Friday, October 12, 2012

Do increases in energy efficiency increase energy use?

On the one hand increased efficiency reduces the amount of energy needed to power current consumption levels; on the other, it makes energy consumption cheaper, so people consume more.  Energy consumption can go up or down. 

You can model this as an increase in the supply curve.  Price goes down, quantity demanded increases.

The New Yorker has a nice essay on what they call The Efficiency Dilemma:

The problem with efficiency gains is that we inevitably reinvest them in additional consumption. Paving roads reduces rolling friction, thereby boosting miles per gallon, but it also makes distant destinations seem closer, thereby enabling people to live in sprawling, energy-gobbling subdivisions far from where they work and shop.
HT:  Hoyt


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  2. “Buy a more fuel-efficient car, drive more” this is the philosophy we all follow. This very intuition is also known as “The rebound effect”. 'In conservation and energy economics, the rebound effect (or take-back effect, RE) is the reduction in expected gains from new technologies that increase the efficiency of resource use, because of behavioral or other systemic responses'. Energy efficiency is widely viewed as an inexpensive way to reduce energy consumption and drive reductions in global emissions of greenhouse gases. Yet recent research highlights a powerful but largely overlooked economic phenomenon that requires a global rethink of energy efficiency and its role in climate mitigation and sustainable development strategies: the rebound effect. The magnitude of the rebound effect is a debate that is ongoing, with important implications for energy efficiency policy. In my opinion, rather than consider the rebound effect as a deterrent from passing energy efficiency policies, policymakers should include these welfare gains in the tally of benefits of a policy. The mistake of designing policies to ‘mitigate’ the rebound effect stems from a focus on minimizing energy use, rather than the broader objective of maximizing economic efficiency.