Tag: rebound

Missing the point about efficiency rebounds … again

Breakthrough’s Nordhaus and Shellenberger (N&S) spot a bit of open-loop thinking about LED lighting:

ON Tuesday, the Royal Swedish Academy of Sciences awarded the 2014 Nobel Prize in Physics to three researchers whose work contributed to the development of a radically more efficient form of lighting known as light-emitting diodes, or LEDs.

In announcing the award, the academy said, “Replacing light bulbs and fluorescent tubes with LEDs will lead to a drastic reduction of electricity requirements for lighting.” The president of the Institute of Physics noted: “With 20 percent of the world’s electricity used for lighting, it’s been calculated that optimal use of LED lighting could reduce this to 4 percent.”

The problem of course is that lighting energy use would fall 20% to 4% only if there’s no feedback, so that LEDs replace incandescents 1 for 1 (and of course the multiplier can’t be that big, because CFLs and other efficient technologies already supply a lot of light).

N&S go on to argue:

But it would be a mistake to assume that LEDs will significantly reduce overall energy consumption.

Why? Because rebound effects will eat up the efficiency gains:

“The growing evidence that low-cost efficiency often leads to faster energy growth was recently considered by both the Intergovernmental Panel on Climate Change and the International Energy Agency.”

“The I.E.A. and I.P.C.C. estimate that the rebound could be over 50 percent globally.”

Notice the sleight-of-hand: the first statement implies a rebound effect greater than 100%, while the evidence they’re citing describes a rebound of 50%, i.e. 50% of the efficiency gain is preserved, which seems pretty significant.

Presumably the real evidence they have in mind is http://iopscience.iop.org/0022-3727/43/35/354001 – authors Tsao & Saunders are Breakthrough associates. Saunders describes a 100% rebound for lighting here http://thebreakthrough.org/index.php/programs/energy-and-climate/understanding-energy-efficiency-rebound-interview-with-harry-saunders

Now the big non sequitur:

But LED and other ultraefficient lighting technologies are unlikely to reduce global energy consumption or reduce carbon emissions. If we are to make a serious dent in carbon emissions, there is no escaping the need to shift to cleaner sources of energy.

Let’s assume the premise is true – that the lighting rebound effect is 100% or more. That implies that lighting use is highly price elastic, which in turn means that an emissions price like a carbon tax will have a strong influence on lighting energy. Therefore pricing can play a major role in reducing emissions. It’s probably still true that a shift to clean energy is unavoidable, but it’s not an exclusive remedy, and a stronger rebound effect actually weakens the argument for clean sources.

Their own colleagues point this out:

In fact, our paper shows that, for the two 2030 scenarios (with and without solid-state lighting), a mere 12% increase in real electricity prices would result in a net decline in electricity-for-lighting consumption.

What should the real takeaway be?

  • Subsidizing lighting efficiency is ineffective, and possibly even counterproductive.
  • Subsidizing clean energy lowers the cost of delivering lighting and other services, and therefore will also be offset by rebound effects.
  • Emissions pricing is a win-win, because it encourages efficiency, counteracts rebound effects and promotes substitution of clean sources.

On the rebound

Grist covers a detailed report on the rebound effect, which recently appeared at ElectricityPolicy.com (pdf from NRDC). The report discusses a wide range of rebound arguments, basically concluding that rebounds are not a big deal.

Some of the reasons derive from the microeconomic effects of efficiency improvements. For example, improving the efficiency of light bulbs makes light services cheaper. But user’s don’t immediately increase lighting in proportion to the cost reduction, because their demand for lighting is saturated: there are only so many fixtures in a house, hours in the day requiring light, etc. Similarly, the elasticity of dirty dish production with respect to the energy cost of running a dishwasher is pretty darn low. This is reminiscent of the dynamics of process improvement at Analog Devices, where TQM improved productivity, but the company had a hard time translating that to expansion of its market niche in the short term.

I think the report underweights the long term effects of efficiency though. Efficiency increases contribute to aggregate productivity growth in the economy (more than you’d expect, if you believe that agency problems and other market failures create a bias toward overuse of energy). With wealth comes an expansion of energy use, hence the boom in such energy hogs as undercounter freezers and wine chillers, countering Energy Star improvement in refrigeration. However, this is not really an efficiency problem; it’s a progress problem, and it brings welfare benefits along with the added energy (at least until you get to the absurd margin).

The report cites an Energy Policy survey of empirical estimates:

Improvements in energy efficiency make energy services cheaper, and therefore encourage increased consumption of those services. This so-called direct rebound effect offsets the energy savings that may otherwise be achieved. This paper provides an overview of the theoretical and methodological issues relevant to estimating the direct rebound effect and summarises the empirical estimates that are currently available. The paper focuses entirely on household energy services, since this is where most of the evidence lies and points to a number of potential sources of bias that may lead the effect to be overestimated. For household energy services in the OECD, the paper concludes that the direct rebound effect should generally be less than 30%. doi:10.1016/j.enpol.2008.11.026

Sadly, a press release for related studies from the same research group spins this as a catastrophe:

‘Rebound Effects’ Threaten Success of UK Climate Policy

This is really only a catastrophe for a politician foolish enough to try to set and hit a hard emissions target, with efficiency mandates as the only measure for achieving it. As soon as you have any course correction (i.e. negative feedback) built into your policies, like an adaptive carbon tax or cap & trade system (the latter being the less stable option), the catastrophe goes away. The real catastrophe is failing to price GHG emissions and other externalities due to misperceptions about efficiency.

