Jevons paradox

In economics, the Jevons paradox (/ˈdʒɛvənz/; 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. The Jevons paradox is perhaps the most widely known paradox in environmental economics. However, governments and environmentalists generally assume that efficiency gains will lower resource consumption, ignoring the possibility of the paradox arising. 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. 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. 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. 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. Conservation policies that increase cost of use (such as cap and trade or green taxes) can be used to control the rebound effect. 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.' 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. 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 and interpersonal contact. It is perhaps the most widely known paradox in environmental economics. Economists have observed that consumers tend to travel more when their cars are more fuel efficient, causing a 'rebound' in the demand for fuel. 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.