A new approach to measuring the rebound effect associated to energy efficiency improvements: An application to the US residential energy demand

- A new approach to measuring rebound effects in energy consumption is presented.
- We illustrate our proposal with an application to US residential energy demand.
- Relatively large rebound effects in the range of 56-80% are found.
- Energy-inefficient states tend to exhibit low rebound effects.
- We identify states where energy-saving policies should be more effective.

This paper brings attention to the fact that the energy demand frontier model introduced by Filippini and Hunt (2011, 2012) is closely connected to the measurement of the so-called rebound effect associated with improvements in energy efficiency. In particular, we show that their model implicitly imposes a zero rebound effect, which contradicts most of the available empirical evidence on this issue. We relax this restrictive assumption through the modelling of a rebound-effect function that mitigates or intensifies the effect of an efficiency improvement on energy consumption. We illustrate our model with an empirical application that aims to estimate a US frontier residential aggregate energy demand function using panel data for 48 states over the period 1995 to 2011. Average values of the rebound effect in the range of 56-80% are found. Therefore, policymakers should be aware that most of the expected energy reduction from efficiency improvements may not be achieved.