Rebound effects erode half the energy savings from improved energy efficiency: Implications for the Net Zero transition

Rebound effects erode half the energy savings from improved energy efficiency: Implications for the Net Zero transition

Dr Paul Brockway, University of Leeds
Professor Steven Sorrell, University of Sussex
Dr Matthew Heun, Calvin University
Dr Gregor Semieniuk, University of Massachusetts Amherst
Dr Victor Court, IFP Energies Nouvelles, IFP School

Topic overview: Global energy scenarios [1] consistent with the goals of the Paris Agreement project either a slow growth in global final energy demand (0 to 1%/year) over the next half-century, or absolute reductions in energy demand (0 to -1%/year). These projections reflect anticipated improvements in energy efficiency throughout the global economy, but which represent a radical departure from historical trends. For example, global final energy demand grew at around 2.0%/year since 1970 [2], with no evidence of any slowdown. While a handful of countries have managed to grow their economy while reducing energy demand, they have only achieved this over short time periods, and partly through offshoring heavy industry. This close coupling between energy consumption and GDP requires explanation, and the expectations of an immediate and radical break from this coupling require strong justification. This paper explores one possible explanation for the historical coupling: the presence of large, economy-wide rebound effects from improved energy efficiency. We review the evidence on economy-wide rebound effects and explore whether and how the models used to produce global energy scenarios incorporate these effects.

Relevance to conference: This paper is relevant to the Demand and Macro-economy themes of the conference and to the broader goal of delivering net zero emissions.

Methodology: The review has four components. First, we compare the historical trends in global final energy demand and energy intensity with those projected within a selection of global energy scenarios from the IPCC and other organisations. Second, we clarify the different definitions of energy efficiency and the different mechanisms contributing to economy-wide rebound effects. Third, we review 33 empirically-based (mainly computable general equilibrium (CGE)) studies which assess economy-wide rebound effects – identifying their specification of energy efficiency improvements, the range of results and the mechanisms contributing to those results. Fourth, we explore how the Integrated Assessment Models (IAMs) used by the IPCC and the global energy models used by other organisations simulate energy efficiency improvements, and whether and how they capture the different mechanisms contributing to rebound effects. Finally, we integrate the findings and highlight their implications.

Results: Our review demonstrates the methodological diversity of the economy-wide rebound literature, the variety of approaches to simulating improved energy efficiency, the differences in the mechanisms captured and the sensitivity of the results to key assumptions. However, the most important finding is that the empirical studies consistently estimate large economy-wide rebound effects, with over half the surveyed studies providing baseline estimates of ~50% or more and several estimating ~100% rebound or even higher. This evidence suggests that economy-wide rebound effects typically erode around half of the energy savings from cost-effective energy efficiency improvements. Our review of global energy models suggests they fail to capture many of the mechanisms contributing to these effects – largely because their economic models are highly simplified – though rising energy prices in these scenarios may mitigate those effects.

Conclusions: We find that: first, economy-wide rebound effects erode around half the potential energy savings from improved energy efficiency; second, the models used by the IPCC and others may take insufficient account of these rebound effects; and third, the resulting scenarios may therefore underestimate the future rate of growth of global energy demand, making Net Zero even harder to reach.

Key words: Energy efficiency; energy rebound; energy-GDP decoupling; energy policy; Net Zero

References

Masson-Delmotte V, Zhai P, Pörtner HO, et al. IPCC, 2018: Summary for Policymakers. In: Global warming of 1.5°C. An IPCC Special Report. Available at: https://www.ipcc.ch/site/assets/uploads/sites/2/2019/06/SR15_Full_Report_Low_Res.pdf

Csereklyei, Z., Rubio-Varas, M. d. M., & Stern, D. I. (2016). Energy and Economic Growth: The Stylized Facts. Energy Journal, 37(2), 223–255. http://doi.org/10.5547/01956574.37.2.zcse