In my undergraduate environmental economics class at UCLA, I ask my students to discuss whether buying a Prius could increase their gasoline consumption and thus increase their greenhouse gas production. David Owen would argue that it certainly could. Suppose that I used to drive a vehicle that achieved only 25 MPG. If gasoline is priced at $3 per gallon, then I used to pay 12 cents per mile of driving. If I now purchase a Prius that achieves 50 MPG, and gas prices continue to be $3 per gallon, then I will now pay a price of 6 cents per mile of driving. This 50% reduce in the price of driving is likely to encourage me to drive more. But, will my overall gasoline consumption actually rise? It only would if I respond to this reduction in the price per mile of driving by more than doubling my mileage. Why? Suppose I used to drive my 25 MPG vehicle 10,000 miles per year. I would need to buy 400 gallons of gasoline for this driving. If I now drive my Prius 25,000 miles per year (more than double) then indeed David Owen would be right as he would observe that my gasoline consumption has increased to 500 gallons per year. No empirical economist believes that the demand for driving is so responsive to this incentive effect.
In the case of car driving, remember that somebody has to drive the car! Suppose that you can drive at 30 miles per hour in your city. To drive 10,000 miles per year will require 333 of your precious hours. While to drive a Prius 25,000 miles would require over 800 hours. Remember that time is money! Suppose that for every hour you drive that you could have worked and earned a wage of $20 per hour. Will owning the Prius really increase your driving? A mile of driving a Prius costs you 6 cents of fuel and at 30 miles per hour costs you 2 minutes of time which valued at 33 cents a minute (20/60) equals 66 cents. So the total cost per mile is 72 cents. A mile of driving of your old MPG vehicle costs you 12 cents of fuel and 66 cents in lost time so the total cost is 78 cents. This reduction in total cost from 78 cents to 72 cents is tiny. As shown by this arithmetic, the “rebound effect” is swamped by the value of time.
While I enjoyed reading David Owen’s piece and I’m a full fan of rediscovering old economists such as Jevons (in fact I hope that in the year 2300 that my current work such as Climatopolis will be rediscovered), Owens exaggerates the importance of the “rebound effect”. Recall that the rebound effect makes the counter-intuitive claim that increases in energy efficiency increase energy consumption.
For products that require our time to use (such as driving) or for which we have limited demand (refrigerators), I do not believe that the rebound effect is an important issue. Consider another example, building energy codes. In California, new construction has faced more stringent energy efficiency standards. In this case, there is no “rebound effect”. No Don Trump builds a bigger building because energy efficiency per square foot has increased.
There are certainly cases in which David Owen is right. Consider the washing machine for clothes and dishes. As washing machines become more efficient and cheaper to operate, people do more loads of wash. This technology saves us time and people have a very high demand for clean underwear! Consider a central air conditioning system. There are people who would love to set their thermostat at 65 degrees on a hot summer day. In the past , when AC units were inefficient this would have cost a fortune. As air conditioning units become more energy efficient, some people may choose to lower their summer thermostat reading. While such diversity exists, the average person will choose to have a lower energy bill. My bottom line is that energy efficiency improvements will shrink our carbon footprint.