Efficiency in Domestic Space Heating: An Estimation of the Direct Rebound Effect for Domestic Heating in the U.S.

Improvements in energy efficiency are increasingly seen as a key strategy to reduce energy consumption in the domestic sector. Yet, concerns are mounting that households rebound, meaning that they adapt to efficiency gains by increasing their demand, as efficiency improvements reduce relative costs of energy. This study investigates the elasticity of household energy consumption for space heating with respect to changes in household heating efficiency. We account for the simultaneity of energy efficiency and energy consumption by applying an instrumental variable approach. Using data from the 2009 Residential Energy Consumption Survey, we document that while there is substantial ‘takeback’ among US households, rebound rates are far too small to dominate energy savings from these improvements. Estimates of the direct rebound effect in domestic heating are about 30%. Moreover, we find no evidence for a substantial indirect rebound at the household level. However, we document that the degree of ‘takeback’ increases in energy prices, suggesting that price-based and efficiency-based policy instruments may counteract each other.