.”
First off, yes, it is likely that many efficiency improvements are associated with some rebound effect. It’s been with us forever, and it’s been known for over a century. More efficient lighting leads to people using more light. Key here is “leads to.” Causality matters. More on that in a minute.
For now, a quick look at the actual technology in question. It turns out the technology developments for LED lighting are, in fact, much greater than previous advances in lighting. Figure 1 [see the pdf] shows the dramatic pace of technology change in LED efficacy. The Nobel Prize was well-deserved: LEDs provide a major energy-saving innovation.
But what about the claim that this efficiency improvement will only lead to more energy use? This claim is simply not justified. Noting that lighting dots the globe at night today when it did not in the 19th century may be confounding correlation with causation. The world is also much wealthier today and the service provided by light from electricity is very different than candlelight. Perhaps earlier lighting would have dotted the globe at night in 1850 too had we been as wealthy as today and had consistent lighting. We cannot say without looking at the evidence.
The evidence we have is quite clear. Shellenberger and Nordhaus say “The I.E.A. and I.P.C.C. estimate that the rebound could be over 50 percent globally,” and they then proceed to talk about “backfire,” a rebound effect of over 100 percent. That’s quite a jump from 50 to 100. What’s missing here is that most studies, including the IEA’s and their own(!), take 60% as an upper bound. The IPCC summarizes the evidence as thus:
“A comprehensive review of 500 studies suggests that direct rebounds are likely to be over 10% and could be considerably higher (i.e., 10% less savings than the projected saving from engineering principles). Other reviews have shown larger ranges with Thomas and Azevedo (Thomas and Azevedo, 2013) suggesting between 0 and 60%. For household‐efficiency measures, the majority of studies show rebounds in developed countries in the region of 20-45% (the sum of direct and indirect rebound effects), meaning that efficiency measures achieve 65-80% of their original purposes.”
We have each performed our own detailed surveys of the literature (Azevedo 2014; Thomas & Azevedo, 2013; Gillingham et al. 2013; Gillingham et al. 2014) and largely agree with these statements from the I.P.C.C. The bottom-line: the evidence for a “backfire” is weak. The rebound effect is clearly there, but first it’s generally relatively small—especially in developed countries. Perhaps most importantly, where it does exist—and it does—it’s good.
Energy inefficiency can’t be good. That doesn’t yet mean that efficiency alone is sufficient. Every economist worth his or her degree would conclude that we need a price on carbon or a similar instrument. Bonus fact: there’s no direct rebound effect with pricing mechanisms.
As the Nobel Committee notes in its press release: “The LED lamp holds great promise for increasing the quality of life for over 1.5 billion people around the world who lack access to electricity grids.” In short, and as two of us say in a shorter letter to the editor, LEDs alone clearly won’t solve global warming, nor will they solve global poverty. But they are a step in the right direction for both. Thank you, Isamu Akasaki, Hiroshi Amano, and Shuji Nakamura, and to the Nobel Committee for recognizing their work.
Published in full as part of a broader post on “Is There Room for Agreement on the Merits and Limits of Efficient Lighting” by Andrew Revkin on the DotEarth blog of The New York Times. For a shorter take, see our letter to the editor of The New York Times. For a longer take, see “The Rebound Effect and Energy Efficiency Policy.”
What if bees had value?
Episode 5 of Paul G. Allen and Morgan Spurlock’s We The Economy explores the hidden value of natural capital:
A Bee's Invoice from We The Economy, starring Adrian Grenier, Gernot Wagner, Jodi Beggs, and Robert F. Kennedy Jr.
What if bees had value?
A Bee's Invoice from We The Economy, starring Adrian Grenier, Gernot Wagner, Jodi Beggs, and Robert F. Kennedy Jr.
October 18, 2014
LEDs, Energy Efficiency and Consumption
To the Editor:
The quest for fire, and hence for light, is a defining characteristic of humankind. Far from being a problem, making light cheaper and more efficient is good news all around.
