This post looks at two more of the themes that this year’s Green Week explored; decoupling growth from resource use and the rebound effect, when efficiency increases are offset by consequent increases in consumption.
The United Nations Environment Programme’s International Resource Panel (UNEP IRP), referred to as the IPCC’s little brother, was represented by its co-chair, Prof. Dr. Ernst von Weizsäcker, who told the audience that the notion that we are somehow doomed to maintain the same level of resource consumption is a myth we can no longer afford.
Professor Mark Swilling, another IRP member, pinpointed the two trends, which combined, have been so damaging over the last century – rising demand for resources and decreasing prices. Now however we have reached the end of the era of declining resource prices – since 2002, resource prices have been rising more or less continuously. And this has fundamental implications for everything – not least, for how we train our economists.
Swilling’s comments were in the context of discussions about decoupling. Relative decoupling is a reduction in the resource intensity of the economy (where the rate of increase in resource use is lower than the rate of increase in GDP). There is some evidence for relative decoupling, as GDP increased 23 fold over the last century, whereas resource use only increased 8 fold. In other words, GDP has grown faster than resource use, with resource efficiency increasing by 1 to 2 per cent each year. However, there is no evidence for absolute decoupling (an absolute reduction in total resource use, even as GDP continues to grow). Swilling emphasized that decoupling has a scientific definition, and when the media uses the term decoupling to refer to “separating the economy from the environment, they are talking nonsense.”
One commentator said that evidence for relative decoupling is based on looking at GDP, the very concept which has been agreed to be flawed and misleading (see previous post). They suggested that the same people who are critical of GDP are using it to show evidence for relative decoupling. Using other kinds of indicators might eliminate the evidence for even relative decoupling. Another critic argued that in developed countries, where evidence for relative decoupling is found, “we are not de-coupling, we are out-sourcing.” Decoupling, it was proposed, is simply the concept we’re using to cling on to the idea of economic growth.
Economic growth issues cropped up in response to the concern that rising resource prices (which were mentioned as both an existing trend, and suggested as a way to reduce wasteful use of resources) undercut growth. Of course, greater resource productivity is seen as a response to this. It was also noted that price should not be linked only to the availability of a resource, but to environmental and social externalities (the costs of things, like pollution, not currently included in prices) and to taxes.
Prof. Jacqueline McGlade from European Environment Agency made the point that it is our patterns of consumption that have caused our biggest efficiency gains – when prices increase, consumption drops – rather than big increases in material productivity.
Europe imports six times the amount of material it exports, and has a resource footprint 40-50 times than of Africa, despite the fact that Africa is the least resource efficient continent. One audience member made the point that we should be talking about resource constraints not resource efficiency – because resource efficiency improvements may be offset by consequent increases in consumption – i.e. the rebound effect.
The Rebound Effect
The rebound effect (RE) is when efficiency gains are reduced or even outweighed by increases in consumption. Most examples of the rebound effect are price induced. When greater efficiencies are reflected in lower prices, this can lead to increased consumption.
- Direct RE: when a particular product becomes more efficient, that product is used more – e.g. driving a fuel efficient car more frequently and/or further.
- Indirect RE: when money saved from using a more efficient (and therefore cheaper to run) product is spent on some other kind of consumption – e.g. money saved on heating after insulating a house spent on flights.
- Economy wide RE: the combined results of direct and indirect REs.
Providing the RE is less than 100 per cent (beyond which an efficiency driven policy “backfires”), there are still savings, and so efficiency driven policies are still worth while. There have been numerous studies conducted, that have resulted in quite varied estimates of REs (depending on the models used and the assumptions in them, as well as variables like location, technology, production, time, price, income, expenditure, etc). The price elasticity of demand (if something becomes cheaper, how much more of it will people buy?) is an important factor which affects REs. It was also noted that there is difficulty in measuring indirect and economy wide REs, and there is an evidence gap for wider resource REs (beyond energy). Nonetheless, there is a strong and growing evidence base for certain kinds of REs. In developed countries, for example, direct REs for personal transport, household heating and cooling, appliances and lighting, have been estimated to be between 10 and 30 per cent.
The upper limits of some estimates however are as high as 100 to 300 per cent i.e. some efficiency improvements may be backfiring, and resulting in greater consumption. It is therefore important to identify where REs occur, or will occur, and take steps to minimize them. The strongest tool for this is the use of mixed policy instruments, which include:
- More energy and resource efficient technology e.g. LEDs;
- Behavioural considerations – ensuring consumers have the necessary information and understanding. Most models, forecasts and policies for resource and energy efficiency (which tend to have the goal of overall reduction in consumption) do not include REs, which consequently means we have a bigger challenge, and less time than we thought. This makes education and involvement of people all the more crucial, to get consumers to try to reduce their overall consumption, and to see that buying “green” products and then using them more (because of a sort of “I’ve gone green” feelgood factor) is counter-productive. There must be a strong emphasis on demand control;
- Fiscal measures – to stop the price decrease that efficiency increases bring. Without including the fiscal aspect, the strategy won’t work. Clearly, welfare issues (e.g. fuel poverty) must be taken into account in how this is done.
The embodied energy in products is also important – buying a fuel efficient car not only may encourage you to drive more, but it also takes a lot of energy and resources to build that car. Embodied energy is not insignificant – globally, it was said, two-thirds of energy is consumed in the production of goods and services (rather than their end use consumption, e.g. personal transportation and household). Full, life-cycle, accounting is necessary to include direct, indirect REs and embodied energy, which incorporate global flows of resources and energy. What’s more, energy efficiency improvements rarely occur in isolation – system optimisation will be key.