Jevons paradox

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Coal-burning factories in 19th-century Manchester, England. Improved technology allowed coal to fuel the Industrial Revolution, greatly increasing the consumption of coal. CottonopolisCropped.jpg
Coal-burning factories in 19th-century Manchester, England. Improved technology allowed coal to fuel the Industrial Revolution, greatly increasing the consumption of coal.

In economics, the Jevons paradox ( /ˈɛvənz/ ; sometimes Jevons effect) occurs when technological progress or government policy increases the efficiency with which a resource is used (reducing the amount necessary for any one use), but the rate of consumption of that resource rises due to increasing demand. [1] The Jevons paradox is perhaps the most widely known paradox in environmental economics. [2] However, governments and environmentalists generally assume that efficiency gains will lower resource consumption, ignoring the possibility of the paradox arising. [3]

Contents

In 1865, the English economist William Stanley Jevons observed that technological improvements that increased the efficiency of coal-use led to the increased consumption of coal in a wide range of industries. He argued that, contrary to common intuition, technological progress could not be relied upon to reduce fuel consumption. [4] [5]

The issue has been re-examined by modern economists studying consumption rebound effects from improved energy efficiency. In addition to reducing the amount needed for a given use, improved efficiency also lowers the relative cost of using a resource, which increases the quantity demanded. This counteracts (to some extent) the reduction in use from improved efficiency. Additionally, improved efficiency increases real incomes and accelerates economic growth, further increasing the demand for resources. The Jevons paradox occurs when the effect from increased demand predominates, and improved efficiency increases the speed at which resources are used. [5]

Considerable debate exists about the size of the rebound in energy efficiency and the relevance of the Jevons paradox to energy conservation. Some dismiss the paradox, while others worry that it may be self-defeating to pursue sustainability by increasing energy efficiency. [3] Some environmental economists have proposed that efficiency gains be coupled with conservation policies that keep the cost of use the same (or higher) to avoid the Jevons paradox. [6] Conservation policies that increase cost of use (such as cap and trade or green taxes) can be used to control the rebound effect. [7]

History

William Stanley Jevons, after whom the paradox is named PSM V11 D660 William Stanley Jevons.jpg
William Stanley Jevons, after whom the paradox is named

The Jevons paradox was first described by the English economist William Stanley Jevons in his 1865 book The Coal Question . Jevons observed that England's consumption of coal soared after James Watt introduced the Watt steam engine, which greatly improved the efficiency of the coal-fired steam engine from Thomas Newcomen's earlier design. Watt's innovations made coal a more cost-effective power source, leading to the increased use of the steam engine in a wide range of industries. This in turn increased total coal consumption, even as the amount of coal required for any particular application fell. Jevons argued that improvements in fuel efficiency tend to increase (rather than decrease) fuel use, writing: "It is a confusion of ideas to suppose that the economical use of fuel is equivalent to diminished consumption. The very contrary is the truth." [4]

At that time, many in Britain worried that coal reserves were rapidly dwindling, but some experts opined that improving technology would reduce coal consumption. Jevons argued that this view was incorrect, as further increases in efficiency would tend to increase the use of coal. Hence, improving technology would tend to increase the rate at which England's coal deposits were being depleted, and could not be relied upon to solve the problem. [4] [5]

Although Jevons originally focused on the issue of coal, the concept has since been extended to the use of any resource, including, for example, water usage [8] and interpersonal contact. [9] It is perhaps the most widely known paradox in environmental economics. [2]

Cause

Elastic Demand: A 20% increase in efficiency causes a 40% increase in travel. Fuel consumption increases and the Jevons paradox occurs. ElasticDemand.svg
Elastic Demand: A 20% increase in efficiency causes a 40% increase in travel. Fuel consumption increases and the Jevons paradox occurs.
Inelastic Demand: A 20% increase in efficiency causes a 10% increase in travel. The Jevons paradox does not occur. InelasticDemand.svg
Inelastic Demand: A 20% increase in efficiency causes a 10% increase in travel. The Jevons paradox does not occur.

