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“Why Energy Efficiency Does Not Decrease Energy Consumption:” Comment on Harry Saunders

One of the most curious facts about energy is that economies continue to use more of it even as they use it more efficiently. This strikes us as strange because it has become an article of faith that making cars, buildings, and factories more energy efficient is the key to cheaply and quickly reducing energy consumption, and thus pollution.

But energy experts have never seen this as particularly mysterious. As energy historian Vaclav Smil notes, “Historical evidence shows unequivocally that secular advances in energy efficiency have not led to any declines of aggregate energy consumption.” A group of economists beginning in the 1980s went further, suggesting that increasing the productivity of energy would increase economic growth and energy consumption.

Efficiency advocates dismiss the evidence of rebound of energy use pointing to direct behavioral changes at the household or business level that are easiest to measure. But the most significant energy rebounds are indirect — in the production of energy, raw materials, and consumer goods — not in the “end use” consumer products.

Below, a leading energy economist, Harry Saunders, explains why energy efficiency does not decrease energy consumption in the way we conventionally understand it. In the process, Saunders clarifies the controversy over his recent co-authored study for the Journal of Physics, which reviews 300 years of lighting history to predict the impact of new solid-state lighting technologies (e.g. LEDs).

Against the widespread belief that new lighting technology will reduce energy consumption, Saunders and his colleagues found that they will likely increase it — greatly expanding the global use of lighting in the process, especially in developing countries. Saunders clarifies some important questions, and explains the basics of “the rebound effect.”

With the new study, rebound has firmly moved from the theoretical to the empirical, and the implications of it must now be dealt with by all of us who were counting on efficiency to be an easy way to reduce greenhouse gas emissions.

Here is Saunders’s latest thinking:

Why Energy Efficiency Does not Decrease Energy Consumption

By Harry Saunders

I recently co-authored an article for the Journal of Physics (“Solid-state lighting: an energy-economics perspective” by Jeff Tsao, Harry Saunders, Randy Creighton, Mike Coltrin, Jerry Simmon, August 19, 2010) analyzing the increase in energy consumption that will likely result from new (and more efficient) solid-state lighting (SSL) technologies. The article triggered a round of commentaries and responses that have confused the debate over energy efficiency. What follows is my attempt to clarify the issue, and does not necessarily represent the views of my co-authors.

More Efficient Lighting Will Increase, Not Decrease, Energy Consumption

Our Journal of Physics article drew on 300 years of evidence to shows that, as lighting becomes more energy efficient, and thus cheaper, we use ever-more of it. The result, we note, is that “over the last three centuries, and even now, the world spends about 0.72% of its GDP on light. This was the case in the UK in 1700 (UK 1700), is the case in the undeveloped world not on grid electricity in modern times, and is the case for the developed world in modern times using the most advanced lighting technologies.”

The implications of this research are important for those who care about global warming. In recent years, more efficient light bulbs have been widely viewed as an important step to reducing energy consumption and thus greenhouse gas (GHG) emissions. Moreover, the Intergovernmental Panel on Climate Change (IPCC) of the United Nations and the International Energy Agency (IEA) have produced analyses that assume energy efficiency technologies will provide a substantial part of the remedy for climate change by reducing global energy consumption approximately 30 percent — a reduction nearly sufficient to offset projected economic growth-driven energy consumption increases.

Many have come to believe that new, highly-efficient, solid-state lighting — generally LED technology, like that used on the displays of stereo consoles, microwaves, and digital clocks — will result in reduced energy consumption. We find the opposite is true, concluding “that there is a massive potential for growth in the consumption of light if new lighting technologies are developed with higher luminous efficacies and lower cost of light.”

The good news is that increased light consumption has historically been tied to higher productivity and quality of life. The bad news is that energy efficient lighting should not be relied upon as means of reducing aggregate energy consumption, and therefore emissions. We thus write: “These conclusions suggest a subtle but important shift in how one views the baseline consequence of the increased energy efficiency associated with SSL. The consequence is not a simple ‘engineering’ decrease in energy consumption with consumption of light fixed, but rather an increase in human productivity and quality of life due to an increase in consumption of light.” This phenomenon has come to be known as the energy “rebound” effect.

The Empirical Evidence for Rebound

The findings of our SSL research inspired The Economist magazine to write a commentary about the study that was mostly correct but made a couple of errors, which we responded to in a letter. In our response, we clarified that energy prices would need to increase 12 percent, not three-fold, in order to reduce the consumption of electricity for lighting, which, to its credit, The Economist posted on its web site and published in its letters section.

