0:13Skip to 0 minutes and 13 secondsAs we have seen earlier in this course, economics is about the behaviour of economic agents. Economists analyse how firms and consumers deal with scarce resources and how their decisions respond to changing circumstances. In the case of energy transition, an important relationship is the one between the price of energy and the use of energy. This relationship can be expressed as an elasticity, as we have discussed earlier. The existence of this relationship has wide implications. If a consumer, for instance, has insulated her house, she saves on energy. This is the direct effect of energy-saving. The indirect effect, however, is that the service provided by energy, in this case, heat, has become cheaper.

1:04Skip to 1 minute and 4 secondsIf her demand for heat is price-sensitive, this consumer will increase her consumption of heat. This indirect effect reduces the direct effect. This mechanism is called the "rebound effect." This effect exists on the micro level-- that means on the level of individuals-- but also on the macro level. If a specific type of industry has managed to increase its energy efficiency, its products may become cheaper. As a result, the demand for these products will increase. The size of the rebound effect differs strongly among consumers, industries, and countries. but on average, it is found in academic literature that this effect is about 50%. Hence, about 1/2 of the direct effect of implementing energy-saving measures is lost because of increased consumption of energy.

The rebound effect

In this video Machiel again discusses the important relationship between the price of energy and the use of energy, which we have expressed as an elasticity, and the wide implications it has, such as the rebound effect. Have you experienced the rebound effect in your own daily life? Please share your experiences with your fellow students in the comments section below.