Ohio Efficiency Supporters Thwart Attack on EERS…For Now
November 30, 2012 - 10:21 pm

By Martin Kushler, Senior Fellow

Congratulations are in order to energy efficiency supporters in Ohio who were able to thwart an attempt by FirstEnergy to ram through an amendment to gut Ohio’s energy efficiency resource standard (EERS) during the current lame duck legislative session.

Ohio passed a strong EERS in 2008 and has been making steady progress implementing the policy, exceeding the annual energy savings targets each year. ACEEE assisted The Ohio Manufacturers Association in preparing a fact sheet that documented the record of success of the utility energy efficiency programs and the benefits already being realized by consumers in Ohio.

FirstEnergy portrayed its push as a move to “freeze the energy efficiency standard at current levels” because of low natural gas prices, which many have interpreted as continuing programs at the current annual savings level. However, the way the legislative proposal was worded (setting a new cumulative savings requirement at a level that was already surpassed in 2012) would have eliminated any requirement for any future energy efficiency savings—effectively ending the Ohio EERS after 2012. This is the most drastic attack on an existing state EERS that we know of to date.

ACEEE has been pleased to provide data and analysis to the energy efficiency advocates in Ohio who have done a terrific job mobilizing support from many sources, including energy efficiency material suppliers, contractors, utility customer groups, local governments, and other interested parties. Extensive educational efforts with the media and policymakers succeeded in significantly raising the visibility and stakeholder concern about a legislative move that was intended to quietly slip through in a lame duck session.

Energy efficiency supporters in Ohio will need to remain active, however. Part of the reason this attack was thwarted thus far has been procedural—lawmakers weren’t comfortable hastily passing such significant legislation in a lame duck session. FirstEnergy has vowed to continue to pursue their efforts in the regular session in 2013. We will keep you posted as this drama unfolds.

R. Neal Elliott, Associate Director for Research contributed to this blog.

Is Tax Reform the Road to a More Energy-Efficient Industrial Sector?
November 20, 2012 - 9:29 pm

By Ethan Rogers , Senior Manager, Industry

As the nation begins to ponder tax reform next year, we have an opportunity to create a new corporate tax structure that encourages investments that benefit society, such as energy efficiency, as well as the businesses that make these investments. In the report Industrial Energy Efficiency and Tax Reform, released today, ACEEE analyzes current tax reform proposals with the purpose of understanding the potential each has to encourage investments in the industrial sector in general and in energy efficiency in particular. Encouraging industrial modernization is important to energy efficiency because the energy intensity of manufacturing correlates directly to the vintage of the equipment. As older, less efficient equipment is replaced with newer, more efficient equipment, we can anticipate the energy needed to produce a good or service will decrease. Therefore, in addition to encouraging energy efficiency outright, it also makes sense to encourage industrial modernization.

So although none of the corporate tax reforms currently under consideration prioritize energy efficiency, we wanted to know how each might potentially influence investments that might reduce the energy intensity of the industrial sector. The most commonly discussed proposal is that of reducing the corporate tax rate and broadening the base [PDF] (eliminating deductions). But of course this proposal contains no requirements that corporations invest, let alone that they invest in energy efficiency. Energy efficiency is a possible benefit, but only at the margins. Another proposal to boost investment is to allow expensing, or the ability to fully depreciate in one or two years, the cost of capital assets. This is likely to be appealing to companies struggling with cash flow. And by the same logic as mentioned above, newer equipment equals more efficient equipment equals energy savings. But again, the mechanism is passive rather than active.

The report contrasts these proposals with each other and with other proposals from years gone by—and ones that (to this writer’s surprise) are now re-emerging in discussions as potential pathways to address the budget deficit—a pollution or energy tax. Either of these would have a more profound effect on energy use in all sectors of the economy, though to be sure their political viability is much less than the other, more embraced proposals. Lastly we ponder a grand bargain that combines parts of several proposals. In such a compromise, there could be space to encourage energy efficiency.

A key goal of this report was to answer the question, “Could corporate tax reform be good for energy efficiency?” The answer is a qualified “yes.” Tax reform could and should result in more efficient use of energy in all sectors of the country. The devil will most certainly be in the details.

