8b Energy Efficiency and Rebound Effects - Lecture PDF

IØ8303: Energy Markets Lecture 8b – Energy Efficiency and Energy Rebound: Rebound Effects Prof. Dr. rer. soc. oec. Reinhard Madlener  R R e R e...

IØ8303: Energy Markets Lecture 8b – Energy Efficiency and Energy Rebound: Rebound Effects Prof. Dr. rer. soc. oec. Reinhard Madlener  R R e R e b e b o b o u o R u e b o u n d u n R n d n u o b e R n d d R e d R e b e b b o o o u u n u n d n d d R e d b n o u u o n b d e R IØ8303: Energy Markets Lecture 8b – Energy Efficiency and Energy Rebound: Rebound Effects Prof. Dr. rer. soc. oec. Reinhard Madlener In recent years, globally risen increased interest in (energy) rebound 1865 3 Energy Efficiency and Rebound Effects (Part 2) | Prof. Dr. rer. soc. oec. Reinhard Madlener | Institute for Future Energy Consumer Needs and Behavior (FC N) | NTNU, Sep 19, 2019  Now that el driving lectectrir has gasoline e Cartoon become so iciccheap, itty we have canfinally have finallybought finally drive aa bought a little socket proper car more REBOUND refers to lower energy savings resulting from behavioral adjustment to an (induced) increase in technical energy efficiency 4 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  Energy saving & absolute decoupling by raising / rising technical energy efficiency – is it illusionary? Example: EU-28 Real GDP (Y) Energy Consumption (E) (the “fossil fuel problem zone”) Energy Intensity (E/Y) = “1 / Energy Efficiency“ Source: European Environmental Agency (2018) 5 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024 Energy Efficiency as a Main Pillar in Energy Policy Making (by & large ignoring rebound) IEA CLIMATE MITIGATION SCENARIOS 60 CCS 19% Baseline emissions 55 57 Gt 50 Renewables 17% 45 40 Nuclear 6% Gt CO2 35 “I think we have to have a 30 strong push toward energy Power generation efficiency and fuel efficiency. We know that's 25 switching 5% the low-hanging fruit, we 20 can save as much as 30 End-use fuel percent of our current switching 15% 15 energy usage without BLUE Map emissions 14 Gt changing our quality of life.” 10 End-use fuel and (June 28, 2009) 5 electricity http://www.nytimes.com/2009/06/29/us/polit WEO 2009 450 ppm case ETP2010 efficiency 38% ics/29climate-text.html 0 analysis 2010 2015 2020 2025 2030 2035 2040 2045 2050 Source: Thomas Kerr, IEA. Based on World Energy Outlook 2009 and Energy Technologies 6 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  Prelude I: CO2 Emissions from Production and Consumption (What About the Polluter Pays Principle? An Inconvenient Truth?) Source: CDIAC/ Peters et al 2011/ Le Quéré et al 2018 in: Global Carbon Budget2018 7 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  Prelude I: “Embodied Carbon” and “Embodied Rebound” (or: How to best Offshore our Climate Problem?) National greenhouse gas accounting 2011: Flow from generation to consumption! EU is treated as one region Source: Peters et. al 2012 in: Global Carbon Budget 2017 8 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  Prelude I: Economic Crises are only Temporary Trend Breakers (+ despite rapid decrease in carbon intensity no light at end of tunnel) Economic activity is measured in Purchasing Power Parity Source: CDIAC/ Peters et al 2012/ Le Quéré et al 2018 in: Global Carbon Budget2018 9 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  The Case of Lighting 1/5 Technical change is part of the story … 10 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  The Case of Lighting 2/5 … but not the only one (e.g. economies of scale & scope, learning, efficient markets) 11 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  The Case of Lighting 3/5 12 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  The Case of Lighting 4/5 Important question: Which indicator/s ought to be used to measure “energy efficiency”? 13 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  The Case of Lighting 5/5 Example: The Global Smart Lighting / LED Revolution ≡ Lighting (2005: 3480 TWh): 5% of final energy (19% of prim. energy use for electr.) ≡ Phase-out of incandescent bulbs (banned in AUS, NZ, Germany) – 15 lumens/W ≡ CFLs (65 lumens/W) / Halogen lamps ≡ LEDs (132 lumens/W) ≡ OLEDs (presently ≈ 60 lumens/W, but revolutionary development under way) An estimated $100 bn global market Huge energy efficiency potentials ≡ Totally new architectural designs (OLEDs) ≡ Automatic dimming by daylight ≡ Movement sensors (person tracking) Risk of substantial rebound effects (demand for mood lighting & stylish interior vs. energy saving & environmental protection), For instance, in the UK, energy consumption for lighting of homes rises despite rapid diffusion of CFLs and significant energy policy efforts (Crosbie et al. 2008) 14 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024 Lecture Outline 1. Introduction 2. Rebound Terminology & Architecture (Micro, Meso, Macro Perspective) 3. Empirical Evidence for Rebound 4. Modeling Rebound 5. Microeconomic Theory and Welfare Considerations 6. Summary 7. Announcements 15 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  1. Introduction: Definition and Origin What is a “Rebound Effect”? − Phenomenon where increase in (technical) energy efficiency causes a less than proportionate reduction in energy use R=1–A/E R … Rebound; A, E… Actual, Expected