Residential energy demand in OECD-countries and the role of irreversible efficiency improvements

After undergoing substantial changes during a period of high energy prices, household energy demand did not rebound in times of declining energy prices as might have been expected. Hence, other factors, such as irreversible improvements in technical efficiency, must be understood in order to describe both past and future household energy demand. In this paper we consider irreversible efficiency improvements as a major reason for the moderate growth in energy demand after the plummeting of the oil price in 1985. We test different econometric models to take into account efficiency indicators. The major conclusions of our investigation are: (i) price elasticities are different for rising and falling prices - for the latter they are close to zero, implying a low rebound-effect in the residential sector; (ii) technical efficiency is an important parameter for describing and forecasting energy demand; and (iii) income elasticities turn out to be higher once we incorporate indicators of technological efficiency in the process of estimating energy demand. (C) 1998 Elsevier Science B.V. All rights reserved.