# The Azimuth Project Rebound effect

The rebound effect is the tendency for consumption of a resource to decrease less than one might naively expect due to increases in efficiency of the use of this resource.

The reason is that increasing the efficiency with which a resource is used decreases its price when measured in terms of the good it produces. This will usually increase the demand for that good.

An extreme case of the rebound effect is the Jevons paradox. This occurs when increasing the efficiency with which a resource is used actually increases the consumption of that resource.

The rebound effect is usually not so extreme as to lead to the Jevons paradox. We can make this quantitative as follows. Classical economics posits a quantity called the price elasticity of demand, $E_d$. This is the percentage change in demand for a good divided by the percentage change its price (in the limit of a very small change in price):

$E_d = \frac{\Delta Q_d / Q_d}{\Delta P/P}$

where $Q_d$ is the quantity demanded and $P$ is the price. The rebound effect occurs whenever $E_d$ is negative. The Jevons paradox occurs only when $E_d \lt -1$.

Abstract: We estimate the rebound effect for motor vehicles, by which improved fuel efficiency causes additional travel, using a pooled cross section of US states for 1966-2001. Our model accounts for endogenous changes in fuel efficiency, distinguishes between autocorrelation and lagged effects, includes a measure of the stringency of fuel-economy standards, and allows the rebound effect to vary with income, urbanization, and the fuel cost of driving. At sample averages of variables, our simultaneous-equations estimates of the short- and long-run rebound effect are 4.5% and 22.2%. But rising real income caused it to diminish substantially over the period, aided by falling fuel prices. With variables at 1997-2001 levels, our estimates are only 2.2% and 10.7%, considerably smaller than values typically assumed for policy analysis. With income at the 1997 – 2001 level and fuel prices at the sample average, the estimates are 3.1% and 15.3%, respectively.

• S. Sorrell, J. Dimitriopolous and M. Sommerville, Empirical estimates of direct rebound effects: a review, Energy Policy 39 (2009), 1356–1371.

Abstract: Improvements in energy efficiency make energy services cheaper, and therefore encourage increased consumption of those services. This so-called direct rebound effect offsets the energy savings that may otherwise be achieved. This paper provides an overview of the theoretical and methodological issues relevant to estimating the direct rebound effect and summarises the empirical estimates that are currently available. The paper focuses entirely on household energy services, since this is where most of the evidence lies and points to a number of potential sources of bias that may lead the effect to be overestimated. For household energy services in the OECD, the paper concludes that the direct rebound effect should generally be less than 30%.

category: methodology