energy savings − Actually realized environmental benefit (resources saved) is less than expected benefit − Behavioral or systemic responses to new technologies offset benefits from technology “The Coal Question” – A paradox (Jevons 1865; excellent review: Alcott 2005) − Increase in energy efficiency during the Industrial Revolution in Britain will not necessarily lead to resource savings and help to avoid coal shortages “Khazzoom-Brookes Postulate” (Brookes 1978, Khazzoom 1980) − With fixed real price, fuel efficiency gains will increase fuel consumption above where it would be without those gains (“backfire”; cf. Saunders, 1992) 16 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  1. Introduction: Types of Rebound Direct Effects (= price effect) – Increase in demand for an energy service that has become relatively cheaper due to an efficiency Micro Level increase Indirect Effects (= income effect) – Budget increase, which can be spent to consume other (energy-consuming) goods and services, due to the cost decrease of the energy service considered Meso Effects (= production or sectoral effect) (Santarius 2015) Macroeconomic Effects (= economy-wide effect) – Supply-demand adjustments due to the change in relative prices in all sectors of the economy, concern both firms and private households Transformation Effects – consumer preferences for existing or new products are affected by efficiency improvements; Greening et al. 2000 17 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024 5. Energy Efficiency (9/20) Rebound effects Direct (left) and indirect (right) rebound effect, simplified using the example of the forced phase-out of incandescent lamps in the EU Source: Madlener, Alcott (2011). Herausforderungen für eine technisch- ökonomische Entkoppelung von Naturverbrauch und Wirtschaftswachstum unter besonderer Berücksichtigung der Systematisierung von Rebound-Effekten und Problemverschiebungen 18 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024 1. Introduction: Levels and Scope of Rebound Source: S. Sorrell 19 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024 5. Energy Efficiency (13/20) Rebound Effects Source: Sorrell (2011) 20 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024 1. Introduction: Brief History and State-of-the-Art Overview Some 40 years of academic and political debate (sparked by Energy Journal and Energy Policy articles) on “energy rebound”: Vast and rapidly growing literature of empirical work, aiming at estimating different components of the rebound effect in different markets Theoretical literature on the economy-wide rebound effect, based on stylized production functions Consensus that rebound matters, but little consensus about its magnitude “A time to pause and reflect”? (Turner 2013, Madlener and Turner 2016) Important recent theoretical work on microeconomic foundations of rebound, useful for better motivating and substantiating empirical work: − Classic (efficiency or price) elasticity relationships (Berkhout et al. 2000, Binswanger 2001, Sorrell & Dimitropoulos 2008) − Rebound decomposition into substitution and income effects (Borenstein 2015; Chan & Gillingham 2015); consideration of social welfare (Chan & Gillingham 2015) − Use of utility-theoretic models with multiple energy services and input fuels (e.g. AIDS; Hunt & Ryan 2015, Schmitz & Madlener 2016, in prep.) 21 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024 1. Introduction: Brief History and State-of-the-Art Overview (cont.) Considerable amount of empirical work on direct rebound using: − Quasi-experimental studies (measurements of energy (service) consumption before / after energy efficiency improvement) (“prebound” – ex ante consumption lower than expected – Sunikka-Blank & Galvin 2012) − Econometric analysis (using secondary data; mostly estimation of demand elasticities for household / automobilist energy (service) consumption) Numerous studies on direct, indirect and embodied rebound − Combination of (environmentally) extended I/O models, LCA analysis, and systems of consumer demand equations – research in Industrial Ecology (estimation of energy embodied in different categories of household goods & services, and of expenditures, own- and cross-price elasticities related to those goods & services) Important progress on understanding macroeconomic / economy-wide rebound (Turner 2009, Turner et al. 2016, Madlener and Turner 2016) − Use of Computable General Equilibrium (CGE) modeling, or alternatively multipliers − Accounting for the multiple effects throughout the economy (no single rebound figure!) − Acknowledgment that rebound in some sectors may take neg. values (“super efficiency”) 22 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  1. Introduction: Policy Implications of Rebound Effects Obvious: Rebound reduces effectiveness and cost efficiency of energy efficiency policies aimed at resource saving To reduce aggregate energy use …  Focusing purely on energy efficiency will have limited impact  Price incentives and appropriate tax structures also needed (“get the prices right”)  Combination of scientific evidence and good economic policy design is critical Trade-off between efficient allocation of resources and energy / environmental policy measures and goals So far: Main policy focus on ancillary measures aimed at mitigating rebound (rebound is bad, per se), neglect of welfare considerations 23 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  1. Introduction: Energy Efficiency Potentials, Persistence & Rebound The Energy Efficiency Gap or Paradoxon Discussion – Is there Market Failure?