Efficiency, conservation, and the Jevons Paradox

Given the preponderance of government energy policies aimed at promoting technical efficiency, a careful consideration of the Jevons Paradox is in order. I’ve spent some time this summer reading about William Stanley Jevons, one of the three 19th-century economists co-credited with sparking the marginal revolution, and especially Jevon’s book The Coal Question. Most recently I’ve been reading the recently published The Myth of Resource Efficiency: The Jevons Paradox (2009).

Joseph Tainter’s foreword to The Myth of Resource Efficiency provides a clear statement of the importance of The Coal Question:

In his 1865 work The Coal Question, William Stanley Jevons (1835-1882) expressed the concern that Britain would lose its economic dynamism and preeminence in the world due to an inevitable depletion of its reserves of easily mined coal. Of course he did not foresee the dominance of petroleum, even denying its likelihood, and so the central worry of the book turned out to be misplaced. But The Coal Question contains a gem that enshrines the book as among the most significant works of resource economics. That gem is know today as the Jevons Paradox. It cannot be expressed better than in Jevons’s own Victorian prose:

It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth. (Jevons, 1866, p. 123)

As a rule, new modes of economy will lead to an increase of consumption… (Jevons, 1866, p. 123)

Now, if the quantity of coal used in a blast-furnace, for instance, be diminished in comparison with the yield, the profits of the trade will increase, new capital will be attracted, the price of pig-iron will fall, but the demand for it increase, and eventually the greater number of furnaces will more than make up for the diminished consumption of each. (Jevons, 1866, p. 124-125).

In short, as technological improvements increase the efficiency with which a resource is used, total consumption of that resource may increase rather than decrease. This paradox has implications of the highest importance for the energy future of industrialized nations. It suggests that efficiency, conservation and technological improvement, the very things urged by those concerned for future energy supplies, may actually worsen our energy prospects.

The Myth of Resource Efficiency, written by John M. Polimeni, Kozo Mayumi, Mario Giampietro, and Blake Alcott, examines the Jevons Paradox from several angles – everything from history of economic thought, to the methodological issues raised by measuring values over time, to application of complex adaptive systems thinking, to efforts to test empirically for efficiency-driven rebound and backfire effects.

One of the points the authors make quite clearly is that there is more to the Jevons Paradox than the direct effect of more-efficient resource use on demand for that resource, there is an indirect effect as well. Tainter in his foreword illustrates the idea clearly in reference to a poll conducted in Sweden concerning the environmental effects of meat consumption. When asked, “If you were to eat less meat in your daily diet, what would you do with the money this saves?” the surveyed Swedes indicated that they would travel more. Tainter pointed out that travel comes with environmental costs, just as eating meat does.

The energy efficiency policy implications are clear. Improvements in automobile fuel efficiency, for instance, reduce the cost of travel and would tend to lead to at least some additional travel and attendant fuel consumption. That additional travel will eat into some (or all, or more than all in extreme cases) of the conservation gains that might have been expected of the efficiency improvement. Yet beyond the direct rebound of improved fuel efficiency on fuel consumption, any consumer savings on fuel expense may also be spent other energy-resource-using activities. From the broad view of conservation policy, all such rebounds are relevant.

It is not exactly an optimistic book, as the Vaclav Smil blurb on the back indicates, “it may leave an unsuspecting reader rather depressed.” Smil follows the remark with a “[but] it leaves all of us better prepared to face the reality.” The macro-scale empirical work reported in the book say “energy-efficient technological improvements will not work. Rather, energy-efficiency technology improvements are counter-productive, promoting energy consumption. Yet energy efficiency improvements continue to be promoted as a panacea.”

But I’d say the depressing effects of the book mostly apply within a depletionist wordview. If you are worried that the world is on a downward Malthusian slide, then efficiency policy is a bright light guiding you through the tunnel. According to the book, the bright light is the headlight of an oncoming train: efficiency policy promotes faster depletion.

For us cheery resource optimists, however, the book remains valuable. Resource optimists like to use rebound effects to beat up on energy efficiency policy proposals. This book illustrates both how powerful this tool is that Jevons has given us and how subtle and complicated it can be to apply the tool well.

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