The paper examines the induced innovation hypothesis in the context of energy-saving technological change, testing whether energy prices and regulations influence innovation in energy-using consumer durables. Using a product-characteristics model, the authors analyze data on room air conditioners, central air conditioners, and gas water heaters over several decades. They estimate a "characteristics transformation surface" to measure changes in product characteristics over time and assess how energy prices and regulations affect energy efficiency improvements. The findings suggest that while the overall rate of innovation is independent of energy prices and regulations, 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, and this responsiveness increased significantly after energy-efficiency labeling became mandatory. However, a substantial portion of efficiency improvements remains autonomous, not directly driven by price changes or regulations. The study decomposes energy efficiency improvements into three components: overall technological change, directional technological change, and model substitution. It finds that energy price changes have a significant effect on directional technological change, particularly for room air conditioners. Energy-efficiency standards also influence innovation, with direct effects on energy efficiency improvements for room air conditioners and gas water heaters. The results indicate that energy prices and regulations have had a measurable impact on energy efficiency improvements, but a significant portion of efficiency gains are autonomous. The paper concludes that while energy prices and regulations can induce innovation, a large portion of energy efficiency improvements are not fully explained by these factors. The study highlights the importance of considering both market-driven and regulatory influences in understanding technological change.The paper examines the induced innovation hypothesis in the context of energy-saving technological change, testing whether energy prices and regulations influence innovation in energy-using consumer durables. Using a product-characteristics model, the authors analyze data on room air conditioners, central air conditioners, and gas water heaters over several decades. They estimate a "characteristics transformation surface" to measure changes in product characteristics over time and assess how energy prices and regulations affect energy efficiency improvements. The findings suggest that while the overall rate of innovation is independent of energy prices and regulations, 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, and this responsiveness increased significantly after energy-efficiency labeling became mandatory. However, a substantial portion of efficiency improvements remains autonomous, not directly driven by price changes or regulations. The study decomposes energy efficiency improvements into three components: overall technological change, directional technological change, and model substitution. It finds that energy price changes have a significant effect on directional technological change, particularly for room air conditioners. Energy-efficiency standards also influence innovation, with direct effects on energy efficiency improvements for room air conditioners and gas water heaters. The results indicate that energy prices and regulations have had a measurable impact on energy efficiency improvements, but a significant portion of efficiency gains are autonomous. The paper concludes that while energy prices and regulations can induce innovation, a large portion of energy efficiency improvements are not fully explained by these factors. The study highlights the importance of considering both market-driven and regulatory influences in understanding technological change.