The rebound effect refers to the fact that as energy efficiency increases, products that consume energy become less expensive to operate, which in turn causes even more energy to be used. This is a topic that's received lots of attention lately thanks to an article that appeared in the December 20, 2010 edition of The New Yorker magazine, The Efficiency Dilemma by David Owen (subscription required). While there doesn’t appear to be disagreement that the rebound effect is real, there's a strong difference of opinion on the degree that it reduces the efficiency savings of any given energy-efficient product.
What does the Council think about the rebound effect?
The Council’s staff economists agree that the rebound effect exists, and they've always taken it into consideration in their efficiency analyses and demand forecasts. However, the Council estimates that the effect is not substantial and that total electricity consumption is still decreased by improved efficiency.
Owen claims that although U.S. air conditioners became 28 percent more efficient over that 12-year period, residential air conditioners increased energy consumption by 37 percent. The problem with Owen’s analysis is that he appears to be confusing the rebound effect with economic development. Claiming that the growth of air conditioning penetration is due to improved efficiency of the equipment ignores the whole impact of growing affluence and income that is probably the major driver behind the growth of air conditioning market penetration.
So, while the rebound effect is real, it isn't the only factor, and certainly not the main factor, behind increased energy consumption. The important question to ask is how much higher consumption would have been if efficiency hadn't been achieved.