“ Marginal cost of energy saved, CCE [€/MWh] Persistence, Rebound Engineering, Theoretical Transaction potential (from Marginal cost of B cost an economic energy purchase perspective) pE [€/MWh] Realizable A potential Cumulated reduction in energy consumption [MWh/a] Source: Erdmann & Zweifel (2007), p.81, emphasis mine CCE … cost of conserved energy 24 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024 2. Rebound Terminology & Architecture: Rebound Mechanisms / Types of Pathways 1. Direct rebound (price effect) 2. Adoption of larger units or such with more functions/services 3. Respending (income effect) 4. Extra demand for energy-intensive goods (composition effects) 5. Changes in the processes of one phase of the product chain or life- cycle on a later phase / later phases 6. Change in factor input mix 7. Increase in total factor productivity and production output 8. General equilibrium macroeconomic effect 9. International trade and relocation effects 10. Capital investment and accumulation effects 11. Technological innovation and diffusion effects 12. Changes in preferences 13. Embodied energy effect 14. Time savings (time rebound effect) Source: van den Bergh (2011), emphasis mine 25 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  2. Rebound Terminology & Architecture: Types of Rebound Efficiency gains on the private household side have two primary rebound effects: Goods and Services Households’ Indirect Consumption Industry, Commerce, of Goods and Commercial Services Transportation Efficiency “Embedded” Energy Gains Happen Here Households’ Physical Energy Direct Consumption of Final Energy Source: Saunders (2015), presentation given at RWTH Aachen University 26 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  2. Rebound Terminology & Architecture: Types of Rebound Direct or Primary Rebound − Increased demand for the same energy resource / service (a product’s implicit price of usage declines with increased energy efficiency) − Higher energy efficiency of product → lower energy expenditure → product is relatively cheaper → higher consumption of product − Consequence of normal demand and supply behavior: expected reduction in energy consumption is (partly) offset by demand upscaling EXAMPLES: Energy-saving light bulbs: more bulbs installed, lighting used for longer periods Higher efficiency of cars: increase in car use, lower use of mass transit 27 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  2. Rebound Terminology & Architecture: Types of Rebound Indirect / Secondary Rebound − Increased demand for other products because of additional purchasing power − High energy efficiency of product or service (consumer side): → Lower energy expenditure on product → More expenditure on other goods and services → Producing these goods requires energy → Higher energy consumption by consumer EXAMPLES: Higher fuel efficiency in car fleet: Upgrade in car size, increase car ownership Energy-saving light bulbs: save x € on electricity bills, buy an iPod for it 28 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  2. Rebound Terminology & Architecture: Types of Rebound Economy-wide or Macro-level Rebound − Changes in production and distribution supply chains − Consequence of shift in aggregate demand behavior − Higher energy efficiency of process technology (producer side): → Lower energy expenditure on machine → Machine becomes more cost-effective → Machine used in more production processes Positive and negative effects; if the latter dominate: “super-efficiency” 29 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  2. Rebound Terminology & Architecture: Types of Rebound Economy-wide rebound concerns the full range of impacts across the economy, incl. those on key macroeconomic variables (e.g. GDP). Macroeconomic rebound is often considered through macro- econometric studies that take an ex post perspective on aggregated effects on energy demand (when the energy intensity of the economy has changed over time). In contrast, economy-wide rebound studies typically focus on ex ante ‘what-if’ scenarios involving simulation of how the impacts of an energy efficiency increase in one or more sectors of the economy ripple through markets and mechanisms (cf. Madlener & Turner 2016, Springer book chapter in press). 30 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  2. Rebound Terminology & Architecture: Decomposing Rebound Effects into Income and Substitution Effect 31 NTNU IØ 8303, Energy Markets, Part 2, Lecture 8b: Energy Efficiency and Rebound (Rebound Effects) | Prof. Dr. Reinhard Madlener | FCN | RWTH Aachen University | Oct 1, 2024  3. Empirical Evidence for Rebound Overall, direct rebound has been estimated to be in the range of 0–90%, but many such studies seem upward biased, so that a more realistic range is 0–30% End-use Range of Best No. of Degree Direct rebound estimates estimates guess studies of confidence Personal auto- motive transp. 3–87% 10–30 17 High Space heating 0.6–60% 10–30 9 Medium “ cooling 0–50% 1–26 2 Low Water heating