hi Adrian,
This is the million dollar question ..

.. Yes, Dr. Atkins suggests that caffeine may stall weight loss by causing increased insulin levels -- and increased insulin leads to fat storage. Atkins doesn't provide any supporting documentation; and the Drs. Eades of Protein Power, and Drs. Heller of Carbohydrate Addicts do not restrict caffeine intake at all. A lot of lowcarbers ask this question, and the response is always YMMV (your mileage may vary) with plenty of anecdotes from both sides, yes it does and no, it doesn't. .. It's worth noting though, that caffeine is also restricted for individuals with other Insulin-resistance related syndromes, such as PCOS.
I did come across a recent study showing that caffeine sustains increased blood glucose levels --- after ingestion of 75 gm pure glucose with 200 mg caffeine, resulting in sustained increased insulin levels (Effects of caffeine on glucose tolerance: a placebo-controlled study.Eur J Clin Nutr 1998 Nov;52(11):846-9 (ISSN: 0954-3007)
It seems that for most people, caffeine does not interfere with weight loss effort. It's possible that any fat-storage effect of insulin is outweighed by the fat BURNING effect of the lowcarb diet, and is mostly significant to those persons who are very insulin-resistant.
On the subject of caffeine's role in fat-burning -- it seems that caffeine by itself has little or no DIRECT effect on fat metabolism, however, its autonomic effects - increased heart rate, dilation of peripheral blood vessels - speeds up the metabolism slightly, and this is what increases the oxidation of fat as fuel.
Combined with ephedra, caffeine again INDIRECTLY supports fat-burning by inhibiting substances that would prevent the release of lipids into the bloodstream to be used as fuel, namely adenosine (ATP). From
www.drumlib.com
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3.7: How does ECA work? A: Ephedrine works by stimulating the adrenal gland to release epinephrine. This hormone attaches to cell receptors (both alpha and beta) which play a role in the release of fat stored in the body's cells to provide energy (among other things). Caffeine assists in the thermogenic effect by inhibiting the release of some chemicals that would otherwise act to counter the effects of ephedrine. Aspirin works in a similar fashion to caffeine in inhibiting a feedback mechanism. Beta agonists (like ephedrine) have been shown to have an anti-catabolic effect also. That is, they help spare lean body mass when dieting. It is believed that ephedrine aids in protein sparing and may actually aid in protein synthesis....
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Hope this is helpful ..
Doreen