Original Article

Journal of Regulatory Economics

, Volume 43, Issue 3, pp 229-247

First online:

Motivating energy suppliers to promote energy conservation

  • Leon Yang ChuAffiliated withMarshall School of Business, University of Southern California
  • , David E. M. SappingtonAffiliated withDepartment of Economics, Warrington College of Business, University of Florida Email author 

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We examine the design of regulatory policy to induce electric utilities to deliver the surplus-maximizing level of energy efficiency services, \(e^{*}\). The rebound effect (whereby increased energy efficiency stimulates the demand for energy) typically renders revenue decoupling insufficient in this regard. The additional financial incentive required to induce \(e^{*}\) is shown to vary with such factors as the prevailing price of energy, the magnitude of the rebound effect, the extent of observable energy efficiency investments, and the utility’s objective.


Energy efficiency Energy conservation Incentive regulation

JEL Classification

D82 L50 Q40