Jevons paradox 1

Jevons paradox

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

In economics, the Jevons paradox (sometimes Jevonseffect) is the proposition that technological progress thatincreases the efficiency with which a resource is used tendsto increase (rather than decrease) the rate of consumption ofthat resource.[1] In 1865, the English economist WilliamStanley Jevons observed that technological improvementsthat increased the efficiency of coal use led to increasedconsumption of coal in a wide range of industries. He arguedthat, contrary to intuition, technological improvements couldnot be relied upon to reduce fuel consumption.[2]

The issue has been re-examined by modern economistsstudying consumption rebound effects from improved energyefficiency. In addition to reducing the amount needed for agiven use, improved efficiency lowers the relative cost of using a resource, which tends to increase the quantity ofthe resource demanded, potentially counteracting any savings from increased efficiency. Additionally, increasedefficiency accelerates economic growth, further increasing the demand for resources. The Jevons paradox occurswhen the effect from increased demand predominates, causing resource use to increase.

The Jevons paradox has been used to argue that energy conservation is futile, as increased efficiency may increasefuel use. Nevertheless, increased efficiency can improve material living standards. Further, fuel use declines ifincreased efficiency is coupled with a green tax or other conservation policies that keep the cost of use the same (orhigher).[3] As the Jevons paradox applies only to technological improvements that increase fuel efficiency, policiesthat impose conservation standards and increase costs do not display the paradox.

History

William Stanley Jevons

The Jevons paradox was first described by the English economist WilliamStanley Jevons in his 1865 book The Coal Question. Jevons observed thatEngland's consumption of coal soared after James Watt introduced his coal-firedsteam engine, which greatly improved the efficiency of Thomas Newcomen'searlier 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 coalrequired for any particular application fell. Jevons argued that improvements infuel efficiency tend to increase, rather than decrease, fuel use: "It is a confusionof ideas to suppose that the economical use of fuel is equivalent to diminishedconsumption. 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 coalconsumption. Jevons argued that this view was incorrect, as further increases in efficiency would tend to increase theuse of coal. Hence, improving technology would tend to increase, rather than reduce, the rate at which England's coaldeposits were being depleted.[2][4]

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Cause

Elastic Demand for Work: A doubling of fuel efficiency more than doubles workdemanded, increasing the amount of fuel used. Jevons paradox occurs.

Inelastic Demand for Work:A doubling of fuel efficiency does not double workdemanded, the amount of fuel used decreases. Jevons paradox does not occur.

Rebound effect

One way to understand the Jevonsparadox is to observe that an increasein the efficiency with which a resource(e.g., fuel) is used causes a decrease inthe price of that resource whenmeasured in terms of what it canachieve (e.g., work). Generallyspeaking, a decrease in the price of agood or service will increase thequantity demanded (see supply anddemand, demand curve). Thus with alower price for work, more work willbe "purchased" (indirectly, by buyingmore fuel). The resulting increase inthe demand for fuel is known as therebound effect. This increase indemand may or may not be largeenough to offset the original drop indemand from the increased efficiency.The Jevons paradox occurs when therebound effect is greater than 100%,exceeding the original efficiency gains.This effect has been called 'backfire'.[2]

Consider a simple case: a perfectlycompetitive market where fuel is thesole input used, and the onlydeterminant of the cost of work. If the

price of fuel remains constant but the efficiency of its conversion into work is doubled, the effective price of work ishalved and twice as much work can be purchased for the same amount of money. If the amount of work purchasedmore than doubles (i.e., demand for work is elastic, the price elasticity is greater than 1), then the quantity of fuelused would increase, not decrease. If however, the demand for work is inelastic (price elasticity is less than 1), theamount of work purchased would less than double, and the quantity of fuel used would decrease.

A full analysis would also have to take into account the fact that products (work) use more than one type of input(e.g., fuel, labour, machinery), and that other factors besides input cost (e.g., a non-competitive market structure)may also affect the price of work. These factors would tend to decrease the effect of fuel efficiency on the price ofwork, and hence reduce the rebound effect, making the Jevons paradox less likely to occur. Additionally, any changein the demand for fuel would have an effect on the price of fuel, and also on the effective price of work.

