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An example of a rebound effect would be the driver who replaces a car with a fuel-efficient model, only to take advantage of its cheaper running costs to drive further and more often. Or a family that insulates their loft and puts the money saved on their heating bill towards an overseas holiday.

According to the report's chief author, Steve Sorrell, Senior Fellow at UKERC:
"Rebound effects have been neglected by both experts and policymakers - for example, they do not feature in the recent Stern and IPCC reports or in the Government's Energy White Paper. This is a mistake.  If we do not make sufficient allowance for rebound effects, we will overestimate the contribution that energy efficiency can make to reducing carbon emissions.  This is especially important given that the Climate Change Bill proposes legally binding commitments to meet carbon emissions reduction targets.  We need to get the sums right."

The difficulty of developing policy to take rebound effects into account is exacerbated by disagreement over the significance of rebound effects.  Some believe that they are insignificant, while others argue that energy efficiency measures lead to increased energy consumption - an outcome that has been termed 'backfire'.

The report argues that rebound effects vary widely between different technologies, sectors and income groups so that general statements about the size of such effects can be misleading.

Steve Sorrell added:
"Rebound effects are notoriously complex.  Generally speaking we expect rebounds will be large in energy intensive sectors and smaller for households or small businesses. This is important, since energy efficiency policy usually targets these smaller users."

Rebound effects can be both direct (e.g. driving further in a fuel-efficient car) and indirect (e.g. spending the money saved on heating on an overseas holiday).  The evidence is that direct rebound effects are usually fairly small - less than 30% for households for example. Much less is known about indirect effects. However the study suggests that in some cases, particularly where energy efficiency significantly decreases the cost of production of energy intensive goods, rebounds may be larger.

To avoid energy efficiency gains from undermining the benefits to climate policy, the report's authors recommend building 'headroom' into policy targets to allow for rebound effects, raising energy prices in line with energy efficiency improvements or imposing absolute caps on emissions.