Evans Mills of the Lawrence Berkeley National Laboratory wrote on the Climate Progress blog that The Economist had “inverted” our findings. However, The Economist did not “invert” our findings, it had simply overstated an implication of them.

Efficiency advocates sometimes dismiss rebound by only looking at “direct” energy consumption — that is, consumption by households and for private transportation. Examples of rebound in this part of the energy economy would be driving your Prius more because gasoline costs you very little, or turning up the thermostat in your efficient home. But these “direct-use” rebounds are small in comparison to “indirect-use” rebounds in energy consumption. Globally, some two-thirds of all energy is consumed indirectly– in the energy used to produce goods and services. A residential washing machine may be energy efficient in terms of function, but in terms of production, the metal body alone requires energy to mine, smelt, stamp, coat, assemble and transport it to a dealer showroom and eventually a residential home. The energy embedded in your washing machine, or just about any product or service you consume, is very large. And remember that any money you save on your energy bills through efficient appliances or the like is re-spent on other goods and services, which each take energy to produce, all while more productive use of our money (e.g. in spending, savings and production) spurs a more robust economy, demanding even more energy.

As our recent SSL research suggests, there is strong empirical evidence that even in the “direct” part of the economy, the rebound effect can sometimes be so substantial as to eliminate essentially all energy reduction gains. But in my new research (which relies on a detailed, theoretically rigorous econometric analysis of real data), the rebound effect found in the larger “indirect” part of the economy is even more significant — and more worrisome.

Varying degrees of rebound occur because the phenomenon works in several ways. Increasingly efficient technologies effectively lower the cost of energy, as well as the products and services in which it is embedded. This results in firms consuming more energy relative to other production inputs and producing more output profitably. Firms and individuals benefit from cheaper and more abundant products and services, causing them to find many more uses for these (and the energy they contain). A more efficient steel plant, for example, produces cheaper steel that, in turn, allows firms and individuals to afford to find more uses for the same material.

While some find the notion that increased energy efficiency increases energy consumption to be counter-intuitive, the economic theory is remarkably commonsensical. Mills claims that the idea that the rebound effect “has been postulated in theory but never shown empirically to be significant” is not the case. After many years, rebound theory has advanced to the point that it is now a reliable foundation for empirical study and the empirical evidence firmly suggests rebound exists. And remember that the “rebound effect” for other factors of production is expected, even welcomed; economists have long expected labor productivity improvements to drive even greater economic activity, for example, thus increasing demand for labor and creating new employment opportunities in the economy as a whole, even as efficient production may eliminate a handful of jobs at one factory.

The Implications of Rebound

There are significant potential implications of high levels of rebound. One is that greater energy efficiency may be a net positive in increasing economic productivity and growth but should not be relied upon as a way to reduce energy consumption and thus greenhouse gas emissions. Particularly in a world where many billions lack sufficient access to modern energy services, efficient technologies such as solid-state lighting may be central to uplifting human dignity and improving quality of life through much of the world. One might even argue that energy efficiency is still important from a climate perspective, because when efficiency leads to greater economic growth, societies will be better able and more willing to invest in more expensive but cleaner energy sources. But in this way energy efficiency is no different from other strategies for increasing economic growth. What should be reconsidered is the assumption that energy efficiency results in a direct, net decrease in aggregate energy consumption when there is a growing body of research suggesting the opposite.

Dr. Harry Saunders has a B.S. in Physics from the University of Alberta, an M.S. in Resources Planning from the University of Calgary, and a Ph.D. in Engineering-Economic Systems from Stanford University. Saunders coined the “Khazzoom-Brookes Postulate” in 1992 to describe macro-economic theories of energy rebound, and has published widely on energy economics, evolutionary biology, and legal theory. He can be reached at: hsaunders@decisionprocessesinc.com.

Michael Shellenberger is president of the Breakthrough Institute, which he cofounded (with Ted Nordhaus) in 2003. The Breakthrough Institute is described as

“a paradigm-shifting think tank committed to rejuvenating liberal thought for the 21st Century. Our core values are integrity, imagination and audacity. Our goal is to accelerate the transition to a world where all 6.5 to 9 billion of us can enjoy secure, free, prosperous, and fulfilling lives on an ecologically vibrant planet.”

