Estimating the direct rebound effect for residential electricity use in seventeen European countries: Short- and long-run perspectives

The energy saved by improving the building efficiency of European households may not be as much as expected due to a rebound effect. Based on Eurostat and World Bank annual panel data covering the period 1996–2020, this article develops dynamic panel approaches, a generalized method of moments, and first-difference specifications, to investigate the direct rebound effect of residential electricity consumption in selected European countries. Instrumental variable techniques are used to tackle the reverse causality of the electricity price in a demand model. Estimates of the direct rebound effect in residential electricity use are 18% in the short-run and 43% in the long-run. Our findings reject the hypothesis of a backfire effect in residential electricity demand. They have important implications for policy makers, suggesting the need for smart policies that consider energy consumption behaviors and decision-making processes among various households.