Economists have observed that consumers tend to travel more when their cars are more fuel efficient, causing a 'rebound' in the demand for fuel. [10] An increase in the efficiency with which a resource (e.g. fuel) is used, causes a decrease in the cost of using that resource when measured in terms of what it can achieve (e.g. travel). Generally speaking, a decrease in the cost (or price) of a good or service will increase the quantity demanded (the law of demand). With a lower cost for travel, consumers will travel more, increasing the demand for fuel. This increase in demand is known as the rebound effect, and it may or may not be large enough to offset the original drop in fuel use from the increased efficiency. The Jevons paradox occurs when the rebound effect is greater than 100%, exceeding the original efficiency gains. [5]

The size of the direct rebound effect is dependent on the price elasticity of demand for the good. [11] In a perfectly competitive market where fuel is the sole input used, if the price of fuel remains constant but efficiency is doubled, the effective price of travel would be halved (twice as much travel can be purchased). If in response, the amount of travel purchased more than doubles (i.e. demand is price elastic), then fuel consumption would increase, and the Jevons paradox would occur. If demand is price inelastic, the amount of travel purchased would less than double, and fuel consumption would decrease. However, goods and services generally use more than one type of input (e.g. fuel, labour, machinery), and other factors besides input cost may also affect price. These factors tend to reduce the rebound effect, making the Jevons paradox less likely to occur. [5]

Khazzoom–Brookes postulate

In the 1980s, economists Daniel Khazzoom and Leonard Brookes revisited the Jevons paradox for the case of society's energy use. Brookes, then chief economist at the UK Atomic Energy Authority, argued that attempts to reduce energy consumption by increasing energy efficiency would simply raise demand for energy in the economy as a whole. Khazzoom focused on the narrower point that the potential for rebound was ignored in mandatory performance standards for domestic appliances being set by the California Energy Commission. [12] [13]

In 1992, the economist Harry Saunders dubbed the hypothesis that improvements in energy efficiency work to increase (rather than decrease) energy consumption the Khazzoom–Brookes postulate, and argued that the hypothesis is broadly supported by neoclassical growth theory (the mainstream economic theory of capital accumulation, technological progress and long-run economic growth). Saunders showed that the Khazzoom–Brookes postulate occurs in the neoclassical growth model under a wide range of assumptions. [12] [14]

According to Saunders, increased energy efficiency tends to increase energy consumption by two means. First, increased energy efficiency makes the use of energy relatively cheaper, thus encouraging increased use (the direct rebound effect). Second, increased energy efficiency increases real incomes and leads to increased economic growth, which pulls up energy use for the whole economy. At the microeconomic level (looking at an individual market), even with the rebound effect, improvements in energy efficiency usually result in reduced energy consumption. [15] That is, the rebound effect is usually less than 100%. However, at the macroeconomic level, more efficient (and hence comparatively cheaper) energy leads to faster economic growth, which increases energy use throughout the economy. Saunders argued that, taking into account both microeconomic and macroeconomic effects, technological progress that improves energy efficiency will tend to increase overall energy use. [12]

Energy conservation policy

Jevons warned that fuel efficiency gains tend to increase fuel use. However, this does not imply that improved fuel efficiency is worthless if the Jevons paradox occurs; higher fuel efficiency enables greater production and a higher material quality of life. [16] For example, a more efficient steam engine allowed the cheaper transport of goods and people that contributed to the Industrial Revolution. Nonetheless, if the Khazzoom–Brookes postulate is correct, increased fuel efficiency, by itself, will not reduce the rate of depletion of fossil fuels. [12]

There is considerable debate about whether the Khazzoom-Brookes Postulate is correct, and of the relevance of the Jevons paradox to energy conservation policy. Most governments, environmentalists and NGOs pursue policies that improve efficiency, holding that these policies will lower resource consumption and reduce environmental problems. Others, including many environmental economists, doubt this 'efficiency strategy' towards sustainability, and worry that efficiency gains may in fact lead to higher production and consumption. They hold that for resource use to fall, efficiency gains should be coupled with other policies that limit resource use. [3] [14] [17] However, other environmental economists point out that, while the Jevons paradox may occur in some situations, the empirical evidence for its widespread applicability is limited. [18]

