Rebound Effect

It is often believed that being efficient in a market is the best way to keep our resources sustained and have a sustainable development in place. Increased efficiency leads to the manufacturing of products and the services to be provided at a cheaper price than it was before. This in turn increases the purchasing behavior and the use of such products.

For example, let’s take cars. When initially introduced, they were very expensive due to their high production cost and only the rich could afford such luxury. Now, that the prices of them has come down considerably, they can be found in almost every household starting from the upper middle class. As the car prices drop due to the increase in efficiency, the purchasers would prefer to buy a higher variant the next time they are in the market to buy a car. Their purchasing power increases with the increase in their real income. Also, if technology advancements lead to the cheaper production of gasoline and if the car also has an increase in it’s efficiency in terms of mileage, people would prefer using cars for shorter distances and also drive for longer distances.

This is known as the Rebound effect. Going by the definition itself, the rebound effect results in part from an increased consumption of energy services following an improvement in the technical efficiency of those delivering these services. Apart from this direct rebound effect, there are indirect impacts as well, like the savings generated due to the lower price of one product provides them to spend this money on other products as well.

The factors affecting Rebound Effect

The results of the statistical data projections based on rebound effect rely on the methods used and the effects factored into the it’s calculations. Some factors that are characterized to the economic growth or structural development are difficult to differentiate those from rebound effects. Hence, these calculations and projections vary widely.

The products in use are also an important factor. For example, when we were talking about cars, travelling time which is a limiting factor is subject to a weaker cost rebound effect than those factors which aren’t time dependent. Market saturation also plays a very important role as it is proven for rebound effect to be smaller in affluent countries than in developing countries, where demand is considerably higher.

Rebound Effect on Energy services

Rebound effect results in the part of an increased consumption in the energy services following an improvement in the technical efficiency of providing such services. This increase in consumption due to the increase in efficiency offsets the energy savings that maybe otherwise achieved.  There are various limitations to this particular model like the capital costs which form an important part of the total cost, and variation in prices of energy services can result in bias. Also, time efficiency isn’t taken into account. Time is a far more limiting factor than cost.

Coming to the environmental policy, efficiency optimization plays an important role in reducing the resource usage. Hence, renewable energy along with increase in product energy efficiency is a key objective of the German government’s Energiewende program, which involves transitioning from a non-sustainable to sustainable energy resources. If these policy makers fail to consider the rebound effect, the target resource usage may fall short of expectations and the objectives will not be met.

Hence, policies should consider these rebound effects. This can be done by setting the product energy efficiency high enough so that the target of reduction in energy resources is met despite the rebound effect.

 - Garvit Arora