2014 Reports

The Rebound Effect and Energy Efficiency Policy

Gillingham, Kenneth; Rapson, David; Wagner, Gernot

What do we know about the size of the rebound effect? Should we believe claims that energy
efficiency improvements lead to an increase in energy use? This paper clarifies what the rebound effect is,
and provides a guide for economists and policymakers interested in its magnitude. We describe how some
papers in the literature consider the rebound effect from a costless exogenous increase in energy
efficiency, while others examine the effects of a particular energy efficiency policy—a distinction that
leads to very different welfare and policy implications. We present the most reliable evidence available
quantifying the energy efficiency rebound, and discuss areas where estimation is extraordinarily difficult.
Along these lines, we offer a new way of thinking about the macroeconomic rebound effect. Overall, the
existing research provides little support for the so-called “backfire” hypothesis. Still, much remains to be
understood, particularly relating to induced innovation and productivity growth.