While the rebound effect has been known for over a century, we also know its limits. In the case of developed countries, there’s only so much lighting one can consume — you don’t add more lamps in the living room after replacing an inefficient bulb with an LED.
For billions of light-starved citizens in the developing world, lower costs will speed the journey from darkness — and that is a very good thing. What’s more, efficiency helps solve a core dilemma of climate protection: how developing countries can grow their economies without following the emissions-intensive path we did.
Energy inefficiency is never good. Focusing on the “backfire” is a mere distraction. LEDs alone won’t solve global warming or global poverty, but they are a step in the right direction for both.
Gernot Wagner
Kenneth Gillingham
Cambridge, Mass., Oct. 10, 2014
Mr. Wagner is lead senior economist at the Environmental Defense Fund, and Mr. Gillingham is an assistant professor of economics at Yale.
Published as Letter to the Editor in the New York Times on October 17th, 2014.
Also see: “The Rebound Effect and Energy Efficiency Policy.”
September 18, 2014
Bike if you can, fly if you must. By all means, go.
Looks like the simmering “climate swerve” may come to a boil on September 21 in New York City for what’s billed as the People's Climate March.
Bill McKibben called for it in the Rolling Stone magazine. Tens of thousands are slated to respond to his call, ostensibly to channel Franklin D. Roosevelt’s ghost and make world leaders "do it" - push for strong climate policies, now.
Except that it wouldn’t be the climate movement if it weren’t beset with self-doubt and second-guessing. Going to New York, you see, produces carbon dioxide emissions, the very cause of the problem. So how then can climate activists justify riding, driving or – heaven forbid – flying in the name of climate action?
We do because traveling to Manhattan, and expanding our carbon footprint in the process, may be better for the planet in the long-run than if we stayed home.
Real climate policy is what we need
Every cross-country roundtrip flight causes about a ton of carbon dioxide, per passenger. Driving emits carbon, if not quite as much. Trains do, too. Even if you bike or walk, you will need extra calories, which also come with additional carbon emissions.
A plethora of online calculators can help you decide how to minimize your own footprint. You could get positively crazy making these calculations, and some possibly have.
If you spend so much time online researching your carbon footprint that your power consumption shoots up, you may be on the wrong track. We should all be decreasing our carbon footprint. The emphasis is on “all.” Real climate action, then, must go far beyond individual action by the committed core.
The People’s Climate March will take place on the eve of the United Nations’ Climate Summit, convened by Secretary General Ban Ki-moon on September 23, and for good reason. It’s policy that needs to change.
Coal cannot be banned, but it can be priced
The headwinds are strong, to say the least. King Edward I banned the burning of coal in 1306, replete with the death penalty for repeat offenders. It didn’t take long for the ban to be lifted, and the coal-fueled industrial revolution has brought untold riches to many.
The coal question, in many ways, goes to the heart of the matter. Banning coal is out. It is neither possible nor necessarily desirable. What we need is to incorporate the full societal cost of burning that coal into everyone’s private decisions.
At the moment, each ton of coal and each barrel of oil used causes more in external damage to human health and the environment than it adds in value to the economy. That doesn’t mean we should not burn any coal or any oil, but it does mean putting a price on carbon, ideally directly via carbon markets or taxes.
It means regulation. It means standards. It means tax reform. It means taking significant policy steps to restructure misguided market forces so they lead us off of the current high-carbon, low-efficiency path.
Composting counts, but it’s not enough
Going green is fine. I don’t drive, don’t eat meat, and do all sorts of other things that minimize my own carbon footprint. The climate movement is home to quite a few who go the full-on vegan, composting, skip-coffee-because-it’s-bad-for-the-climate route.
But going green is only good if it actually gets somewhere.
If you compel your in-laws to compost more and drive less - go forth and proselytize. But if this makes them ignore efforts to achieve critical policy changes, your campaign for a voluntary green lifestyle should probably stop.
Many actions needed for a climate revolution are akin to a bootstrapping problem. Building a wind turbine takes steel, which in turn takes energy. The green energy revolution then may well mean an increase in current, largely fossil-fueled energy use for the sake of decreased carbon emissions later. The Climate March falls into the same category. Going to New York implies emissions, as do most other things we hold near and dear in our daily lives.
