Energy efficiency: rebounding to a sound analytical perspective

Recent controversy suggests that energy efficiency policies used to reduce carbon emissions might actually increase overall energy consumption. The result would be an unintended increase in carbon emissions. This paper examines the underlying issues of this so-called “rebound effect” from both a historical perspective and through the results of a recent macroeconomic analysis completed for the United States. Depending on the assumptions of income and price elasticities, as well as the supply/demand interactions within a macroeconomic model, the rebound effect might reduce overall savings by about 2–3% compared to a pure engineering analysis. In other words, an economy-wide, cost-effective engineering savings of 30% might turn out to be only a 29% savings from a macroeconomic perspective. Despite the impact of a rebound effect, the net result of energy efficiency policies can be a highly positive one.