Overcoming Jevons Paradox

It is often assumed that the development of more efficient technologies is always beneficial toward sustainability and environmental goals. Very often, numbers are thrown around, like, "If we all drove cars that got X miles per gallon, we would save Y amount of barrels of oil per year."

These equations rarely turn out as advertised, because as energy efficiency improves, it triggers changes in prices, behaviors, and the uses and applications for an energy resource. Improvements in technology can reduce energy consumption, but they also sometimes contribute to more energy use rather than less.

This paradox was first identified in 1865 by William Stanley Jevons, in the book The Coal Question. He noticed that improvements in fuel efficiency for generating power from coal were followed by increases in the use of coal, not a reduction. This was because improved coal-burning efficiency opened up new markets and uses for coal, a major component of sparking the Industrial Revolution.

Considering the effect of Jevons paradox, it becomes apparent that reducing energy use, which is critical given the finite nature of fossil fuels, and reducing carbon emissions, which is essential to stabilizing our global climate, are not problems that can be solved by technology alone.

If some miraculous engine upgrade were invented that doubled fuel efficiency, and it were installed on every car tomorrow, it could actually increase energy use. Energy use would grow if many people were to respond to such a change by taking more road trips and buying bigger, more energy-hungry homes, located farther from urban centers, and no corrective policies were in place to discourage this outcome.

As extraction of a resource like oil becomes more difficult or unable to keep pace with growing demand, . If efficiency gains cannot compensate for the price increases, demand destruction will prevent a Jevons paradox scenario from occurring. However, the problem with simply allowing the commodities market to work this pricing out on its own is that there is little incentive for those who profit now from selling and burning fossil fuels; to conserve resources for uncertain future events; save for the generations to come; or deal with tragedies of the commons, such as pollution and climate change.

In the aftermath of the '70s oil embargo, Europe responded to the suddenly apparent vulnerability of oil dependence by levying increasingly heavy taxes on fuels, many times greater than fuel taxes in the United States. This created a financial incentive to both improve efficiency and reduce oil use, while ensuring state-supported transportation infrastructure investments, which included a lot of electric passenger-rail projects that reduced oil dependency, were well-funded.

Since in most European countries, the majority of fuel price for the end user is taxes, when the base cost of fuel rises and declines, these shifts appear as modest changes in the overall price, which is consistently high. In America, with very low fuel taxes, every major shift in the oil market is reflected in dramatic percentage changes in price. That makes for a less predictable and less stable energy price environment with inconsistent incentives. One season, low prices may give consumers no reason to conserve fuel, and the next season, a spike may have everyone rushing for compact cars and then back to big trucks again with the next drop. And so on.

Given our current unsustainable path, one way or another, policy and behavior will have to adapt. Change will not come easily after a century of expectations set by seemingly endless growth, but no finite system can keep growing forever. We cannot place false hope in uncertain miracles or dodge the tough choices that have to be made. We can willingly place limits on our appetite for energy gradually, or we can have limits forced upon us violently by nature on some future date.

As clever as we humans are, there is no defying the laws of physics. A balloon will begin falling eventually, no matter how much helium it was pumped with. (Speaking of helium, we are past peak production of the gas and slowly running out of it, effecting the ballon industry at times when supplies are rationed for medical use.)

Things like oil and fuel taxes, carbon taxes and cap-and-trade policies have been painted very negatively lately, but they are some of the best tools that can be employed to meet the scale of the challenges we face. They create real financial incentives to conserve energy resources. There is a lot of anti-tax sentiment going around, but tax increases on resource use and fees on pollution could also be offset with some lowering of other taxes. It makes no sense to me that we tax labor and income so heavily when we want people to have jobs but are so unwilling to tax resource waste and pollution, things we need to reduce for our well-being, our environment and our national security.

Something I’ve been thinking a lot about lately is the current federal policy push to enact stringent fuel efficiency standards for cars (overall fuel economy of 54.5 mpg by 2025). The problem is that, if we force car companies to make more efficient cars but refuse to raise our anemic taxes on fuel and driving (especially compared to other industrial importing nations), we don’t create an incentive to pay the premium on those efficient cars (which is why Bill Ford of Ford Motor Company supports a gas-tax rise). Such an engine-efficiency policy on its own creates no disincentive to drive even more, which can cancel any reduction in energy use.

Perhaps most distressingly, those that do adopt efficient cars can drive farther with less fuel, but they do no less damage to the road. Under current tax policy, drivers with more efficient cars pay less into funding road repair for comparable use by a less efficient car. As it is, our gas-tax fund can barely fill pot holes on what we have already sprawled out everywhere, let alone new infrastructure.

A plan to push for efficient cars without a corresponding plan to raise fuel taxes or some other driving tax is a recipe for more infrastructure collapse, more places resorting to toll roads, or more broke state and local governments. The outcome will likely be some combination of all of those problems.

Technological progress is great, but it is no replacement for smart planning, appropriate tax policy and economic disincentives to excessive energy consumption. If we do not address the tendency toward greater energy use as technology becomes more efficient, we run the risk of wasting billions in the pursuit of reducing energy consumption, only to find we may end up worse off than before.

For example, if I buy light bulbs that use half as much power as ones I have now, but use that as an excuse to install twice as much lighting throughout my home, it doesn’t save any energy. Energy needs to become more costly to ensure that it is not needlessly wasted, that it spurs innovation and that it reflects externalized costs to society. Offsetting other forms of taxation can keep such an energy policy from breaking household budgets. The vision of techno miracles sweeping in to save the day may sound attractive, but shifts in behavior and prudent economic policy are arguably more important.