Yale Professor Discusses the Economics of Conservation
In a comment piece published in Nature on January 24, Kenneth Gillingham of the Yale School of Forestry and Environmental Studies and Assistant Professor of Economics argues that the size of the “rebound effect” – the small bounce in consumption that follows a decrease due to efficiency improvements – is often overestimated.
To visualize the rebound effect at work, suppose American auto manufacturers develop more fuel-efficient cars. Because each gallon of gas provides more mileage, gas is relatively cheaper and people are inclined to drive more. Second, some of the money saved on gas will be spent on other energy-consuming goods. Additionally, improved efficiency might spur economic growth, which consumes energy. And finally, if American demand for oil decreases, oil will become cheaper globally, increasing consumption abroad.
Some argue that these effects are so significant that any increase in efficiency is sure to backfire, increasing rather than decreasing energy consumption. This would mean that “we should not put in any energy efficiency policies,” says Professor Gillingham. In the face of a growing population, the debate has serious implications for energy policy.
However, by examining macroeconomic data and conducting studies on consumer responsiveness to changes in efficiency and prices, Professor Gillingham has shown the size of the rebound effect to be exaggerated. In the developed world, the rebound effect results in only between a 20 percent and 60 percent reduction in savings. Gillingham emphasizes, therefore, that setting efficiency standards remains an effective way to confront the problem of energy consumption. The debate over energy policy rages on: there has already been a counterargument to Gillingham’s piece published in Nature on February 28.