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Khazzoom–Brookes postulateIn the 1980s, economists Daniel Khazzoom and Leonard Brookes revisited the Jevons paradox in the case of asociety's energy use. Brookes, then chief economist at the UK Atomic Energy Authority, argued that attempts toreduce energy consumption by increasing energy efficiency would simply raise demand for energy in the economyas a whole. Khazzoom focused on the narrower point that the potential for rebound was ignored in mandatoryperformance standards for domestic appliances being set by the California Energy Commission.In 1992, the economist Harry Saunders dubbed the hypothesis that improvements in energy efficiency work toincrease, rather than decrease, energy consumption the Khazzoom–Brookes postulate. Saunders showed that theKhazzoom–Brookes postulate was consistent with neo-classical growth theory (the mainstream economic theory ofcapital accumulation, technological progress and long-run economic growth) under a wide range of assumptions.[5]

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 directrebound effect). Second, increased energy efficiency leads to increased economic growth, which pulls up energy usefor 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.[6] That is, the rebound effect isusually less than 100 percent. However, at the macroeconomic level, more efficient (and hence comparativelycheaper) energy leads to faster economic growth, which in turn increases energy use throughout the economy.Saunders concludes that, taking into account both microeconomic and macroeconomic effects, technologicalprogress that improves energy efficiency will tend to increase overall energy use.

Energy conservation policyJevons warned that fuel efficiency gains tend to increase fuel use, but this does not imply that increased fuelefficiency is worthless. Increased fuel efficiency enables greater production and a higher quality of material life. Forexample, a more efficient steam engine allowed the cheaper transport of goods and people that contributed to theIndustrial Revolution. However, if the Khazzoom–Brookes postulate is correct, increased fuel efficiency will notreduce the rate of depletion of fossil fuels.The Jevons paradox is sometimes used to argue that energy conservation efforts are futile, for example, that moreefficient use of oil will lead to increased demand, and will not slow the arrival or the effects of peak oil. Thisargument is usually presented as a reason not to impose environmental policies, or to increase fuel efficiency (e.g. ifcars are more efficient, it will simply lead to more driving).[7][8] Several points have been raised against thisargument. First, in the context of a mature market such as for oil in developed countries, the direct rebound effect isusually small, and so increased fuel efficiency usually reduces resource use, other conditions remainingconstant.[6][9][10] Second, even if increased efficiency does not reduce the total amount of fuel used, there remainother benefits associated with improved efficiency. For example, increased fuel efficiency may mitigate the priceincreases, shortages and disruptions in the global economy associated with peak oil.[11] Third, environmentaleconomists have pointed out that fuel use will unambiguously decrease if increased efficiency is coupled with anintervention (e.g. a green tax) that keeps the cost of fuel use the same or higher.[3]

The Jevons paradox indicates that increased efficiency by itself is unlikely to reduce fuel use, and that sustainable energy policy must rely on other types of government interventions.[12] As the Jevons paradox applies only to technological improvements that increase fuel efficiency, the imposition of conservation standards that simultaneously increase costs does not cause an increase in fuel use. To ensure that efficiency enhancing technological improvements reduce fuel use, efficiency gains must be paired with government intervention that reduces demand (e.g., green taxes, a cap and trade programme, or higher fuel taxes). 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."[3] By mitigating the economic effects of government interventions designed to promote

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ecologically sustainable activities, efficiency-improving technological progress may make the imposition of theseinterventions more palatable, and more likely to be implemented.[13]

References[1] Alcott, Blake (July 2005). "Jevons' paradox" (http:/ / www. sciencedirect. com/ science/ article/ B6VDY-4G7GFMG-1/ 2/

5da4f921421a31032f8fcd6971b0e177). Ecological Economics 54 (1): 9–21. doi:10.1016/j.ecolecon.2005.03.020. . Retrieved 2010-08-08.[2] Alcott, Blake (2008). "Historical Overview of the Jevons Paradox in the Literature". In JM Polimeni, K Mayumi, M Giampietro. The Jevons

Paradox and the Myth of Resource Efficiency Improvements. Earthscan. pp. 7–78. ISBN 1-84407-462-5.[3] Wackernagel, Mathis; Rees, William (1997). "Perceptual and structural barriers to investing in natural capital: Economics from an ecological

footprint perspective". Ecological Economics 20 (3): 3–24. doi:10.1016/S0921-8009(96)00077-8.[4] Jevons, William Stanley (1866). "VII" (http:/ / www. econlib. org/ library/ YPDBooks/ Jevons/ jvnCQ0. html). The Coal Question (2nd ed.).

