Jevons Paradox

By  Razi Iqbal

Edited by  Namrata Caleb,Senior editor,The Indian Economist

“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.” (Jevons, 1886)

Economics is an interesting field. On the surface it might appear quite simple, a bunch of incentives driving a herd of people. But are we, the people, really that simple to be dealt with? On certain occasions we tend to outsmart all the norms, producing some very interesting results.In energy and conservation economics, that is essentially what Jevons paradox is; backfire of the thought-up norms.

British economist W. Stanley Jevons first observed in 1865 that when James Watt introduced his coal-fired steam engine, it greatly improved the efficiency of the earlier design. Since now it was more cost effective, steam engine was increasingly used in a wide range of industries. Thus, the total coal consumption rose, even as the amount of coal required for any particular application fell. Thus, the gains in energy efficiency ultimately lead to more rather than less energy consumption.This is Jevons paradox.

This is widely acknowledged to be true, however many economists argue the issue to be a lot more subtle. They argue for a weak “rebound effect”, whereby increasing the energy productivity spurs fractionally greater emissions further down the road. One form is the “direct” rebound effect. A company may choose to make use of its coal operated machines more often if they are fuel efficient, because their operational costs are now lower, and hence more affordable. There are also “indirect rebound effects”, which extend the response to differing economic sectors. Less money spent on fuel for efficient stream engines might enable more money to be spent on fuel for home heating.

Sounds a bit too farfetched for the modern times?Try answering the following questions. When we buy an energy efficient car, do we not drive more? When we install more energy efficient light bulbs, are we not inclined to leave the lights on for longer?

And come to think about it, it is not even that paradoxical. It is actually based on the foundation principles of economics, demand and supply. Energy efficiency reduces the real cost, or the price of the fuel, when measured in terms of the work that can be done. Thus, the people respond to it by consuming more, which is known as the rebound effect. And if the increase in the demand offsets the original drop,i.e. the rebound effect is more than100%, it is called Jevons paradox or ‘backfire.

So what is to be concluded? Is energy conservation really futile? Are we heading towards a dark future, quite literally? Probably. We do need to start thinking towards the fact that efficiency and conservation might actually worsen our energy prospects. Doing what we do more efficiently might not solve our sustainability problems. But then again, it is behavioral economics. It does not have rules written in stone. Who can really predict how we’ll behave when the conditions shall change yet again?