Here is great piece from a poster over at the oildrum. He was responding to my criticism of Robert Rapiers take on conservation and Jevon's Pardox. Here is Rapier's piece
http://www.energybulletin.net/25102.html
Sparaxis reply is buried in a oildrum thread there
http://www.theoildrum.com/node/2199#more
So I will quote it here.
$this->bbcode_second_pass_quote('Sparaxis', 'I') agree. The "Jevon's Paradox" line was a throwaway. I've never seen it used as an excuse not to conserve...perhaps a rationale for those who wouldn't conserve in any case, but that's a different matter.
At the same time, the potential for savings from efficiency are highly overstated, but not from the strict sense of Jevon's paradox.
This is due to the fact that people don't save energy...they save money. Not a kW nor joule of any energy has ever gone into a person's pocket. What they see is dollars, euros or yuan.
There are three main offsets to efficiency.
First is the direct rebound effect. When you can have a light on for the cost of 13W (CFL) instead of 60W (incandescent), you might use it more...perhaps not turn it it off when you leave the room. Your monetary savings are somewhat reduced and kWh usage raised. We've seen this in a very big way with car efficiency gains, which have been more than offset by higher VMT. On the other hand, this has not been a factor with refrigerator efficiency gains of over 50% since 1983. Since they already run 24/7, there's no additional use possible (unless you want to leave the door open for some reason).
Second is the indirect rebound effect. This refers to the offset of your energy savings from efficiency by the use of the monetary savings for other consumption. Say you save $20/month on your electricity bill from your new efficient refrigerator, but spend this on Starbucks, or another tank of gas or a few books. Each of these items require energy that would not have otherwise been demanded, and offset your savings to various degrees. Further, your purchase is someone else's income, so there is the multiplier effect in action.
The third is the general equilibrium effect. This is most powerful. This refers to the economic impact of having your monetary savings recycled through our fractional reserve banking system. Say a factory has an audit and replaces a series of inefficient equipment with more efficient ones and saves $10,000/month in energy costs. This $10,000, as savings or a bank deposit, form the basis of up to $90,000 (on average) of new money (in the form of credit with interest obligations) in the larger economy. This, of course, requires some kind of growth in order to generate the profit to pay off the principal and interest. The additonal energy demanded for this new economic activity can swamp your savings.
Why don't we see this? Because the boundaries of energy efficiency measurements are drawn very narrowly. When US DOE does its savings estimates of new appliance standards, it draws the boundary around the single piece of equipment itself. Direct rebound effects are sometimes mentioned, but the indirect and general equilibrium effects are completely ignored. Do you ever wonder why, when you see all these claimed savings of TWhs or GJ why total energy consumption just keeps rising?
There's only a few ways to offset this. One would be to tax away the monetary gains from efficiency and sterilize the money. Second, and important in our context here, is that these effects don't accrue when efficiency is used to offset the rising price of energy. Personally, I have not saved a penny from installing an efficient gas water heater 2 years ago because gas prices have risen faster than the increase in efficiency, but I have foregone spending more. And third, the savings can be tapped away to recycle into natural capital formation (soil, air, water), but we simply don't have a mechanism to do this.
So don't completely dismiss the impacts of Jevon's Paradox in the broad sense because of its common misuse in the strict sense. Unless the monetary savings from energy conservation don't return to the economy, we are fooling ourselves to think that these measures can have a significant impact over the long term.