London: Macmillan and Company. . Retrieved 2008-07-21.[5] Saunders, Harry D., "The Khazzoom–Brookes postulate and neoclassical growth." The Energy Journal, October 1, 1992.[6] Greening, L; David L. Greene,Carmen Difiglio (2000). "Energy efficiency and consumption—the rebound effect—a survey". Energy Policy

28 (6–7): 389–401. doi:10.1016/S0301-4215(00)00021-5[7] Potter, Andrew (2007-02-13). "Planet-friendly design? Bah, humbug" (http:/ / web. archive. org/ web/ 20071214235056/ http:/ / www.

macleans. ca/ article. jsp?content=20070202_154815_4816). MacLean's 120 (5): 14. Archived from the original (http:/ / www. macleans. ca/article. jsp?content=20070202_154815_4816) on 2007-12-14. . Retrieved 2010-09-01.

[8] Strassel, Kimberley A. (2001-05-17). "Conservation Wastes Energy" (http:/ / web. archive. org/ web/ 20051113194327/ http:/ / www.opinionjournal. com/ columnists/ kstrassel/ ?id=95000484). Wall St. Journal (Wall St. Journal—Opinion). Archived from the original (http:/ /www. opinionjournal. com/ columnists/ kstrassel/ ?id=95000484) on 2005-11-13. . Retrieved 2009-07-31.

[9] Small, Kenneth A.; Kurt Van Dender (2005-09-21). "The Effect of Improved Fuel Economy on Vehicle Miles Traveled: Estimating theRebound Effect Using U.S. State Data, 1966–2001" (http:/ / escholarship. org/ uc/ item/ 1h6141nj). Policy and Economics (University ofCalifornia Energy Institute, UC Berkeley). . Retrieved 2010-09-01.

[10] Gottron, Frank. "Energy Efficiency and the Rebound Effect: Does Increasing Efficiency Decrease Demand?" (http:/ / www. policyarchive.org/ handle/ 10207/ bitstreams/ 3492. pdf). . Retrieved 2012-02-24.

[11] Hirsch, R. L., Bezdek, R. and Wendling, R. (2006), Peaking of World Oil Production and Its Mitigation. AIChE Journal, 52: 2–8. doi:10.1002/aic.10747

[12] Giampietro, Mario; Kozo Mayumi (2008). "The Jevons Paradox: The Evolution of Complex Adaptive Systems and the Challenge forScientific Analysis". In JM Polimeni, K Mayumi, M Giampietro. The Jevons Paradox and the Myth of Resource Efficiency Improvements.Earthscan. pp. 79–140. ISBN 1-84407-462-5.

[13] Laitner, John A.; Stephen J. De Canio and Irene Peters (2003). "Incorporating Behavioural, Social, and Organizational Phenomena in theAssessment of Climate Change Mitigation Options" (http:/ / www. springerlink. com/ content/ n107734r313hh4wp/ ). Society, Behaviour, andClimate Change Mitigation. Advances in Global Change Research 8: 1–64. doi:10.1007/0-306-48160-X_1. ISBN 0-7923-6802-9. . Retrieved2010-08-08.

Further reading• Jevons, William Stanley (1866). The Coal Question (http:/ / www. econlib. org/ library/ YPDBooks/ Jevons/

jvnCQ. html) (2nd ed.). London: Macmillan and Co..• Lords Select Committee on Science and Technology (5 July 2005). "3: The economics of energy efficiency"

(http:/ / www. publications. parliament. uk/ pa/ ld200506/ ldselect/ ldsctech/ 21/ 2106. htm). Select Committee onScience and Technology Second Report. Session 2005-06. House of Lords.

• Herring, Horace (19 July 1999). "Does energy efficiency save energy? The debate and its consequences". AppliedEnergy 63 (3): 209–226. doi:10.1016/S0306-2619(99)00030-6. ISSN 03062619.

• Owen, David (December 20, 2010). "Annals of Environmentalism: The Efficiency Dilemma" (http:/ / www.newyorker. com/ reporting/ 2010/ 12/ 20/ 101220fa_fact_owen). The New Yorker: pp. 78–.

• Schipper, Lee (November 26, 1994). "Energy Efficiency Works, and It Saves Money" (http:/ / query. nytimes.com/ gst/ fullpage. html?res=9904E4D61530F935A15752C1A962958260). The New York Times.

Jevons paradox 5

External links• Rocky Mountain Institute (May 1, 2008). "Beating the Energy Efficiency Paradox (Part I)" (http:/ / www.

treehugger. com/ files/ 2008/ 05/ beating-energy-efficiency-paradox. php). TreeHugger.

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