Does Renewable Energy Renew Energy Efficiency?

Since 2015, global progress in improving energy efficiency has lagged behind the targets set by the United Nations Sustainable Development Goals, in part due to behavioral barriers to such improvement. Rising renewable energy adoption may impact energy efficiency improvement by raising or lowering these barriers. The well-documented rebound effect—where renewable energy adoption may increase energy consumption—could hinder efficiency gains, whereas renewable energy adoption may also raise awareness of energy use, thereby driving efficiency improvement. This paper examines whether and how renewable energy adoption influences energy efficiency improvement. Using data from 183 sites of a multinational industrial conglomerate from 2015 to 2020, we estimate the impact of changes in renewable energy usage and procurement methods on energy efficiency improvement. We find that using renewable energy to satisfy an additional 10% of a site’s energy demand caused an additional 2.8%–6.1% improvement in energy efficiency. However, the impact varies significantly depending on the procurement approach. Sourcing off-site renewable energy led to energy efficiency improvement, whereas installing on-site renewable energy generation had either no effect or a negative effect. To understand the mechanism, we surveyed site managers and conducted further analysis by leveraging variations in on-site generation costs. Our results indicate that the rebound effect prevailed when sites adopted renewable energy with low ongoing costs. For corporations expanding renewable energy usage, we offer evidence of additional energy efficiency benefits, but capitalizing on these benefits requires careful consideration of the procurement approach. For policymakers, we provide guidance on prioritizing certain procurement methods to accelerate progress toward net-zero.

This paper was accepted by Jay Swaminathan, operations management.

Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2023.02165.