According to Tilman Santarius, one essential concept is missing in all the scenarios that lead toward a green economy. It is, so he wrote, that expectations for reduced energy consumption from efficiency gains need to be lowered by 50 percent because not all the energy that could be will actually be saved. How come? The story is called rebound effect and Santarius has researched it profoundly, as his paper “Green Growth Unravelled – How rebound effects baffle sustainability targets when the economy keeps growing” shows. The English version was published in October by the Heinrich Böll Foundation and the Wuppertal Institute for Climate, Environment and Energy.
Moral Hazard and Other Psychological Rebound Effects
When a new energy-efficient version of a technology hits the markets, companies and consumers change the way in which they use it. Because they know an item consumes less, they feel justified in using it more frequently, which in turn increases energy consumption and thus negates the efficiency gains. Of all the different rebound effects that can occur, this phenomenon is the most well-known. Experts like Santarius have called it the moral hazard effect. He described a Japanese study which found that hybrid car buyers drove 1.6 times more distance after the purchase of their new cars in comparison to their old, less efficient cars. In the worst case, when increased use leads to an increase in total energy consumed (rebound effect greater than 100 percent), the result is called backfire.
The moral hazard effect, however, is not the only type of rebound effect. From a holistic standpoint, and with regard to the entire economy, various phenomena diminish the actual energy savings from more efficient technologies. Santarius found 13 different types of rebound effect. If we stick to the psychological category (which includes the moral hazard effect), two other types can occur. First, the moral leaking effect, which makes technology users less environmentally conscious in their behavior. The difference between it and the moral hazard effect is that they’re still aware of the fact that the use is environmentally harmful, but they just don’t care as much. Second, the moral licensing effect, in which consumers feel entitled to pollute elsewhere after “having done a good deed” by obtaining the green product.
Income, Reinvestment, Market Price – Three Financial Rebound Effects
So far, so good. Very probably, all of us have experienced at least one of the above-mentioned effects in our every day life – the psychological rebound effect story is pretty obvious. On the other hand, the three financial rebound effects dive deeper into the seas of the economy. First, there is the income effect, which says saving energy saves money and that money is either spent on an increased use of the same product or on an alternative product that also consumes energy and resources. Second, the reinvestment effect states that when companies save energy through better process management or more efficient machinery, this money is of course reinvested. Because the new investments are not necessarily predicated on saving energy, they can generate a rebound (see page 10 of the PDF):
Businesses may spend the increased profits either on expanding production of the same item (direct rebound as expansion) or on investment in new products and services (indirect rebound as diversification of the product range). The business may also raise the wages of its workers, which can in turn produce the income effect described above. Frequently, too, anticipated cost savings on the consumer side result in money being spent on redesigning the traditional product, perhaps to make it more attractive. For example, increases in the efficiency of engine technology have seldom been used to put more energy-efficient cars on the market; instead more powerful, faster and heavier cars are produced that use the same amount of petrol per kilometre driven.
The third financial rebound effect Santarius identified is called market price effect. It basically points out that when energy prices fall due to reduced demand in one sector, other sectors increase their demand (and their consumption) simply because it got cheaper. To illustrate this point, he imagines reduced fuel prices as a result of more efficient cars on the one hand and, on the other, municipalities then investing in petrol-powered leaf blowers instead of conventional brooms – the fuel consumption of which would lower the overall energy savings from more efficient cars.
Eco-taxes? Caps? What can we do against rebound effects?
Before we explore the last two categories, let me mention the most interesting question that arises from the paper – now that we have a certain understanding of them, what can we do against rebound effects?
As a general recommendation […], command-and-control measures such as efficiency standards should be combined with market-based instruments (taxes, emission trading) so that rebound effects are partially contained.
Sanatarius wrote that eco-taxes, “from the point of view of environmental policy […] always make sense.” As I said in my related article, and as mentioned by Santarius, Ernst-Ulrich von Weizsäcker proposed an eco-tax in his book, “Factor 5”, that is directly linked to efficiency gains. These taxes can, however, only “[contain] certain rebound effects to some extent.” According to Santarius, the only way to fight rebound effects effectively is to use absolute upper limits on resource consumption (caps). The tighter the cap, the better, and only global caps can effectively prevent the relocation of rebounds. Even though they encounter feasibility problems and are far from being on the current political agenda, “of all environmental policy instruments, absolute caps are the most suitable for impeding rebound effects.” In Germany, some public institutions already dare to call for caps, as Santarius stated on page 19:
For example, the introduction of an absolute electricity consumption target for Germany, as the German Advisory Council on the Environment [Sachverständigenrat für Umweltfragen] has proposed, would be a major step forward and would also help to mitigate rebound effects.
Embodied Energy, New Markets, Consumption Accumulation – Three Material Rebound Effects
Apart from the psychological and the financial rebound effects mentioned earlier, there are two more categories. One is the material category that can further be broken down into three different rebound effects. The embodied energy effect refers to the fact that energy-efficient products initially often require more energy or material to be produced. As an example, we could take the good old light bulb. It takes far less material to produce it than its successor, the energy-saving compact fluorescent bulb, even though the latter consumes 5 times less energy for the same light once in operation. Santarius referred to the construction industry when he applied the embodied energy effect to buildings (see p. 12):
Various studies put energy payback times for building insulation products at between one and 15 years, depending on the specific insulation measure, the type of building and the climate zone. If it is assumed that buildings have a life of around 100 years, this corresponds to a material rebound effect of 1-15%.
