Energy Efficiency Paradox

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Whenever I hear government officials tout the benefits of programs that increase energy efficiency (such as better insulation and LED lights), I am reminded of a conversation I had with a city official while I was an undergraduate. The official, a mechanical engineer, came to our class and explained what the city was doing to reduce energy consumption. He claimed that geothermal heat pumps, which provide heating and air conditioning by pumping water to the earth's surface, could reduce energy consumption by 20 percent, since these pumps use 20 percent less electricity than standard climate control units.

At the end of the presentation, I asked whether these pumps would actually reduce energy consumption by 20 percent. After all, I reasoned, if someone installed a heat pump on her home and shortly thereafter noticed a drop in her electricity bill, she might be inclined to use her air conditioning more frequently. The city official quickly dismissed the issue I raised, but I was convinced I was on to something.

I began investigating, and I soon discovered that the point I brought up already had a name: the rebound effect. Estimates of the rebound effect are typically in the range of 10 to 40 percent. This means that if geothermal pumps are 20 percent more efficient, the resulting reduction in energy from using them would be only 12 to 18 percent.

This doesn't imply, of course, that efficiency improvements aren't worth pursuing. On the contrary, smart traffic systems and energy efficient light bulbs seem to be some of the low hanging fruits in the quest to reduce carbon emissions. Nevertheless, it is important for policymakers to account for the rebound effect when making decisions. Otherwise, they will not attain their energy reduction goals.

Interestingly, Stanley Jevons, a famous 20th century economist (pictured above), had contemplated the possibility of a greater than 100 percent rebound. Such a rebound is known as the Jevons paradox, which states that actions that improve energy efficiency may actually increase the amount of energy used. Although it is unlikely that a 100 percent rebound will be observed on a micro level, some economists have hypothesized that it might be observed by taking into account macro level economic growth. This implies that energy efficiency gains cannot lead to resource conservation!