There’s a long-standing debate among energy wonks over what’s known as the “rebound effect.” The idea, simply put, is that trying to boost energy efficiency might prove counterproductive if people just take advantage of the savings by using even more energy. So, for example, if a person buys a Prius, there’s a possibility that he or she could just negate much of the fuel savings by driving more.
Matthew Kahn of UCLA has offered some theoretical reasons not to fret about the “the Prius fallacy.” It’s true that owners of fuel-efficient cars have every incentive to drive around more, given that it costs less (in gas) to go a given mile. But that incentive pales beside the fact that people value their time heavily. “Since our time is our scarcest asset,” Kahn writes, “the ‘Becker Price’ of using the device doesn’t fall that much as technology becomes more efficient.”
That doesn’t mean the rebound effect is non-existent. Far from it. The European Union recently commissioned a literature review and found that rebound levels for energy efficiency can range anywhere from 10 percent to 80 percent, depending on the situation. If a factory becomes more efficient at churning out widgets, it’s likely to plow the savings into cranking out even more widgets, rather than simply using less energy altogether. Likewise, in the past, automakers have harnessed improvements in engine efficiency to build bigger and more powerful vehicles, which explains why gas mileage has barely budged since the 1980s. (David Roberts has a much more extensive discussion of the rebound effect here and here.)
But if we’re thinking about America’s new fuel-economy rules for cars and light trucks, then the rebound effect might not be as big a worry. When people buy cars that get better mileage, they may well just use less gasoline overall. Based on their research, Afsah and Salcito estimate that if 25 million Americans swapped out their SUVs for Priuses, then the United States could eliminate the 600,000 barrels of refined gasoline it imports each day. That would nose us even closer to the long-elusive dream of oil independence.
On the other hand, the implications for global climate change would be somewhat different. As economist Hans-Werner Sinn argued in a 2008 paper (pdf), it’s very difficult for a single country to cut into the world’s greenhouse-gas emissions all by itself. If the United States were to eliminate all its imports of refined gasoline, then the price of gasoline would fall, and some other country, like China or India, would be able to use even more of it. Global emissions wouldn’t fall much, if at all.
Sinn calls this the “green policy paradox,” and you can see it pop up in a variety of sectors: For example, U.S. power companies are shutting down many of their coal plants right now, but that just means more coal is getting exported abroad, often to countries with fewer pollution controls. That’s a different type of rebound effect, but one that’s just as important to consider.