Participating in the march won’t change that fact overnight. But calling for real, measured climate action just might. Helping to build the momentum toward policy change is precisely what’s needed. If you can do it while also decreasing your own footprint, so much the better. If not, choose policy change.
Bike if you can, fly if you must. By all means, go to New York on September 21.
Traveling to the climate march: Worth the carbon footprint?
(This blog originally appeared on EDF Voices)
Lauren Frohne/Flickr
Looks like the simmering “climate swerve” may come to a boil on September 21 in New York City for what’s billed as the People's Climate March.
Bill McKibben called for it in the Rolling Stone magazine. Tens of thousands are slated to respond to his call, ostensibly to channel Franklin D. Roosevelt’s ghost and make world leaders "do it" – push for strong climate policies, now.
Except that it wouldn’t be the climate movement if it weren’t beset with self-doubt and second-guessing. Going to New York, you see, produces carbon dioxide emissions, the very cause of the problem. So how then can climate activists justify riding, driving or – heaven forbid – flying in the name of climate action?
We do because traveling to Manhattan, and expanding our carbon footprint in the process, may be better for the planet in the long-run than if we stayed home.
Real climate policy is what we need
Every cross-country roundtrip flight causes about a ton of carbon dioxide, per passenger. Driving emits carbon, if not quite as much. Trains do, too. Even if you bike or walk, you will need extra calories, which also come with additional carbon emissions.
A plethora of online calculators can help you decide how to minimize your own footprint. You could get positively crazy making these calculations, and some possibly have.
If you spend so much time online researching your carbon footprint that your power consumption shoots up, you may be on the wrong track.
We should all be decreasing our carbon footprint. The emphasis is on “all.” Real climate action, then, must go far beyond individual action by the committed core.
The People’s Climate March will take place on the eve of the United Nations’ Climate Summit, convened by Secretary General Ban Ki-moon on September 23, and for good reason. It’s policy that needs to change.
Coal cannot be banned, but it can be priced
The headwinds are strong, to say the least.
King Edward I banned the burning of coal in 1306, replete with the death penalty for repeat offenders. It didn’t take long for the ban to be lifted, and the coal-fueled industrial revolution has brought untold riches to many.
The coal question, in many ways, goes to the heart of the matter. Banning coal is out. It is neither possible nor necessarily desirable.
What we need is to incorporate the full societal cost of burning that coal into everyone’s private decisions.
At the moment, each ton of coal and each barrel of oil used causes more in external damage to human health and the environment than it adds in value to the economy. That doesn’t mean we should not burn any coal or any oil, but it does mean putting a price on carbon, ideally directly via carbon markets or taxes.
It means regulation. It means standards. It means tax reform. It means taking significant policy steps to restructure misguided market forces so they lead us off of the current high-carbon, low-efficiency path.
Composting counts, but it’s not enough
Going green is fine. I don’t drive, don’t eat meat, and do all sorts of other things that minimize my own carbon footprint. The climate movement is home to quite a few who go the full-on vegan, composting, skip-coffee-because-it’s-bad-for-the-climate route.
But going green is only good if it actually gets somewhere.
If you compel your in-laws to compost more and drive less – go forth and proselytize. But if this makes them ignore efforts to achieve critical policy changes, your campaign for a voluntary green lifestyle should probably stop.
Many actions needed for a climate revolution are akin to a bootstrapping problem. Building a wind turbine takes steel, which in turn takes energy. The green energy revolution then may well mean an increase in current, largely fossil-fueled energy use for the sake of decreased carbon emissions later.
The Climate March falls into the same category. Going to New York implies emissions, as do most other things we hold near and dear in our daily lives.
Participating in the march won’t change that fact overnight. But calling for real, measured climate action just might. Helping to build the momentum toward policy change is precisely what’s needed.
If you can do it while also decreasing your own footprint, so much the better. If not, choose policy change.
Bike if you can, fly if you must. By all means, go to New York on September 21.
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