David Rapson

Energy policy: The rebound effect is overplayed

Increasing energy efficiency brings emissions savings. Claims that it backfires are a distraction, say Kenneth Gillingham and colleagues.

Split Incentives in Residential Energy Consumption

We explore two split incentive issues between owners and occupants of residential dwellings: heating or cooling incentives are suboptimal when the occupant does not pay for energy use, and insulation incentives are suboptimal when the occupant cannot perfectly observe the owners insulation choice. We empirically quantify the effect of these two market failures and how they affect behavior in California. We find that those who pay are 16 percent more likely to change the heating setting at night and owner-occupied dwellings are 20 percent more likely to be insulated in the attic or ceiling. However, in contrast to common conception, we find that only small overall energy savings may be possible from policy interventions aimed at correcting the split incentive issues.

The Rebound Effect and Energy Efficiency Policy

What do we know about the size of the rebound effect, the well-known phenomenon that improving energy efficiency may save less energy than expected due to a rebound of energy use? Is there any validity to the claims that energy efficiency improvements can actually lead to an increase in energy use (known as backfire)? This article clarifies what the rebound effect is and provides a guide for economists and policymakers interested in its existence and magnitude. We discuss how some studies in the literature consider a rebound effect that results from a costless exogenous increase in energy efficiency, whereas others examine the effects of a specific energy efficiency policy—a distinction that leads to very different welfare and policy implications. We present the most reliable evidence available about the size of the energy efficiency rebound effect and discuss situations where such estimation is extraordinarily difficult. With this in mind, we present a new way of thinking about the macroeconomic rebound effect. We conclude that overall, the existing research provides little support for the so-called backfire hypothesis. However, our understanding of the macroeconomic rebound effect remains limited, particularly as it relates to induced innovation and productivity growth. (JEL: H23, Q38, Q41)

Internet and the Efficiency of Decentralized Markets: Evidence from Automobiles

We estimate the effect of Internet on volume of trade in a major distributed marketplace. From 1997 to 2007, a period during which residential Internet use tripled, Internet increased the volume of used cars traded in California by 7.2 percent. This implies a substantial welfare gain due to reductions in market frictions. Additional gains may accrue when externalities are associated with the rate of vehicle fleet turnover (e.g. with respect to greenhouse gas emissions from fuel economy standards).