20 comments

1 Fred { 10.01.10 at 1:44 am }

They’ve reinvented the work of the 19th century English economist Jevons?

http://www.theoildrum.com/node/6116

2 Peter Wilson { 10.01.10 at 3:59 am }

There has been empirical verification of this effect for some time now. In New Zealand in the early 1970′s the government, in response to the first fuel crisis, mandated that all new or renovated houses must have adequate insulation. By the early 1990′s, when I studied property economics, it had been well established that the result of this regulation had been no power saving at all, but much warmer, more comfortable houses.

At least on this occasion the law of unintended consequences gave us a positive result.

3 rbradley { 10.01.10 at 7:02 am }

Fred:

Yes, it gets back to William Stanley Jevons and the ‘Jevons Paradox’:

See “W. S. Jevons (1865) on Energy Efficiency (Memo to Obama, Part IV)” by Robert Bradley Jr. February 2, 2009, at
http://www.masterresource.org/2009/02/w-s-jevons-1865-on-energy-efficiency-memo-to-obama-part-iv/

4 rbradley { 10.01.10 at 7:33 am }

And just today:

ENERGY EFFICIENCY: U.S. homes haven’t improved in 30 years(10/01/2010)

Dishwashers, refrigerators and heating and cooling systems have gotten more efficient since the 1970s, but per capita, Americans still use the same amount of energy to power their homes today as they did 30 years ago.

It takes 70 million British thermal units a year to power American homes, the same as in 1971. That number contributes 22 percent of all the energy used in the country.

A large factor is that the size of American homes keeps increasing, experts say. Another is that even as Americans reduce the amount of energy use in dish washing by buying more efficient appliances, they tend to then drop the money they saved on things like 96-inch TVs that use up more kilowatts of energy.

According to the U.S. Department of Energy, homes also lose 5 to 10 percent of their energy from “vampire” sources, or electronics that continue to suck up energy even when they’re off.

While energy has flatlined, electricity usage in homes has risen from 23 percent of an average household’s energy in 1978 to 42 percent in 2005. Houses require more electricity than is actually used inside them because electricity tends to come from power plants located at long distances from residential areas. Current is lost in its transport.

The Obama administration has issued 20 tougher standards for energy efficiency, but environmentalists criticize the government for advocating more efficient products and better insulation for homes instead of urging Americans to stop using products that take up energy so much in the first place.

“Do we tell people that maybe you should consume a bit less? I think we need to do more of that,” said Steve Nadel of the American Council for an Energy-Efficient Economy (David Fahrenthold, Washington Post, Sept. 30). — AP

5 Steve C. { 10.01.10 at 10:19 am }

There are a lot of people who still haven’t figured out that we live and work in a system of systems. You can’t change one variable and hold all else static.

6 GM { 10.01.10 at 8:41 pm }

The spin doctors are on a rampage.

First, if this was a real scholarly article, it would have absolutely never gotten past any real peer review process, because it fails to acknowledge the minor fact that it isn’t saying anything that hasn’t been known for 150 years. But to do so, it would have used the term “Jevons paradox”, which has been used so often by ecological economists and other people concerned about the issues associated with the general limits to growth and resource depletion, that, apparently, they couldn’t do that. For I have absolutely no doubt that they are very well familiar with the concept as it is so widely known and talked about.

Second, the article achieves the remarkable feat of not saying a single wrong thing while completely failing to “get it” right (which is why I stressed the masterclass in spin that’s been given here). Yes, improved efficiency leads to increased energy use, we’ve known that for 150 years.

What does this tell us? It tells us a lot about human psychology and it tells us a lot about why if things are left to free markets, the only possible outcome is global societal and ecological collapse. The desire to always have and consume more and more stuff is deeply rooted within us, and if there is no conscious mechanism to prevent us from doing so, then we will just use more and more, with predictable consequences. Of course, you will never hear that from any neoclassical economist; they won’t even mention Jevons…

7 Breaking Wind – Quick hits from the industry for October 2, 2010 « Allegheny Treasures { 10.02.10 at 8:06 am }

[...] 5-At MasterResource -  “Why Energy Efficiency Does Not Decrease Energy Consumption:” Comment on Harry Saunders [...]

8 Patrick Barron { 10.03.10 at 7:15 am }

Austrian economics teaches that man expends his resources in order to attain his most urgently desired goal. There are many goals that require more energy use, but the fact of scarcity prohibits man from achieving these goals. But when energy efficiency reduces the cost, these goals can now be realized; thusly, man will use more energy. This is the micro analysis that is promoted by the Austrian school of economics.

