Ever Heard of the Jevons Paradox?

by Oly Mike

David Owen wrote an interesting piece on the Jevons Paradox that ran in Dec 20 27 New Yorker called The Efficiency Dilemma. I recommend that you read the whole thing, but for those who want the short version:

Owens starts with a discussion of mandated efficiency, like average fuel economy, and how energy efficiency has been called the fifth fuel. Coal, petrol, nukes and renewables are the others. And then he starts to analyze this fifth fuel in small and large ways with concrete examples. Take the Arab oil embargo which led to the first fuel economy standards for vehicles. In the 30 years since the first fuel economy standard, the trend went to higher consumption, now lower. Cars got bigger, they got more powerful, and drivers have increased the number of miles they drive. Strange, right? If William Stanley Jevons was still alive, he would say, not strange. Counter-intuitive perhaps, but in Jevons' 19th century analysis of coal consumption in Great Britain, he projected that more efficiency coal smelter process would simply lower the price of iron, lower iron price would increase demand, and coal consumption would increase despite the efficiency gains that might be thought to reduce consumption.

Another Brit economist, Len Brookes rediscovered the Jevons Paradox in his analysis of the 1970s oil crisis and came to the same conclusion.

Here's a quote from Harry D. Sanders from his 1992 research on the issue: "With fixed real energy price, energy efficiency gains will increase energy consumption above where it would be without these gains." Many economists today refer to this cycle as rebound and many cite examples where efficiencies may not have increased consumption, but a large analysis of societies, efficiencies, and consumption continue to suggest that efficiency gains feed consumption.

If you believe that energy and consumption can simply continue to rise without a problem, then none of this discussion holds any interest to you (and you also probably believe the earth is 6000 years old), but the rest of us might want to think hard about how this works.

The article is full of interesting stats on wasted food, the increase in refrigerator space in the average home and how that matches up pretty well with the increase in body mass index, air conditioning, lighting, all sorts of stuff. It's a good read and can make you think. I haven't finished the article yet, it's the kind of dense read that I read slowly, repeatedly, with a fair amount of thinking ahead of implications instead of reading ahead for conclusions, and in that sense, I am thinking that the logical approach to efficiency and consumption may be to mandate efficiency, but tax energy as efficiency increases to keep energy demand constant. This could turn into a relatively painless tax since the price of energy bill would remain steady, but consumption would fall, and tax revenue would be generated on sliding scale to control rebound or increased demand that would otherwise arise from the efficiencies. Keynes was a fan of Jevons according to this article and it's easy to see why. The Jevons Paradox could fuel a lot of Keysnian economic ideas.

Of course, if you think an unregulated market is the solution to all problems, none of this makes any sense and Enron and Bernie Madoff are simply anomalies, not the natural product of deregulation. Earth? Clearly flat.