Because electric cars are such a big hope for many, a soon-to-be essential factor for a green lifestyle, let me cite an entire paragraph of the paper to explain the new markets effect. In an attempt to bring some rational thinking into the raging enthusiasm, knowtheflow touched upon electric car life cycle assessment in November 2011 (see Exploring the Environmental Effects of Electric Cars). Santarius goes even further:
[D]epending on how the electricity needed by electric cars is generated, the large-scale introduction of electric cars may indeed lead to efficiency gains per kilometre driven. But to understand the implications of the rebound effect for society at large it is important to consider not only the life cycle analysis of the production, use and disposal of electric cars but also the construction of the new material infrastructure made necessary by the use of electric cars – from the industries involved in producing new engines and batteries to the charging or ‘quickdrop’ stations where drivers can swap flat batteries for newly charged ones. Even the salaries that the battery engineers or the operators of the new charging stations use to pay for their own energy needs can produce rebound effects – for example, if their income is now higher than it used to be or if more people are now in work overall. In sum, the new markets effect encompasses all the material rebound effects that are not included in the life cycle analysis of individual products.
The last material effect is pretty straight-forward. It is called consumption accumulation and simply describes the case when new and efficient products or processes do not replace, but rather add to the inefficient old ones.
Three Cross-Factor Effects
The forth and most genius category comprises cross-factor rebound effects. Both the increases in labor and capital productivity generate rebound effects resulting in increasing energy demand. How? Check the material cross-factor effect explanation on page 13 of the Santarius PDF:
Whenever human labour is replaced by mechanisation and motorisation, a material cross-factor rebound effect occurs. Whether the electrical food processor amplifies the muscle power of the chef or the transport- and IT-intensive just-in-time delivery boosts the productivity of logisticians, increased demand for energy often causes or results from increased productivity of labour. For decades, increases in the productivity of labour have been achieved at the price of a (relative) fall in the productivity of energy.
But that’s not the whole story. If you consider that greater labor productivity relatively decreases energy efficiency, and that increases in energy efficiency, in turn, often cause labor and capital productivity to rise as a side-effect, we reach the climax of complexity, also called multiple cross-factor rebound effect:
For the reverse correlation the opposite is frequently true: an increase in energy efficiency is frequently accompanied by an increase in the productivity of labour and capital, even if this increase was not the primary aim. The overall increase in the productivity of the economy then boosts growth, with further implications for the demand for energy.
The last two effects referred to the production perspective. On the consumer side, the exact same thing happens: when people save time doing something (increased time efficiency), they usually don’t reduce the absolute time they do it. Instead, they do more in the same time – which consequently increases energy consumption. This leads us to my favorite example, “journey time and energy consumption”. Santarius mentioned it to illustrate the consumption efficiency effect, the last of his 13 rebound effects (see page 14):
Just as on the production side, rebound effects on the consumer side can also be the result of other types of efficiency gain, in particular saved time. An example of this is the correlation between travel, journey time and energy consumption. Across different cultures, countries and epochs it can be empirically demonstrated that people relatively consistently spend between 0.75 and 1.5 hours per day travelling – irrespective of whether they walk from village to village or commute between two towns some distance apart. Because – surprisingly – the time spent travelling correlates in the long term neither with the level of mechanisation nor with the cost of travel, saved travel time converts into longer journeys. But travelling further involves greater consumption of energy. In other words, time efficiency gains in relation to travel generate rebound effects in terms of energy consumption.
In the same way he promoted caps to limit an economy’s resource consumption, Santarius promoted a debate on the sufficiency of our societies.
Before concluding with his call for a steady state economy, allow me to clarify the following: the awareness of rebound effects should not impede us from innovating; the opposite is the case! However dynamic and complex our economies may have become, it is never too late to take all possible measures for reducing energy and material consumption. Oh, and it is a good idea to reinvest the money from efficiency gains in a sustainable manner, yes indeed! For zero-net-cost sustainability investments, see my “With Both Eyes Open”-article.
There is no escaping the fact that real economic growth results in increased demand. If the goal of sustainability is taken seriously, it would seem that the only remaining option is to put an end to the vicious circle of the growth spiral. A growth society seeking to undergo the ‘great transformation’ to a sustainability society is faced with the mammoth task of effectively limiting its economic growth. Only when national income stops constantly rising can efficiency and consistency strategies realise their technically possible – that is, their full – savings potential and reduce resource consumption to a viable level. Whether and how national income can be kept stable (‘steady state economy’) or even shrink is one of today’s most important and challenging research questions.
- English: Tilman Santarius: Green Growth Unravelled. How rebound effects baffle sustainability targets when the economy keeps growing. Heinrich Böll Foundation and Wuppertal Institute for Climate, Environment and Energy, October 2012 (PDF download available here)
- German: Tilman Santarius: Der Rebound-Effekt – Über die unerwünschten Folgen der erwünschten Energieeffizienz . Impulse für die politische Debatte , Wuppertal Institut für Klima, Umwelt, Energie GmbH , März 2012 (PDF download available here)
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