Conservation and Efficiency - Energy Policy Analysis: A Conceptual Framework - page 177

rebound effect is hypothesized as drivers use the money they save on gasoline to buy other things
that produce greenhouse emissions, like new electronic gadgets or vacation trips on fuel-burning
airplanes (Tierney 2011, D1). Efficiency improvements in industry might lead to indirect rebound
effects: cheaper steel manufactured with more efficient energy use might increase the amount of
steel produced and, therefore, the number of construction projects in which it could be used. Across
society, cheaper electricity bills overall might mean consumers have more money to spend on
other activities, such as holidays or entertainment, again potentially raising their overall carbon
footprint (Jha 2009).
There are difficulties with the rebound effect hypothesis. It assumes that savings from increased
energy efficiency will be spent on energy-using activities or products, but this is not proven. The
assumed causal linkage is tenuous, at best. Savings might as easily be invested (not spent), used
to pay off existing debt, or perhaps spent on things that use less or no energy. Thus, the rebound
effect assumes a causal relationship where there may be none.
Moreover, it is not energy efficiency that stimulates increased energy use, but latent demand
for products or activities. That demand would exist (or not) regardless of improvements in energy
efficiency. That is, people do not drive more because of increased fuel efficiency. People drive
mostly (with the possible exception of teenagers with new licenses) because they have some
place they need to go. Contrary to the rebound effect hypothesis, vehicle miles traveled began to
plateau in 2004 and dropped between 2007 and 2010 for the first time since 1980 (Puentes and
Tomer 2008), during the same period that fuel efficiency measured in miles per gallon increased
(Young 2010). Vehicle miles traveled appear to be more responsive to volatility in gas prices and
national economic performance (recession) than to increases in vehicle energy efficiency. The
most valuable contribution made by the literature on the rebound effect may be verification that
energy efficiency policies lead to economic growth and consequently to an increase in employ-
ment (Barker and Dagoumas 2009).
Dollar Costs of Conservation and Efficiency
In most cases, energy efficiency measures will pay for themselves over time in the form of lower
energy bills. Most energy efficiency measures are cheaper, and therefore pay for themselves faster,
than most kinds of energy generation (Lawrence Berkeley National Laboratory 2011). With en-
ergy efficiency improvements, electricity use in U.S. buildings can be reduced by approximately
one-third at a cost of 2.7 cents per kWh in 2007 dollars, resulting in national annual energy-bill
savings in 2030 of nearly $170 billion. To achieve these savings, the cumulative capital invest-
ment needed between 2010 and 2030 is about $440 billion, which translates to a 2.5 year simple
payback period. Savings over the life of these energy efficiency measures would be nearly 3.5 times
larger than the investment required, providing a benefit-cost ratio of 3.5 (Brown et al. 2008). This
makes the cost of energy conservation extremely competitive with conventional fuels capable of
providing the same services. Federal subsidies and tax expenditures for energy conservation and
efficiency improvements were estimated at almost $6.6 billion for FY2010 (USEIA 2011c, xiii),
up substantially from about $369 million in FY2007 (USEIA 2011c, xviii)
Moreover, use of energy conservation and efficiency improvements slows the rate of growth in
electricity demand, resulting in less new construction of electric power plants than would otherwise
occur and allowing capital saved to be expended on other economic activities. Lower demand for
capital may result in lower interest rates charged on money borrowed to do other things. Energy
conservation and efficiency improvements may also produce savings in disaster relief expenditures
to deal with natural disasters exacerbated by climate change (hurricanes, drought) and reduce