This paper develops a methodology to test the induced innovation hypothesis by estimating a product-characteristics model of energy-using consumer durables, incorporating the influence of government regulations. The authors find that the rate of overall innovation is independent of energy prices and regulations, while the direction of innovation is responsive to energy price changes for some products but not others. Energy price changes induce changes in the subset of technically feasible models offered for sale, with this responsiveness increasing significantly after the implementation of energy-efficiency product labeling. However, a substantial portion of efficiency improvements is autonomous. The study decomposes the overall change in energy efficiency into components due to overall technological change, directional technological change, and model substitution, providing insights into the factors driving technological change in energy-efficient products.This paper develops a methodology to test the induced innovation hypothesis by estimating a product-characteristics model of energy-using consumer durables, incorporating the influence of government regulations. The authors find that the rate of overall innovation is independent of energy prices and regulations, while the direction of innovation is responsive to energy price changes for some products but not others. Energy price changes induce changes in the subset of technically feasible models offered for sale, with this responsiveness increasing significantly after the implementation of energy-efficiency product labeling. However, a substantial portion of efficiency improvements is autonomous. The study decomposes the overall change in energy efficiency into components due to overall technological change, directional technological change, and model substitution, providing insights into the factors driving technological change in energy-efficient products.