How does residential electricity consumption respond to electricity efficiency improvement? Evidence from 287 prefecture-level cities in China

Abstract

Energy conservation from efficiency-oriented policies could be undermined due to the substitution effect and the income effect originating from the fact that energy efficiency improvement decreases the real price of electricity consumption. The ratio of the electricity consumption caused by the substitution effect and the income effect to the potential energy savings is termed the rebound effect. The magnitude of the rebound effect depicts how residential electricity consumption responds to electricity efficiency improvement. This paper adopts a stochastic electricity demand frontier approach based on the panel data covering 278 cities in China to uncover the relationship between electricity efficiency and residential electricity consumption. The main results show that 48.88% of the energy saving from efficiency improvement is offset due to households’ behavior adjustments. We also find that residential income, population density, and temperature deviation are vital determinants of residential electricity consumption, whereas household size significantly shapes the magnitude of the rebound effect. The empirical findings imply that different regions in China should design supporting policies for energy efficiency improvement according to local conditions considering that households are incentivized to consume more electricity with efficiency improvement.