Dive Brief:

• Global climate models are significantly overestimating the savings from energy efficiency measures, meaning future energy demand projections have been understated and the emissions reduction targets set out in the Paris climate accord could be harder to achieve, according to a new paper by an international team of researchers
• Economy-wide rebound effects such as consumers driving more miles when the price of gas drops, "may erode more than half of the expected energy savings from improved energy efficiency," the analysis concludes in the May 2021 issue of Renewable and Sustainable Energy Reviews.
• The analysis, led by researchers from the University of Leeds and the University of Sussex in the United Kingdom, is critical of modeling done by the International Energy Agency (IEA) and other groups. IEA defended its work in a statement, saying rebound effects "are an essential part of our analysis."

Dive Insight:

Rebound effects are a factor in energy efficiency, but there is disagreement among experts about just how much of an impact they have. The new research concludes more than 50% of energy savings could be consumed elsewhere, as energy prices fall or consumers use less energy and have more money to spend on other goods that in turn also require the consumption of energy.

"Rebound effects are notoriously difficult to estimate, but our understanding has improved enormously over the last decade," Steve Sorrell, professor of energy policy at the University of Sussex Business School, said in a statement. "Unfortunately, the models we rely upon to produce global energy and climate scenarios do not adequately capture these effects. This needs to change."

According to the analysis, "at least half of the potential energy savings from improved energy efficiency may be 'taken back' by various economic and [behavioral] responses." And "many of the mechanisms driving rebound effects are overlooked by integrated assessment and global energy models."

The paper concludes that global energy scenarios by IEA and other groups "may underestimate the future rate of growth of global energy demand."

The paper was authored by researchers from Leeds, Sussex, the University of Massachusetts Amherst, Calvin University, IFP Energies Nouvelles (the French Institute of Petroleum) and the Institut Louis Bachelier. The analysis is based on a review of 33 studies of energy efficiency impacts and rebounds in a variety of countries.

"If global energy use is higher than we expect, we may need to place more reliance on low-carbon energy supply and negative emission technologies to meet our climate goals," Paul Brockway, university academic fellow in the School of Earth and Environment at the University of Leeds, said in a statement.

IEA, which works with governments and industry on energy forecasting, says its work already includes these rebound effects — and that they aren't necessarily bad.

"Rebound effects are an essential part of our analysis, where we use comprehensive, bottom-up models to estimate efficiency gains, and then consider how this and other price impacts alter economic activity," IEA said in an emailed statement. The agency clarified that this was "not a direct response to the paper."

"We strive to continually enhance our estimates of rebound, and monitor the latest research, such as that conducted by Professors Sorrell and Brockway, to incorporate into our [modeling]," IEA said. "We try to balance this with empirical data on rebound effects in the real-world, which are often substantially lower than macroeconomic models may indicate."

"It is also important to note, that not all of this rebound is negative," IEA added.

In developing economies, efficiency lowers the effective cost of energy services, the agency said, and boosts spending on critical end-uses that improve the quality of life, like lighting for schools and homes and clean burning fuels for cooking.

But can rebound effects consume 50% of energy savings? Some experts are skeptical.

"They're looking primarily at studies based on economic models that assume rational consumers and perfect markets, but those are pretty big assumptions," said Steven Nadel, executive director of the American Council for an Energy-Efficient Economy. 

Nadel said the empirical research on rebound effects, including economy-wide effects, has shown that they're real, "but generally modest."

"It's fair to consider how a fraction of the economic dividend from massive global energy efficiency improvements could be spent on increased purchases of goods and services, adding to energy use," said Nadel. "But I'm skeptical that this will turn out to be nearly as big a problem as suggested."

IEA said that effective policies will play a "critical role" in minimizing rebound effects. Carbon pricing, eliminating fossil fuel subsidies and continuing to advance efficiency standards "all contribute to [minimizing] rebound."