The real bottom line for rebound effects should be, “who cares?” If rebound effects are large, efficiency programs have small energy effects, but potentially large welfare improvements (if you accept that there are energy market failures tending towards overconsumption), and emissions pricing has large energy effects, because high rebound implies high price elasticity. If rebound effects are small, efficiency programs work and emissions pricing is a good way to collect taxes. Neither condition is a reason to avoid efficiency or emissions pricing, though emissions pricing is the preferable way to proceed.

The rebound delusion

Lately it’s become fashionable to claim that energy efficiency is useless, because the rebound effect will always eat it up. This is actually hogwash, especially in the short term. James Barrett has a nice critique of the super-rebound position at RCE. Some excerpts:

To be clear, the rebound effect is real. The theory behind it is sound: Lower the cost of anything and people will use more of it, including the cost of running energy consuming equipment. But as with many economic ideas that are sound theory (like the idea that you can raise government revenues by cutting tax rates), the trick is in knowing how far to take them in reality. (Cutting tax rates from 100% to 50% would certainly raise revenues. Cutting them from 50% to 0% would just as surely lower them.)

The problem with knowing how far to take things like this is that unlike real scientists who can run experiments in a controlled laboratory environment, economists usually have to rely on what we can observe in the real world. Unfortunately, the real world is complicated and trying to disentangle everything that’s going on is very difficult.

Owen cleverly avoids this problem by not trying to disentangle anything.

One supposed example of the Jevons paradox that he points to in the article is air conditioning. Citing a conversation with Stan Cox, author of Losing Our Cool, Owen notes that between 1993 and 2005, air conditioners in the U.S. increased in efficiency by 28%, but by 2005, homes with air conditioning increased their consumption of energy for their air conditioners by 37%.

…

Accounting only for the increased income over the timeframe and fixing Owen’s mistake of assuming that every air conditioner in service is new, a few rough calculations point to an increase in energy use for air conditioning of about 30% from 1993 to 2005, despite the gains in efficiency. Taking into account the larger size of new homes and the shift from room to central air units could easily account for the rest.

All of the increase in energy consumption for air conditioning is easily explained by factors completely unrelated to increases in energy efficiency. All of these things would have happened anyway. Without the increases in efficiency, energy consumption would have been much higher.

…

It’s easy to be sucked in by stories like the ones Owen tells. The rebound effect is real and it makes sense. Owen’s anecdotes reinforce that common sense. But it’s not enough to observe that energy use has gone up despite efficiency gains and conclude that the rebound effect makes efficiency efforts a waste of time, as Owen implies. As our per capita income increases, we’ll end up buying more of lots of things, maybe even energy. The question is how much higher would it have been otherwise.

Why is the rebound effect suddenly popular? Because an overwhelming rebound effect is needed to make sense of proposals to give up on near-term emissions prices and invest in technology, praying for a clean-energy-supply miracle in a few decades.

As Barrett points out, the notion that energy efficiency increases energy use is an exaggeration of the rebound effect. For efficiency to increase use, energy consumption has to be elastic (e<-1). I don’t remember ever seeing an economic study that came to that conclusion. In a production function, such values aren’t physically plausible, because they imply zero energy consumption at a finite energy price.

Therefore, the notion that pursuing energy efficiency makes the climate situation worse is a fabrication. Doubly so, because of an accounting sleight-of-hand. Consider two extremes:

  1. no rebound effects (elasticity ~ 0): efficiency policies work, because they reduce energy use and its associated negative social externalities.
  2. big rebound effects (elasticity < -1): efficiency policies increase energy use, but they do so because there’s a huge private benefit from the increase in mobility or illumination or whatever private purpose the energy is put to.

The super-rebound crowd pooh-poohs #1 and conveniently ignores the welfare outcome of #2, accounting only for the negative side effects.

If rebound effects are modest, as they surely are, it makes much more sense to guide R&D and deployment for both energy supply and demand with a current price signal on emissions. That way, firms make distributed decisions about where to invest, rather than the government picking winners, and appropriate tradeoffs between conservation and clean supply are possible. The price signal can be adapted to meet environmental constraints in the face of rising income. Progress starts now, rather than after decades of waiting for the discover->apply->deploy->embody pipeline.

If the public isn’t ready for it, that doesn’t mean analysts should bargain against their own good sense by recommending things that might be popular, but are unlikely to work. That’s like a doctor advising a smoker to give to cancer research, without mentioning that he really ought to quit.

Update: there’s an excellent followup at RCE.

Battle of the Bulb

The NYT covers the resistance movement against incandescent light bulb bans. I think most of the resistance’s arguments are flimsy. Good-quality CFLs have better color reproduction and much longer lifetimes than incandescents. Start up times are now pretty fast, flicker is not a problem, and cold weather operation is fine outdoors, even here in Montana. Bad-quality bulbs are more problematic, but you get what you pay for; if you pay for quality, you still come out ahead with CFLs.

Still, I sympathize with the resistance, because an outright ban makes little sense. CFLs don’t work in some applications, and don’t even save energy or money when used in locations that are infrequently on. They also make lousy chicken incubators. Instead, we should ban inefficient lighting economically, by pricing GHGs, local air quality, light pollution, energy security, and whatever else motivates us to seek efficient lighting in the first place. Then incandescents can stick around for things that make sense, and disappear for things that don’t. The resistance won’t have to hoard bulbs, because they can run their little tungsten filaments as long as they feel like paying for the privelege. While we’re at it, we should price mercury, so the indoor and outdoor pollution effects of CFL disposal and coal combustion are properly traded off.

Command and control is so 20th century.