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The Jevons' Paradox

 


By emeritus professor Philip Stott. Global Warming Politics, February 12, 2008.
 



"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." [William Stanley Jevons (1835 - 1882)]

It is widely assumed that the more efficient use of a resource (e.g. energy or fuel) will automatically reduce both the consumption of that resource and consumption in general. This belief has fueled a widespread current trope that increasing energy efficiency is a no-brainer, whatever one thinks about global warming. But how valid is such an argument?

In 1865, the Liverpool-born logician and economist, William Stanley Jevons (1835 - 1882) [above], wrote an influential book, entitled The Coal Question; An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of Our Coal Mines (London: Macmillan & Co). Jevons observed that the consumption of coal rose rapidly after James Watt had introduced his coal-fired steam engine, which much improved the efficiency of Thomas Newcomens earlier designs. Watts innovations made coal a more cost effective source of power, leading to an increased use of the steam engine in a wider range of industries. This in turn increased total coal consumption, even though the amount of coal required for any particular application dropped through efficiency gains.

This phenomenon has become known as Jevons Paradox, and we hear remarkably little about it these days. Indeed, somewhat paradoxically, it appears to be the last thing politicians would like us to contemplate. The basic paradox goes thus: any increase in the efficiency with which energy is employed will cause a concomitant decrease in the price or cost of that resource when measured in terms of work done. Thus, with a lower price/cost per unit of work, more work will be purchased. This additional work need not be for the same product, as it was with Jevons coal, but it may be displaced into the purchase of new product ranges or work. To put it simply: if I save money by insulating my home, I may use those savings to buy an additional computer, a patio heater, or holiday abroad. The degree of additional work, or displacement, will depend above all on the price elasticity of demand.

Thus, the more a government subsides so-called energy efficiency, the more I shall be able to use the money saved to buy further energy-using goods and services, which may well increase my overall energy demand. If my car is more energy efficient, I may well decide that I can make many more journeys.

The assumption that Homo oeconomicus will adopt energy efficiency for its own sake, and for an indeterminate good promoted by politicians, flies in the face of normal economic behaviour. Homo oeconomicus will embrace energy efficiency above all to release resources for increased overall and wider consumption.

Thus, Jevons remains highly relevant today. What is also of interest is the fact that Jevons was, fundamentally, a Malthusian, who was deeply worried about the peaking of coal, just as we are of the peaking of oil:

I must point out the painful fact that such a rate of growth will before long render our consumption of coal comparable with the total supply. In the increasing depth and difficulty of coal mining we shall meet that vague, but inevitable boundary that will stop our progress.

Yet, Jevons fell into a typical Malthusian elephant-trap, believing that petroleum would not become a significant energy source, and that coal could not be replaced by other forms of energy. Jevons was, of course, proved dramatically wrong over such energy boundaries, just as today. Neo-Malthusians will likewise be found wanting (and, highly paradoxically, it will be partly through the return of King Coal).

Nevertheless, Jevons famous Paradox could well prove the undoing of political pontificating over energy efficiency, as the money saved widens consumption yet further. Indeed, energy efficiency may increase energy use overall. What a Green paradox!

 

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