The Jevons paradox is sometimes used to argue that energy conservation efforts are futile, for example, that more efficient use of oil will lead to increased demand, and will not slow the arrival or the effects of peak oil. This argument is usually presented as a reason not to enact environmental policies or pursue fuel efficiency (e.g. if cars are more efficient, it will simply lead to more driving). [19] [20] Several points have been raised against this argument. First, in the context of a mature market such as for oil in developed countries, the direct rebound effect is usually small, and so increased fuel efficiency usually reduces resource use, other conditions remaining constant. [10] [15] [21] Second, even if increased efficiency does not reduce the total amount of fuel used, there remain other benefits associated with improved efficiency. For example, increased fuel efficiency may mitigate the price increases, shortages and disruptions in the global economy associated with peak oil. [22] Third, environmental economists have pointed out that fuel use will unambiguously decrease if increased efficiency is coupled with an intervention (e.g. a fuel tax) that keeps the cost of fuel use the same or higher. [6]

The Jevons paradox indicates that increased efficiency by itself may not reduce fuel use, and that sustainable energy policy must rely on other types of government interventions as well. [7] [23] As the imposition of conservation standards or other government interventions that increase cost of use do not display the Jevon paradox, they can be used to control the rebound effect. [7] To ensure that efficiency-enhancing technological improvements reduce fuel use, efficiency gains can be paired with government intervention that reduces demand (e.g. green taxes, cap and trade, or higher emissions standards). The ecological economists Mathis Wackernagel and William Rees have suggested that any cost savings from efficiency gains be "taxed away or otherwise removed from further economic circulation. Preferably they should be captured for reinvestment in natural capital rehabilitation." [6] By mitigating the economic effects of government interventions designed to promote ecologically sustainable activities, efficiency-improving technological progress may make the imposition of these interventions more palatable, and more likely to be implemented. [24]

See also

Related Research Articles

Sustainable development is the organizing principle for meeting human development goals while simultaneously sustaining the ability of natural systems to provide the natural resources and ecosystem services on which the economy and society depend. The desired result is a state of society where living conditions and resources are used to continue to meet human needs without undermining the integrity and stability of the natural system. Sustainable development can be defined as development that meets the needs of the present without compromising the ability of future generations to meet their own needs. Sustainability goals address the global challenges, including poverty, inequality, climate change, environmental degradation, peace and justice.

I = PAT

I = PAT is the mathematical notation of a formula put forward to describe the impact of human activity on the environment.

Resource depletion

Resource depletion is the consumption of a resource faster than it can be replenished. Natural resources are commonly divided between renewable resources and non-renewable resources. Use of either of these forms of resources beyond their rate of replacement is considered to be resource depletion. The value of a resource is a direct result of its availability in nature and the cost of extracting the resource, the more a resource is depleted the more the value of the resource increases. There are several types of resource depletion, the most known being: Aquifer depletion, deforestation, mining for fossil fuels and minerals, pollution or contamination of resources, slash-and-burn agricultural practices, Soil erosion, and overconsumption, excessive or unnecessary use of resources.

Uneconomic growth

Uneconomic growth, in human development theory, welfare economics, and some forms of ecological economics, is economic growth that reflects or creates a decline in the quality of life. The concept is attributed to leading ecological economist and steady-state theorist Herman Daly, though other theorists can also be credited for the incipient idea. Note Uneconomic growth should not be confused with economic degrowth, the reduction of the size of the economy to increase well-being and sustainability.

Ecological economics

Ecological economics, bioeconomics, ecolonomy, or eco-economics, is both a transdisciplinary and an interdisciplinary field of academic research addressing the interdependence and coevolution of human economies and natural ecosystems, both intertemporally and spatially. By treating the economy as a subsystem of Earth's larger ecosystem, and by emphasizing the preservation of natural capital, the field of ecological economics is differentiated from environmental economics, which is the mainstream economic analysis of the environment. One survey of German economists found that ecological and environmental economics are different schools of economic thought, with ecological economists emphasizing strong sustainability and rejecting the proposition that physical (human-made) capital can substitute for natural capital.

