Abstract
Energy efficiency improvement leads to a reduction in the real cost of energy services per unit, thus bringing about an increase in the demand for energy services. Therefore, the potential energy savings and emission reduction from efficiency improvements might be offset, which is known as “the rebound effect”. This study disaggregates the effect into the direct and indirect effects based on the Slutsky Equation and finds that the rebound effect of Chinese urban households is approximately 22%. It is found that the indirect effect is stronger than the direct effect. These findings prove that the initial goals of the government on energy conservation and emission reduction could not be achieved by improving energy efficiency alone, but need to be supplemented with relevant energy pricing reforms.
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