Energy Efficiency and Rebound Effects in the United States: Implications for Renewables Investment and Emissions Abatement

By lowering the energy required to provide a service, energy efficiency can help society consume less energy, emit less CO2e and other air pollutants, while maintaining quality of life. In this work, I examine a key benefit of energy efficiency, reducing renewables investment costs, and a side-effect, expanding energy service demand, also known as the rebound effect. First, I assess the economics of an energy efficiency intervention, using dedicated direct current (DC) circuits to operate lighting in commercial buildings. I find that using DC circuits in grid-connected PV-powered LED lighting systems can lower the total unsubsidized capital costs by 4% to 21% and levelized annual costs by 2% to 21% compared to AC grid-connected PV LEDs providing the same level of lighting service. I also explore the barriers and limitations of DC circuits in commercial buildings. Second, I examine the rebound effect from residential energy efficiency investments through a model in which households re-spend energy expenditure savings from an efficiency investment on more of the energy service (direct rebound) or on other goods and services (indirect rebound). Using U.S. household expenditure data and environmentally-extended input-output analysis, I find indirect rebound effects in CO2e emissions of 5-15%, depending on the fuel saved and assuming a 10% direct rebound. Third, I examine the variation in the indirect rebound from electricity efficiency across U.S. states due to differences in electric grid mix, fuel prices, household income, and spending patterns. I find that the CO2e direct and indirect rebound effects vary across states between 6-40%, when including full supply chain emissions, and between 4-30% when including only combustion and electricity emissions. I conclude that energy efficiency can provide significant benefits for reducing energy expenditures, CO2e and other pollutants, and renewables investment costs under policy mandates, even after accounting for the rebound effect. While the CO2e rebound effect is currently modest in the U.S., there are some exceptions that may be relevant for energy efficiency policy assessments. In addition, more data collection and measurements of direct rebound effects are needed, especially in developing countries where the demand for energy services has not fully been met.