Improving Travel Efficiency at the Local Level
November 15, 2012 - 9:11 pm

By Shruti Vaidyanathan, Senior Transportation Researcher

A comprehensive approach to transportation energy efficiency must include a combination of strategies targeted at both vehicle fuel efficiency and travel behavior. While the federal government has taken the lead on fuel efficiency, local and regional policies that reduce the need for driving are also essential to achieve an efficient and sustainable transportation system.

Today ACEEE released a new local guide to help municipalities and metropolitan regions identify policies to expand transportation choices and improve transportation system efficiency. The toolkit is targeted at local policymakers and stakeholders interested in reducing transportation-related fuel consumption in their communities. Policies addressed in the toolkit are divided into four key categories:

  • Policies to integrate land use and transportation that encourage the creation of compact, transit-oriented, and multi-use communities to enable access to additional transportation choices.
  • Policies that extend transit networks and create integrated street networks that are accessible to all road users be they in cars, on transit, on bikes, or on foot.
  • Pricing mechanisms that provide drivers with an incentive to change their driving behavior by charging more for inefficient travel choices. These mechanisms include congestion pricing schemes, parking fees, and mileage-based fees.
  • Policies that encourage increased use of alternative modes of transportation, including public transit, walking, and biking.

The toolkit provides descriptions of each policy, an outline of relevant stakeholders, and a case study that exemplifies best practices for project implementation and design. It also provides estimates of typical costs and benefits for each policy, based on the Urban Land Institute’s 2009 report Moving Cooler. More information on the calculations used to generate the cost and savings figures, as well as the ability to customize inputs to the calculations, will be available in ACEEE’s Local Energy Efficiency Policy Calculator (LEEP-C), version 2, to be released in early 2013.

Communities can see significant benefits from the implementation of transportation efficiency policies. The adoption of a vehicle miles traveled (VMT) fee, for instance, can reduce community fuel consumption by 8% while saving approximately $670 per capita annually. Policies that encourage the creation of compact, transit-oriented communities have the potential to save $725 per capita annually and cut fuel use by more than 10%. Additional benefits can result from implementing a comprehensive package of strategies.

The toolkit aims to help municipalities take action to achieve transportation-related energy reductions because choosing the right efficiency measures for implementation can be a difficult prospect for community decision-makers, and no one policy can be applied across the board. But strategies outlined in the toolkit can address challenges such as local variations in policy priorities, resources, economies, population, travel patterns, and physical characteristics.

As the Economy Recovers, the Stars Align for Investment in Industrial Energy Efficiency
October 25, 2012 - 7:02 pm

By Christopher H. Russell, Visiting Fellow, Industry

The economy took center stage at times during this year’s presidential debates, but scant attention was paid to the manufacturing sector, which remains an important driver of economic growth as well as energy use. Evidence of a resurgent, domestic manufacturing sector has strategic implications for energy policy as well as the economy. Understanding Industrial Investment Decision Making, a new research report by ACEEE, examines the dynamics of capital investment that drives industrial energy use and competitiveness. 

There’s no question that the manufacturing sector struggled during the past decade, as revealed in macroeconomic data [links to PDF]. However, we find uneven changes in output as some industries advanced while others declined. Interestingly, almost all industries boosted their productivity during this time period, due in part to the closure of older, less efficient facilities. In the short run, this leads to higher capacity utilization as surviving production facilities take up the slack, but another force may accelerate this trend. 

Rising costs of foreign operations are causing a growing number of corporations to “re-shore” production facilities back in the U.S. These corporations also have the capital to finance this infrastructure, due to the $2.2 trillion cash balances accumulated by public corporations over the past decade. Together, these trends suggest “the stars are aligning” to drive capital investment in new, domestic manufacturing production facilities.

This industrial renewal is an opportunity to lock in energy savings for a generation for the U.S., and should be taken advantage of by state and utility energy programs. Manufacturing activity remains a significant factor in regional energy supply and demand balances, and energy efficiency potential abounds throughout the manufacturing sector. This manufacturing energy efficiency opportunity will be a challenge for industry managers who tend to prefer low- and no-cost improvements because it’s easier to secure approval for those measures. A more strategic approach would fold energy efficiency into the design and construction of new production facilities and modernization of existing plants. Energy efficiency program outreach may need to evolve accordingly to realize this opportunity. 