9 T. Caine { 10.03.10 at 12:54 pm }

Well said Steve C. A lack of appreciation and focus on the interconnected nature of our lifestyle decisions and their repercussions makes things like this as unsurprising as it is unfortunate.

With that, I think the fundamental flaw is belief that sustainability is a technological fix to supplement a wasteful lifestyle. Sustainability (and efficiency is a component of that) is a lifestyle, comprised with choices that reflect priorities of achieving a more complete level of balance and stasis across the entire “system of systems.” Decreasing energy use requires lifestyle changes, not just a goody bag of toys that claim to allow us to live the same way with better results.

10 Jon Boone { 10.03.10 at 5:07 pm }

Hmmmm. Since energy can neither be created nor destroyed, and since humans have only begun to explore how to convert energy into power to create wealth and prosperity while improving the biodiversity of the planet, and since hydrocarbons lift people out of poverty, literally empowering them to better health, wealth, and productivity, why the sense of apocalypse? The trend over the last 1000 years has actually seen a reduction in per capital hydrocarbon usage–which will continue unless the smartest guys in the room continue to game the dumb and dumber.

Technological innovation promotes a positive feedback loop with prosperity. As we begin to harness planetary fuels to produce power more effectively, which over the next 200 years will not likely be with fossil fuels, we might then begin to explore the energy of stars. One day in the far distant future, the energy of entire galaxies may be grist for our machines.

The idea that we are running out of energy is horribly wrong. The politics yoked to this idea–energy rationing, changing lifestyles, enforced “balance and stasis” (as if [1] anyone knows what this is, [2] anyone knows how to achieve it) and [3] anyone should think such a thing is desirable in a universe where change is ubiquitous–will lead the world back to the Dark Ages. China and India aren’t going to put up with it, thank goodness. And neither should we.

Those concerned about overpopulation and mineral exploitation should examine even recent history, not casually invoke their ideology. Giving women an education and a major stake in the work force will do more than any energy edict to curb population, as it has over Europe (note especially Italy). And encouraging technological innovation to achieve more effective capacity vis a vis energy dense fuels in power dense machines will do much more to preserve environmentally sensitive land and water than will dimly informed rationing laws.

As H.L. Mencken one said, “The whole aim of practical politics is to keep the populace alarmed by menacing it with an endless series of hobgoblins, all of them imaginary.” He also said, on target, “The urge to save humanity is almost always only a false-face for the urge to rule it.”

11 Eric Anderson { 10.03.10 at 6:22 pm }

Increased aggregate use resulting from efficiency is a very important point in the debate about whether to mandate efficiency. To do so in an attempt to limit energy use appears to be futile. I’m not opposed to the silver lining, though — namely, ability to use that energy for an expanding array of activities. History clearly demonstrates that what the world needs for improved quality of life is access to more and cheaper energy. In that sense then, I’m all in favor of more energy efficiency. Whether efficiency should be mandated or left to the market is another question deserving of its own debate.

12 GM { 10.04.10 at 8:57 am }

Jon Boone { 10.03.10 at 5:07 pm }
Hmmmm. Since energy can neither be created nor destroyed, and since humans have only begun to explore how to convert energy into power to create wealth and prosperity while improving the biodiversity of the planet, and since hydrocarbons lift people out of poverty, literally empowering them to better health, wealth, and productivity, why the sense of apocalypse

Someone had said that sometimes it’s better to not say anything than to speak up and remove all doubts regarding how stupid/ignorant you are. That sentence is a perfect illustration. You reveal yourself as someone who is utterly incompetent about energy issues.

13 Jon Boone { 10.04.10 at 10:55 am }

For those who aren’t mired in reflexive apocalyptic ideology and infantile ad hominems, and who seek to understand our potential for converting energy into power, I suggest watching this C-Span interview with the physicist Michio Kaku:http://www.booktv.org/Watch/11896/In+Depth+Michio+Kaku.aspx. Or read his 1999 book, Visions.

14 T. Caine { 10.04.10 at 1:44 pm }

Hydrocarbons can do plenty of things and perhaps even do it cheaply, but the lack of a cheaper alternative does not justify a headline, unquestioning allegiance to the status quo.

I’d agree that someone only concerned with expansion and unlimited growth, despite its inherent impracticality, has no idea or interest in creating “balanced” systems given that there is no care to the repercussions of energy use after the point of consumption. But that doesn’t mean we don’t know what those systems are or how to achieve them.