Energy economics is a broad scientific subject area which includes topics related to supply and use of energy in societies. Due to diversity of issues and methods applied and shared with a number of academic disciplines, energy economics does not present itself as a self-contained academic discipline, but it is an applied subdiscipline of economics. From the list of main topics of economics, some relate strongly to energy economics:

Energy conservation

Energy conservation is the effort made to reduce the consumption of energy by using less of an energy service. This can be achieved either by using energy more efficiently or by reducing the amount of service used. Energy conservation is a part of the concept of Eco-sufficiency. Energy conservation measures (ECMs) in buildings reduce the need for energy services and can result in increased environmental quality, national security, personal financial security and higher savings. It is at the top of the sustainable energy hierarchy. It also lowers energy costs by preventing future resource depletion.

Steady-state economy

A steady-state economy is an economy made up of a constant stock of physical wealth (capital) and a constant population size. In effect, such an economy does not grow in the course of time. The term usually refers to the national economy of a particular country, but it is also applicable to the economic system of a city, a region, or the entire world. Early in the history of economic thought, classical economist Adam Smith of the 18th century developed the concept of a stationary state of an economy: Smith believed that any national economy in the world would sooner or later settle in a final state of stationarity.

Energy industry

The energy industry is the totality of all of the industries involved in the production and sale of energy, including fuel extraction, manufacturing, refining and distribution. Modern society consumes large amounts of fuel, and the energy industry is a crucial part of the infrastructure and maintenance of society in almost all countries.

<i>The Coal Question</i>

The Coal Question; An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of Our Coal Mines is a book that economist William Stanley Jevons wrote in 1865 to explore the implications of Britain's reliance on coal. Given that coal was a finite, non-renewable energy resource, Jevons raised the question of sustainability. "Are we wise," he asked rhetorically, "in allowing the commerce of this country to rise beyond the point at which we can long maintain it?" His central thesis was that the supremacy of the United Kingdom of Great Britain and Ireland over global affairs was transitory, given the finite nature of its primary energy resource. In propounding this thesis, Jevons covered a range of issues central to sustainability, including limits to growth, overpopulation, overshoot, energy return on energy input (EROEI), taxation of energy resources, renewable energy alternatives, and resource peaking—a subject widely discussed today under the rubric of peak oil.

In conservation and energy economics, the rebound effect is the reduction in expected gains from new technologies that increase the efficiency of resource use, because of behavioral or other systemic responses. These responses usually tend to offset the beneficial effects of the new technology or other measures taken.

Efficient energy use Energy efficiency

Efficient energy use, sometimes simply called energy efficiency, is the goal to reduce the amount of energy required to provide products and services. For example, insulating a building allows it to use less heating and cooling energy to achieve and maintain a thermal comfort. Installing light-emitting diode bulbs, fluorescent lighting, or natural skylight windows reduces the amount of energy required to attain the same level of illumination compared to using traditional incandescent light bulbs. Improvements in energy efficiency are generally achieved by adopting a more efficient technology or production process or by application of commonly accepted methods to reduce energy losses.

In the 1980s, the economists Daniel Khazzoom and Leonard Brookes independently put forward ideas about energy consumption and behavior that argue that increased energy efficiency paradoxically tends to lead to increased energy consumption. In 1992, the US economist Harry Saunders dubbed this hypothesis the Khazzoom–Brookes postulate, and showed that it was true under neo-classical growth theory over a wide range of assumptions.

Degrowth

Degrowth is a term used for both a political, economic, and social movement as well as a set of theories that critiques the paradigm of economic growth. It is based on ideas from a diverse range of lines of thought such as political ecology, ecological economics, feminist political ecology, and environmental justice. Degrowth emphasizes the need to reduce global consumption and production and advocates a socially just and ecologically sustainable society with well-being replacing GDP as the indicator of prosperity. Degrowth highlights the importance of autonomy, care work, self-organization, commons, community, localism, work sharing, happiness and conviviality.

Sustainability Process of maintaining change in a balanced fashion

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References

Notes

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Further reading