The core objective of this paper is to analyse the impact of changes in fuel intensity and car size on energy demand of passenger cars in EU-15 countries. Of special relevance in this context is how the rebound effect due to the change in car fuel intensity and car size (average engine power) affects the energy conservation effect. Lower fuel intensity reduces the cost of car travel, and may lead to further growth in vehicle kilometre driven and car size, while higher fuel prices may offset this effect to some extent. The major conclusion is that for passenger cars policies that only strive for efficiency improvements will have very limited success. It is necessary to introduce proper additional fuel taxes (to curb the increase in vkm) and size-dependent registration taxes (to avoid excessive increases in car size) to finally harvest the full societal benefits of better car efficiency. (C) 2012 Elsevier Ltd. All rights reserved.