Energy efficiency programs that address capital investment activity can support these opportunities. To help start a dialog, Understanding Industrial Investment Decision Making presents results from a survey of industry stakeholders that identifies the nature of capital investment decision-making. With a better understanding of capital investment dynamics, program administrators can work in concert with industry managers to build more efficient and productive manufacturing facilities on U.S. soil to create a more efficient and competitive manufacturing base for the future.

What Is an Energy Efficiency Job?
October 16, 2012 - 8:26 pm

By Casey Bell, Senior Economist and Finance Policy Lead

The impact of investments in energy efficiency extends well beyond reducing energy costs or addressing the environmental impacts of energy extraction and use. These investments provide jobs for American workers and help them to support their families and communities.

ACEEE has just released a series of six profiles of real world experiences in energy efficiency job creation. These profiles describe programs, policies, investments, partnerships, and business models that have catalyzed regional increases in employment. While previous ACEEE work has provided an analytic framework for how jobs are created through efficiency, this paper focuses on the jobs themselves.

Energy efficiency catalyzes employment opportunities that draw upon the broad range of Americans’ skills. Moreover, as companies’ investments in energy efficiency improve their bottom lines, they experience increased competitiveness, which is a potential contributing factor in bringing jobs back to American soil. Each profile serves as an independent portrait of the various driving forces behind energy efficiency job creation, illustrates the diversity of energy efficiency jobs, and demonstrates the extent to which they draw upon Americans’ existing skills and competencies.  

Highlights in the paper distilled from conversations with program representatives and literature review include:

  • OPower: Opower is a privately held software company that partners with utilities to develop feedback reports on home energy performance. Since the launch of the company, OPower has grown to employ more than 240 software engineers, programmers, and sales and marketing experts. 
  • New York City Greener, Greater Buildings Plan: In 2009,The New York City Greener, Greater Buildings Plan was enacted.  Four local laws require, among other actions, annual benchmarking of building energy performance and retro-commissioning. A number of firms have employed energy analysts to meet the need for assistance with compliance, and the subsequent demand for assistance in interpreting benchmarking metrics and applying the information to investment decisions. The city estimates that the laws will generate $700 million in savings and create roughly 17,800 construction jobs over 10 years. 
  • Nissan North America: In 2006, in the aftermath of Hurricane Katrina and amidst rising natural gas prices, Nissan made the decision to prioritize investments in energy efficiency and establish a rigorous energy-management program to control manufacturing costs and become more competitive. By improving the cost-effectiveness of the production process, Nissan is now more competitive, creating and retaining jobs on U.S. soil. 
  • Ohio Low-Income Weatherization: During the ARRA period, the Corporation for Ohio Appalachian Development (COAD) weatherized 9,000 homes and expanded its workforce by 400 people and catalyzed a total of 188 indirect and induced jobs in Ohio.  They are now working on approaches to sustain program funding without ARRA funding.   COAD estimates that at full funding, given current demand, the program could support approximately 1,600 jobs over the next 20 years.
  • Johnson Controls, Wisconsin Energy Initiative: In 1992, Johnson Controls worked with the State of Wisconsin to implement energy conservation lighting projects, and expanded their efforts in 1998 to include additional efficiency measures. The total effort created 1,500 annual jobs for more than 50 private-sector companies employing architects, engineers, electricians, and maintenance workers. 
  • General Electric, Appliance Park: Appliance Park in Louisville, Kentucky is the headquarters for General Electric Appliances, which manufactures over 750 ENERGY STAR-qualified lighting and appliance products. A 2010 Tripp Umbach study commissioned by GE shows that the Appliance Park directly and indirectly generates $1.6 billion in the state from local purchasing and other mechanisms, and supports over 12,000 jobs in the state. For every job at Appliance Park, which employs more than 5,000 full-time employees, an additional 1.5 jobs are indirectly supported through vendor purchases or are induced through the re-spending of a GE employee’s wages.

These profiles primarily illustrate jobs arising from the implementation of efficiency measures, from the supply chain supporting this direct implementation, and from additional dollars circulating in the broader economy that are spent by workers in these categories. What we have not emphasized here are the multitude of jobs that are supported when individuals and businesses redirect the money they save by paying lower utility bills. In other words, energy efficiency does more than drive job creation through installation and investment. The subsequent cost savings from energy efficiency can also be used, in part, to support fuller levels of employment in the broader economy.

