Rebound Effects

In most cases of efficiency improvements, reductions in total resource consumption are smaller than could theoretically be expected. The reason for this is so called rebound- or take back effect. It results from changes in the behaviour of relevant actors (producers and consumers) who respond to efficiency increases. Rebound effects are mainly explained by economic feedbacks. However, social-psychological factors are also considered relevant, especially for the consumer side. 


Rebound effects can be divided into direct effects, indirect effects and economy-wide effect. These effects usually offset some of the resource savings that would otherwise be achieved by efficiency gains. In extreme cases, however, they can even result in an increase of resource consumption after efficiency improvements (Jevons’s paradox). 


Rebound effects should be taken into account in all assessments dealing with efficiency improvements in order to obtain realistic estimates of resource savings and to adequately inform policy making.


What are rebound effects?  

In many cases of efficiency increases, ex-post analysis reveals that reductions in total resource consumption are smaller than could be expected based on efficiency improvements. These effect is called rebound- or take back effect and results from changes in the behaviour of relevant actors after efficiency increases. It is best documented for the field of energy efficiencies but is also applicable to other fields relevant to agricultural management. Rebound effects are considered to occur mainly due to economic feedbacks, as more efficient resource use lowers production costs and the price of goods and services based on the respective resources. Under the assumption of rational economic agents, this price effect leads to increased production and/or consumption, thereby offsetting part of the initial resource savings (Kolstadt et al., 2014). However, while the majority of studies on rebound effects focus on economic feedbacks, de Haan et al. (2015) point out that purely rational behaviour is a valid assumption only for producers of goods and services but not for consumers. For this group, social-psychological factors also create rebound effects. Finally, policies promoting energy efficiency also affect economic variables or social-psychological factors and can therefore create rebound effects as well. 


Rebound effects can be divided into a) direct -, b) indirect - and c) economy-wide effects (Kolsadt et al., 2014). For rebound effects to occur, the resource use efficiency of a process must improve. In this section, we use the term process to refer to production processes which consume resources in order to provide services. These services can be immaterial (e.g. light, heat) or material (e.g. food, drinking water) and explicitly include the production of goods.




a) Direct rebound effects


Direct rebound effects occur if efficiency increases in a process result in an increasing demand for it, thereby also creating additional demand for the resource it consumes. 


From an economic point of view, higher efficiencies mean lower production costs. This can motivate producers to increase production. Furthermore, producers may opt to use the more efficient process to substitute other production factors. Where lower costs result in lower prices, consumers usually react to this with increased consumption which in turn creates demand for increased production. 


From a social-psychological point of view, services produced by processes that consume fewer resources are perceived as more positive than those produced conventionally. This is especially the case if those services are labelled as socially or environmentally friendly (e.g. energy from renewable sources). Where consumers restrict their consumption due to awareness of resource use implications, they may be less hesitant to consume services from more efficient processes, thereby creating additional demand. 



b) Indirect rebound effects


Indirect rebound effects occur if efficiency increases in a process result in an increasing demand for other processes that consume the same resource.


Where higher efficiency translates into financial gains for producers and/or consumers, all or part of this money is usually spent on additional consumption of goods and services. For example, if households switch to more energy efficient appliances, they will save on energy consumption and money. However, if this money is used to pay for a holiday flight, part or all of the savings are offset in an indirect rebound effect. 


From a social-psychological point of view, de Haan et al. (2015) argue that many consumers implicitly evaluate their own behaviour and apply a budget to their resource consumption. Being more environmentally friendly in one respect therefore may lead to less self-restriction in other areas. 



c) Economy wide rebound effects


Economy wide effects are caused if not only individual actors are affected by the efficiency gains, but if there are resource use implications for the whole economy through increases in wealth, production or consumption; or through the introduction of technological innovations made possible by the more efficient process. For example, the introduction of chemical fertilizer dramatically increased the productivity (crop yield per hectare) of agricultural production, but had implications that also affected economies as a whole.

Increasing resource use efficiency (RUE) is considered to create a win-win situation by improving farmers’ economic performance while at the same time alleviating pressures on the environment (O´Brien et al, 2014). However, not accounting for rebound effects is most likely to result in an overestimation of resource savings. In extreme cases, resource consumption can even be higher after efficiency increases than before. Considering rebound effects is necessary to create reliable estimates of resource savings and to compare the efficacy of increasing efficiencies with other policy options for reducing resource consumption. Furthermore, considering rebound effects allows for policy formulation aimed at addressing and reducing rebounds.   
Estimating size of the rebound effects
The rebound effect is defined as the share of resource savings which would be expected from efficiency increases if all other factors remained unchanged, but which do not materialise.

