“It’s Not Easy Being Green”
Hearing Kermit the Frog say, “It’s not easy being green,” Mexican environmentalists might agree.
Since March 2009, Mexican households have been offered cash payments or subsidized loans for replacing refrigerators and air-conditioners that were more than 10 years old with new energy efficient appliances. The goal was to diminish electricity usage and carbon dioxide emissions. So far, 1.5 million households have participated.
Surprisingly, refrigerator savings were less than expected and air-conditioner use increased. Researchers believe that newer refrigerator models were larger and had extra features like ice makers that somewhat offset their energy savings. For air-conditioners, people just used them much more.
Energy savings programs are tough to design and evaluate. As with refrigerators and air-conditioners, changing incentives can have unpredictable consequences. In addition, even if an energy savings program does not save energy, it still could provide considerable benefits far beyond its costs because of better refrigeration and cooler homes. And finally, we should always remember the “rebound” effect. Explained by William Jevons in an 1865 book called The Coal Question, the “rebound” effect resulted when the energy efficiency created by the steam engine encouraged more energy use rather than less. Jevons said, “It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is truth.”
Maybe Kermit was right.
This NBER paper fully describes the Mexican cash for coolers program and if you want to read more about the rebound effect, I suggest this fascinating New Yorker article. For a more academic study, this Congressional Research Service (CRS) report explains that the “rebound” effect is most evident in a developing economy because slack demand can lead to considerable increase in energy use. In a mature market, the “rebound” effect is less pronounced.