As demonstrated through our profiles, jobs supported by energy efficiency are diverse and require a variety of skill sets, many of which are abundant in the American workforce today. In sum, energy efficiency should be viewed as a powerful strategy for sustaining enduring employment that utilizes a huge range of Americans’ skills and expertise.

The Challenging and Changing World of Industrial Efficiency Program Evaluation
September 24, 2012 - 8:03 pm

By Anna Chittum, Visiting Fellow, Industry

Today ACEEE released a new report that digs deep into the complicated but important work of evaluating the impact of energy efficiency programs. This report targets the evaluation of industrial energy efficiency programs in particular, taking aim at some of the most contentious areas of evaluation.

Regulators or efficiency program administrators typically hire third-party evaluators to assess how a program is performing. One of these types of assessments is called an impact evaluation, which measures the actual impact of an energy efficiency program. This typically includes energy savings, non-energy benefits, and energy efficiency investments that the program encouraged elsewhere in the market. It also typically measures “free riders”—participants in an energy efficiency program who would have made their energy efficiency investment even if the program never existed.

The challenge in industrial efficiency program evaluation is the manner in which these impacts are defined and measured. Industrial facility managers make energy efficiency investments due to all sorts of market factors, business needs, and influences. These managers make decisions about energy efficiency investments over long periods of time, often waiting a year or more to make an investment for strategic business purposes. They often consider the non-energy benefits of energy efficiency investments to be equal or greater in value to the energy savings themselves. And they learn about new technologies and opportunities from their peers and trusted vendors as well as from their local energy efficiency program.

By design, evaluations of energy efficiency programs often overly simplify the nuances of decision-making in the industrial sector. The evaluations also are conducted on timelines that might not align well with the behavior of an individual industrial entity. A facility may make an investment decision several years after an efficiency program initially influenced their decision, but evaluators may determine the reasoning behind the facility’s decision well after the investment has been made—and well after the customer might be able to recall the original influence of the program.

Today’s report targets issues like the timing of evaluation activities as well as:

Regulators want measureable energy savings at the low cost that efficiency can offer. Efficiency programs want (and need) to get credit for their hard work, even though that work is sometimes very hard to quantify. Evaluators want to challenge and prove the assumptions held by the efficiency programs. And industrial energy managers want to make informed investment decisions without being overly bothered by those wanting to survey their motives and dig into their data.

So what’s the efficiency community to do? One answer is to determine which metrics collected by evaluators need to be derived with high degrees of precision—and which ones do not. Free ridership, for instance, is probably not something that can be perfectly measured (the current efforts of evaluators notwithstanding). Surveys and ex-ante reviews (reviews conducted at the beginning of a program participant’s interaction with a program) could likely yield “good enough” estimations of free ridership. A free ridership value with four significant figures is precise but probably not very accurate.

Another idea is to determine which evaluation metrics are being used to determine cost-recovery and shareholder incentive amounts. Those metrics are often the most fought over and the ones where small differences in numbers can make a major difference in a utility’s bottom line. Understanding the motivations of different stakeholders can help inform a dialog between all the parties with something to gain or lose from evaluation findings. 

As states increasingly look to their industrial sector to help meet future energy efficiency goals, determining what is influencing that sector is going to become more complicated. New air quality regulations will further incentivize energy efficiency investments, especially for facilities with aging boilers. Evaluators will be challenged with teasing out the influence of energy efficiency programs from that of new air regulations.

These and other changes, such as the growth of energy management programs, will challenge the status quo of industrial program evaluation. Success in industrial energy efficiency programs may be harder to attribute to a specific year or effort, and influences may be harder to pin down. The industrial efficiency community and its evaluators and regulators will need to determine, together, which metrics would be universally useful and how they could best be derived.

Energy Efficiency Looks Beyond the Natural Gas Boom
September 13, 2012 - 7:02 pm

By Rachel Young, Senior Research Analyst, National Policy

The recent boom in shale gas production and the subsequent decrease in the price of natural gas have left some wondering what the role for energy efficiency will be in the future. As a new ACEEE white paper explains, energy efficiency measures are still cost-effective in any foreseeable natural gas price environment. States should deploy cost-effective and readily available energy efficiency measures now to help provide long-term stability to the electric and natural gas markets and ensure that natural gas resources are used as efficiently as possible.