Equation 1: Rebound Effect


While there is scientific consensus regarding the existence of rebound effects, there is little agreement on their size. Values provided in scientific literature for increases in energy efficiency vary considerably (Kolstadt et al., 2014). However, while it is difficult to estimate the size of rebound effects, the implicit assumption of zero rebound in many studies is not supported by scientific evidence (Maxwell et al, 2011). De Haan et al. (2015) point to the complications of assessing the size of rebounds and argue that studies based on top-down evaluations of time series tend to overestimate effects due to problems of separating increased resource consumption caused by economic growth and increasing consumers’ wealth from increased resource consumption caused by increased efficiencies. On the other hand, they consider process-based, bottom-up studies to generally underestimate rebound sizes because they cannot account for economy wide effects. 

For the agricultural sector, there are a number of studies investigating rebound effects of introducing more efficient irrigation technologies (Berbel & Mateos, 2014; Dumont et al, 2013; Loch & Adamson, 2015, Mehmeti et al., 2016), some even reporting rebound effects greater than 100% (Pfeiffer & Lin, 2014; Sun et al.,2016). For other resources used in agricultural management, very few studies exist at the time of writing and studies focussed on efficiency gains mostly ignore rebound effects. Lambin & Meyfroidt (2011) discuss potential implications of rebound effects from raising agricultural productivity on the global demand for agricultural land. Also related to the effect of yield improvements on demand for cropland, Ewers et al. (2009) show in a global study on yields and land use between 1979 and 1999 that land sparing occurred in some cases, but that for developed countries there was no evidence that increases in agricultural productivity resulted in lower per capita cropland demand. For the link between agricultural productivity and greenhouse gas emissions, Valin et al. (2013) found strong demand-based rebound effects in a global modelling study until the year 2050. These rebounds severely reduced modelled greenhouse gas savings. 

Rebound effect sizes vary and can be greater than 100% in extreme cases. This phenomenon is called backfire or Jevons´s paradox, after British economist W.S. Jevons who observed in his book “The coal question” (1865) that more efficient use of coal through technical innovation led to higher instead of lower total consumption. Based on this, he postulated that higher fuel efficiencies always led to higher resource exploitation (Jevons, 1865; Alcott, 2005). The same theory was reiterated in the 1980s by economists Khazzoom and Brookes and termed by Saunders (1992) the Khazzoom–Brookes postulate. 

While Jevons’s paradox was formulated for the energy sector, cases where both resource use efficiency and total resource use increased are also found in other sectors. Pfeiffer & Lin (2014) report an example from western Kansas/ USA, where a shift to more efficient irrigation technologies correlated with increased total water use. They explain this effect by farmers changing from non-irrigated to irrigated crops, reducing fallow periods and increasing per hectare irrigation. Similarly, Sun et al. (2016) found that increased water use efficiencies in Bayannur /Inner Mongolia in the period between 2000 and 2010 coincided with increased total water consumption. They state that savings were utilised to increase production rather than to alleviate pressures on the environment.

Estimating size of the rebound effects
Rebound effects result from changes in the behaviour of relevant actors. They are based on multiple variables and are therefore very difficult to quantify. For rebounds resulting from economic feedbacks, general equilibrium models can help to estimate reactions of market participants. For rebounds due to social-psychological factors, only very little research exits (Maxwell, 2011).

In general, rebound sizes are considered to correlate with the following factors (de Haan et al., 2015): 

-  Relative size of the efficiency improvement (%)
-  Relative share of savings of total production costs (%)
-  Degree to which production is limited by availability of the more efficiently 
   used resource (e.g. limited allocation of irrigation water, limited amount of 
   allowable fertiliser application)
-  Degree to which the more efficient process can be used to substitute other   
   production factors
-  Relative price reductions for the final product (%)
-  Degree by which the consumption of the product is perceived as more positive  
   (e.g. social or environmentally friendly) than before
-  Demand elasticity, degree to which is demand currently unsaturated
-  Low degree of other costs associated with product consumption 
   (e.g. in the field of mobility, travel-time is often more relevant than travel-cost)
-  Degree to which the more efficiently used resource is also used in the 
   production of alternative good and services (the demand for which might  
   increase with increasing wealth)
-  Degree to which the more efficient resource use triggers technical innovation 
   in other sectors

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