Energy Efficiency and the Rebound Effect: Does Increasing Efficiency Decrease Demand?

Intuitively it seems obvious to most observers that increasing energy efficiency will ultimately reduce demand for an energy resource such as electricity. Paradoxically, economic theory suggests that this decrease in demand and subsequent decrease in cost of using the resource could cause a rebound in demand. A commonly cited example is an increase in the efficiency of home air conditioning which may reduce the resident’s monetary incentive to conserve. The resident may opt to change the thermostat setting to keep the amount he pays constant, but living at a more comfortable temperature. When actually measured this “Rebound Effect” is generally acknowledged to lower predicted reductions in electricity demand by 10%-40% depending on the device that is made more efficient