Historically, the natural gas market has experienced booms and busts where prices ranged from $2 to $16 per million British thermal units (MMBtu). Last winter, the United States entered a boom period driven by unseasonably warm weather and an explosion of domestic shale gas production and prices at historic lows—under $2 per MMBtu. Looking forward, ICF International forecasts that prices will not remain at the current low levels. ICF estimates a steady increase in the price of natural gas to more than $4 per MMBtu by the end of 2012. Over the long term ICF forecasts that prices will increase as demand accelerates, bringing the price closer to $7 per MMBtu ($2010). The current wellhead price of gas is currently around $3 per MMBtu, up from $1.89 in April of this year.

The low prices have called into question the cost-effectiveness of energy efficiency programs, particularly those targeted at saving natural gas directly. However, despite the low natural gas wellhead prices, energy efficiency is still the lowest cost new energy resource compared to new electricity generation resources of any fuel type. In addition, natural gas prices only affect retail electricity prices minimally because generation costs are just a small portion of the total electricity price. The average retail electricity prices are expected to remain relatively stable through 2030 while the wellhead natural gas prices are expected to rise. This means that electricity efficiency measures will not be greatly affected by natural gas prices, and the vast majority of measures remain cost-effective. Since both wellhead and retail prices are unlikely to stay low, utilities should look toward the long-term benefits of efficiency and continue supporting programs that reduce customer energy consumption.

Even as sources of natural gas continue to increase, energy efficiency is still the number one new resource. Many states and utilities already recognize the benefits of energy efficiency. Over the past 15 years, there has been a rapid increase in the use of energy efficiency (see figure), and this trend is expected to continue.


Historical U.S. Energy Production by Type

Source: EIA production and consumption data for all but energy efficiency, which came from an ACEEE analysis of EIA data.

Natural gas has been a historically volatile fuel, vulnerable to storage and distribution constraints, and accidents and production disruptions. New fracking regulations and an anticipated increase in natural gas exports are adding to the risk factors. Deploying energy efficiency measures lowers the demand for natural gas, which in turn reduces the threat of future price volatility, helps prevent natural gas price spikes, and assists in maintaining electrical grid reliability. Efficiency lessens a utility’s exposure to fuel price volatility by diversifying energy resources across multiple small and moderate-sized projects. Efficiency also reduces the need to deploy peaking generation resources, which prevents outages by lessening the load and stress of the power distribution network.

Energy efficiency can significantly cut into the demand for natural gas in the power sector and lessen the need for construction of new natural gas power plants. New natural gas power plants require a large upfront investment and take time to come online; costs are transferred to ratepayers. Since energy efficiency is still the most cost-effective resource compared to new combined-cycle natural gas plants, energy efficiency should be deployed by states as the first measure to prevent costly construction of new natural gas plants thereby saving ratepayers money. And while natural gas is a less dirty fossil fuel with nearly half the emissions compared to coal, natural gas still emits pollutants. Energy efficiency is a zero emission energy resource.

Though the United States has made progress advancing energy efficiency, there is still an abundance of untapped energy efficiency resources available. States should make investments in energy efficiency measures first before undertaking expensive fuel switching projects. Doing so will increase stability in the electricity and natural gas sectors creates jobs, lower customer utility bills, reduce pollution, and extend the available supply of natural gas.

Neal Elliott contributed to this blog.

New Vehicle Standards to Achieve Major Fuel Savings and Emissions Reductions
August 28, 2012 - 11:20 pm

By Therese Langer, Transportation Program Director

The Department of Transportation and the Environmental Protection Agency today finalized federal car and light truck fuel economy and greenhouse gas emissions standards for model years 2017 to 2025. The standards, together with those previously adopted for model years 2012 to 2016, mean an 80 percent increase in fuel economy for the average model year 2025 vehicle from the 2011 CAFE (Corporate Average Fuel Economy) requirement of 27.6 miles per gallon.    