Those interested in urban scale coordinated systems that have meaningful energy results should look at Kalundborg, Denmark. This is the home of an inter-agency, public/private reorganization that even includes (God forbid) hydrocarbon industrial businesses.

15 Jon Boone { 10.04.10 at 2:52 pm }

We’ll see what Kalundborg, a harbor town with about 16,000 people, looks like in 30 years. It appears much like Hershey, PA in the early days of the 20th Century, a company town with a few company stores. Good for the people of Kalundborg.

Local communities for a time can create what appears to be balanced allocations between their desire for motive power and their means of achieving it. Internalizing externalities is a great enterprise. The problem always seems to be leakage, whether in the form of information loss or the failure of resources to perform as expected. As someone who lived for a number of years in a planned “balanced” community–and watched it become overwhelmed by the unintended consequences of its own “success,” as someone who has studied how early Puritan experiments in planned community living and working dissolved within three generations, I’m not whelmed with token examples carved out to impress in places like Denmark, particularly since that tiny nation is so suffused in oil and coal, and, in Kalundborg, natural gas–although that is an investment in things that actually work).

As for expansion and unlimited growth…. I don’t think anyone is talking about lebensraum or infinite growth. Expansion should be civil and environmentally responsible; and growth is not necessarily physical: it is in fact often informational, educational, cultural. The Internet and the Ipad, for example, may save more rain forests than all the present day conservation efforts combined.

The reality is that the most energy efficient city in the nation is New York, and it happened naturally without a lot of “urban planning. Where urban planning was evident, with the likes of the work of Robert Moses, the place is still reeling. And, despite centuries of religious dogma eschewing birth control, the fact that Italy has one of the lowest birth rates in the world is a stunning tribute to the power of education and a modern workforce.

16 T. Caine { 10.04.10 at 3:53 pm }

Well we agree that there are technological advances that can further our connectivity, mobility, knowledge base and I think some of those can still improve our levels of sustainability. At the same time, I think that the internet and the iPad have had unquestionable changes in how we live as a culture. There are lifestyle results that accompany these technologies.

I also view Manhattan as one of the hallmarks of sustainable development, but while there are urban planning atrocities like Moses, I think there are plenty of positive planning gestures that have contributed to its success–like the grid itself, Central Park, Battery Park City.

Without question education is unquestionably the best chance of making meaningful progress. If nothing else it promotes informed decisions.

17 GM { 10.04.10 at 4:14 pm }

Jon Boone { 10.04.10 at 10:55 am }
For those who aren’t mired in reflexive apocalyptic ideology and infantile ad hominems, and who seek to understand our potential for converting energy into power, I suggest watching this C-Span interview with the physicist Michio Kaku:http://www.booktv.org/Watch/11896/In+Depth+Michio+Kaku.aspx. Or read his 1999 book, Visions.

I repeat what I said regarding the intellectual capacity of certain people. Vaporware can’t solve any problems, period.

As for expansion and unlimited growth…. I don’t think anyone is talking about lebensraum or infinite growth. Expansion should be civil and environmentally responsible; and growth is not necessarily physical: it is in fact often informational, educational, cultural. The Internet and the Ipad, for example, may save more rain forests than all the present day conservation efforts combined.

I say for the third time. Whoever thinks that “informational” growth does not directly result in physical growth is smoking something very strong…

18 Jon Boone { 10.04.10 at 5:34 pm }

Well said, Mr. Caine. My point about the Internet and the Ipad was more about how these could reduce the amount of paper and related material that now consume so much of the natural world. They also can lead to a coarsening of the culture and an arrested sense of civility. And, yes, Central Park is a wonderful example of what can be accomplished with imagination and insightful planning. As is our museums, concert halls, and the many high and low brow features of our culture–our national parks, our diverse architecture, and many of our schools and universities. Cheers!

19 Green-Washing Energy Efficiency | The PERColator { 03.24.11 at 10:09 am }

[...] That doesn’t stop politicians, however, from setting ever higher standards. Current CAFE regulations require average fleet auto efficiency of 35 miles per gallon by 2020. Other energy efficiency standards are also coming to light – literally. The move toward requiring the use of compact fluorescent (CFL) LED lighting over incandescent is likely to have a similar effect. Because CFL and LED lighting are cheaper, use will increase. [...]

20 The Power to Tax… | Mass Climate Action Network (MCAN) { 06.20.12 at 10:43 am }

[...] yes, energy efficiency.  Uh.  No.  Rebound effect and Jevons Paradox and all that, sorry old chum.  Whether you believe that reduced bills from [...]

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