In ‘The Coal Question’ (1865), a British economist named William Stanley Jevons worried about the implications of the rising use of coal, a finite resource: ‘To disperse so lavishly the cream of our mineral wealth is to be spendthrifts of our capital. […] It is like killing the goose to get the golden egg.’
At the center of his analysis is an observation that haunts today’s economists and environmentalists: ‘[…] the economical use of coal [does not] reduce its consumption. On the contrary, economy renders the employment of coal more profitable, and thus the present demand for coal is increased.’
There is some logic to Jevons’ argument. In the case of a so-called ‘direct rebound’ effect, savings from energy efficiency can be recycled to consume more energy. For example, car engine fuel savings may entice people to live further away from their work location. The rebound effect can also be indirect when car fuel savings are instead spent on incremental energy for home heating or cooling.
In an extreme case, the rebound effect might more than offset the initial energy savings. In this case, the growing efficiency with which resources are used ends up driving up the demand for them in absolute terms. Consider, for example, the impact of fuel efficiency on the evolution of air travel. In the case of finite resources, energy efficiency accelerates their depletion. That is the ‘Jevons Paradox.’
Interestingly, the paradox can be transposed to artificial intelligence (AI) and the labor market. Since AI makes labor more efficient, demand for labor initially declines. However, labor’s higher efficiency makes it more attractive, ultimately resulting in more demand for labor.
The idea that energy efficiency may lead to more energy use is not disputed. The point of contention is the extent to which that is the case, as outlined in this letter to the New Yorker rebutting an article about the Jevons Paradox entitled ‘The Efficiency Dilemma’ (2010). However, because the calculations of indirect rebound effects are complex, the Jevons Paradox cannot be proven right or wrong, allowing it to be embraced and attacked with equal ardor.
That said, the evolution of the EU’s primary energy consumption since 1995 is instructive. Despite a fast reduction in energy intensity, it has not significantly declined. Resource efficiency drives economic growth while economic growth drives the use of resources. The model has worked for decades.
The Jevons Paradox raises a thorny question about the global carbon budget: Is the world fooling itself by counting on energy efficiency to lead to lower energy consumption and lower carbon emissions?
Disciples of the Jevons Paradox would respond positively to this question. They would note that, given the chance, economic actors do not save more. They spend more. Hedonism is a powerful human force that must be actively controlled.
In conclusion, they would argue that market regulation and industrial policy-led decarbonization must supplement the important drive to make the world more energy efficient – much more so than generally assumed.
EXCERPTS FROM ‘THE COAL QUESTION’ (1865)
The social and political consequences to ourselves and to the world of a partial exhaustion of our mines are of an infinitely higher degree of uncertainty than the event itself, and cannot be made the subject of argument.
Are we wise in allowing the commerce of this country to rise beyond the point at which we can long maintain it?
To allow commerce to proceed until the source of civilization is weakened and overturned is like killing the goose to get the golden egg.
Is the immediate creation of material wealth to be our only object? Have we not hereditary possessions in our just laws, our free and nobly developed constitution, our rich literature and philosophy, incomparably above material wealth, and which we are beyond all things bound to maintain, improve, and hand down in safety? And do we accomplish this duty in encouraging a growth of in
Some will wish to hold to our adopted principles, and leave commerce and the consumption of coal unchecked even to the last; while others, subordinating commerce to purposes of a higher nature, will tend to the prohibition of coal exports, the restriction of trade, and the adoption of every means of sparing the fuel which makes our welfare and supports our influence upon the nations of the world. This is a question of that almost religious importance which needs the separate study and determination of every intelligent person.
And if we find that we must yield before the disposition of material wealth, which is the work of a higher Providence, we need not give way to weak discouragement concerning the future, but should rather learn to take an elevated view of our undoubted duties and opportunities in the present.