ACEEE projects the standards for the entire period 2012-2025 will yield savings of 3.1 million barrels of oil per day in 2030, bringing oil consumption of light-duty vehicles below 7 million barrels per day—levels not seen since the mid-1980s. These savings projections include a “rebound” of 10 percent from increased vehicle efficiency, reflecting the tendency of some to drive more when driving becomes less expensive. A joint ACEEE-BlueGreen Alliance report found the standards also would create more than a half million jobs by 2030, including 50,000 jobs in auto manufacturing.

The agencies estimate that the average vehicle will cost about $2,000 more due to the additional technology required to reach the higher fuel economy levels. Savings from reduced fuel consumption will pay back these extra costs in less than four years, however. Buyers financing new vehicles over five years typically will realize a reduction in ownership costs, due to fuel savings greater than the increment in loan payment, starting at the time of purchase.

In the rulemaking, the agencies show in detail one technology scenario for meeting the standards. Their recipe includes 15 percent full hybrids, 26 percent mild hybrids, and 2 percent plug-in electric vehicles in 2025. The biggest contribution to the fuel economy ramp-up, however, is improvements to “conventional” gasoline-powered vehicles, the vast majority of which will likely gain turbocharged, direct injection engines and 8-speed automatic and dual-clutch transmissions, while becoming substantially lighter. Neither horsepower nor size of vehicles is expected to change. Fuel economy targets now vary with vehicle “footprint”—the area defined by the wheels’ contact points with the ground—and provide no advantage to a manufacturer that downsizes its vehicles to raise fuel economy.  

As the earlier increase in standards has kicked in and manufacturers have anticipated today’s increases, a host of technology improvements has moved into the mainstream. The certainty provided by the new standards is leading to sustained investment in better technology. This includes not only incremental improvements to conventional vehicles, but also the more advanced technologies that require higher sales volumes to bring costs down. Buyers have responded enthusiastically to recent technology introductions and have already begun to save substantially at the pump while enjoying a widening selection of vehicle types. All this demonstrates the important role of standards in addressing inefficiencies in the market for fuel economy.   

NOTE: An earlier version of this post listed incorrect percentages in the hybrid recipe.

The U.S. Is Going for Gold in the London Olympics, but Falling Behind Other Countries in Energy Efficiency
August 09, 2012 - 9:18 pm

By Sara Hayes, Sr. Manager and Researcher, Policy and Utilities

ACEEE recently published a report ranking the energy efficiency of the world’s 12 largest economies. Unfortunately, the U.S. isn’t even in the running for a top spot. With a long history of energy efficiency advocacy and a supportive administration in the White House, I frankly thought the news would be better. Though there have been a few high points (for example, appliance standards and new vehicle fuel economy standards), the overall story is not good. The U.S. came in 9th overall. Yes, out of 12. 

While the U.S. results aren’t great, the “glass half full” here is that the U.S. has a lot of room for improvement. This would mean making the economy lean, mean, and more globally competitive—the Gabby Douglas of economies, the Michael Phelps of global competitiveness. Reducing energy waste is good for business and consumers. Reducing energy costs is good for the economy and reducing the air pollution associated with power generation is good for those of us who breathe air. Now is the time for the U.S. to dig in and improve its prospects by taking a lesson from some of the successes of other countries. The United Kingdom has adopted a national energy savings target of over 1% per year through 2016. Russia is requiring auditing and labeling of energy use in buildings. The Italian government supports a revolving loan fund for energy efficiency and provides incentives for improvements in the efficiency of motor vehicles. Germany offers incentives for deployment of combined heat and power systems and China targets heavy energy users in the industrial sector with specific energy conservation procedures.

Congress is considering legislation that will improve energy efficiency in a number of ways and Senator Kerry is slated to introduce a bill that includes a national energy savings standard.* Federal tax reform is another opportunity to realign financial incentives by allowing people to keep more of their income and instead taxing energy waste. In addition to congressional activity, federal agencies have taken action to encourage energy efficiency.  Significant opportunities exist and the untapped energy efficiency potential is massive. It remains to be seen whether the U.S. will cross the finish line as a leader or if these opportunities turn out to be just another false start.  

* This statement was made in error. We regret the mistake. 

The Rebound Effect: Real, but Not Very Large
August 07, 2012 - 8:48 pm

By Steven Nadel , Executive Director

As the energy efficiency of products, homes, and businesses improves, it becomes less expensive to operate them. The rebound effect postulates that people increase their use of products and facilities as a result of this reduction in operating costs, thereby reducing the energy savings achieved. Periodically, some analysts raise questions about the rebound effect, arguing that it is a major factor that needs to be accounted for when analyzing energy efficiency programs. The most recent example is a report by the Institute for Energy Research, an organization that primarily works on oil, gas, coal, and electricity markets. In order to address these recurring arguments, today ACEEE released a white paper entitled The Rebound Effect: Large or Small? The paper is written in a “question and answer” format designed to summarize what we know, what we do not, and—given what we know—how large the rebound effect is likely to be. The paper examines both direct and indirect rebound effects.

Direct rebound is the impact of a purchase of an efficient product by purchasers’ use of that product. For example, a car buyer may drive an efficient car more often than an inefficient one or a homeowner who weatherizes his/her house may use a portion of the savings to increase the temperature in the house in the winter to increase comfort.

Indirect rebound, on the other hand, reflects the impact of re-spending the money that consumers and businesses save from improved energy efficiency. It can also include the fact that as factories and other parts of the economy get more efficient, production costs may be lower, freeing up funds to expand the factory and increasing demand for products. An example of the former is a household that cuts its heating bill and takes back a little of the savings on higher thermostat settings, but then spends the remaining money saved on eating out or buying a new flat screen television. An example of the latter is that efficiency improvements in aluminum smelting can reduce the price of aluminum, thereby fostering increased aluminum sales that requires additional energy consumption in its production.

There have been more than 100 studies published that attempt to estimate rebound effects, many of which we examined for our paper. We found that while there is some uncertainty, available evidence indicates that direct rebound effects will generally be 10% or less. Estimates of higher direct rebound effects are primarily based on studies of consumer responses to changes in energy prices, but as shown by Greene for vehicles, this is different from consumer response to changes in energy efficiency. There is a need for a study on home weatherization that attempts to separate out price and rebound effects to see if they are similar or different. Rebound is probably higher for weatherization of low-income homes since prior to weatherization some of these households could not afford to keep their homes as warm as they would have liked. And rebound may be higher during shoulder periods where use of heating or cooling is optional.

We found that there are larger uncertainties about the size of indirect rebound effects and more careful studies are needed. From the evidence that is available, the most likely estimate is that indirect rebound effects are on the order of 11%, increasing both energy use and the level of economic activity. This 11% estimate comes from a study by Barker and Foxon that used a sophisticated macroeconomic model to examine the impact of a number of United Kingdom energy efficiency policies over the 2000-2010 period. The study estimated that indirect rebound was 11% by 2010, with higher effects (15%) in energy-intensive industries and lower effects for commerce (5%), road transport (6%), and households (10%). Unfortunately, there are no similar studies of the U.S., although such a study would be useful.

Other studies, using different methodologies, come up with different answers, both higher and lower. At the high end, a variety of Computable General Equilibrium (CGE) models have been used. However, such models are based upon a number of standard assumptions from neo-classical economics (perfect competition, constant returns to scale in production, consumers always work to maximize their utility) that are poorly supported by empirical evidence. In particular, the possibility of ”win-win” policies, such as those aimed at encouraging energy efficiency, cannot be fairly modeled if an economy is assumed to be at an optimal equilibrium, a key assumption of these models.

In conclusion, we found that there are both direct and indirect rebound effects, but these tend to be modest. Direct rebound effects are generally 10% or less. Indirect rebound effects are less well understood but the best available estimate is somewhere around 11%. These two types of rebound can be combined to estimate total rebound of about 20%. We examined claims of “backfire” (100% rebound), but they do not stand up to scrutiny. Furthermore, direct rebound effects can potentially be reduced through improved approaches to inform consumers about their energy use in ways that might influence their behavior. And indirect rebound effects, which appear to be linked to the share of our economy that goes to energy, may decline as the energy intensity of our economy decreases.

Overall, even if total rebound is about 20%, then 80% of the savings from energy efficiency programs and policies register in terms of reduced energy use, which benefits the environment and public health. And the 20% rebound contributes to increased consumer amenities (like more comfortable homes), as well as to a larger economy and more jobs. Therefore, these savings are not “lost,” but put to other generally beneficial uses.