Thursday, December 1, 2011

Jevon’s Paradox: the oily crises of the commons

There is an excellent post at Naked Capitalism cross-posted by Cameron Murray at the Australian website, MacroBusiness, about the Jevons Paradox.  I decided to quote from the original because it’s crosslinks did not transfer well to Naked Capitalism’s posting.

Cameron Murray, MacroBusiness, 17 October 2011

The word efficiency carries a meaning immersed in all things positive – you never hear that being more efficient could possibly be detrimental. In fact, if you can bear the evangelical fervour, you may have read about achieving ‘Factor Four’ or ‘Factor Five’ gains in energy efficiency, as part of a ‘Natural Capital’ revolution comprising a ‘decoupling’ economic growth from a growth in the consumption of exhaustible resources – also known as ‘sustainability’. You may even have heard about the equation I=PAT or I = P x A x T, where environmental impact (I) is a function of population (P), affluence (A) and technology (T), and that becoming more efficient will enable a desired level of affluence with far less environmental cost.

The post goes on to do a fairly good job of showing why this is false and gives a detailed sequence of why this occurs.

The term for this phenomena is Jevons Paradox, and is explained in the introduction of a book that they site:

John M. Polimeni, Kozo Mayumi, Mario Giampietro and Blake Alcott, University of Sussex 2007

In his 1865 work The Coal Question, William Stanley Jevons (1835-1882) expressed the concern that Britain would lose its economic dynamism and preeminence in the world due to an inevitable depletion of its reserves of easily mined coal.  Of course he did not foresee the dominance of petroleum, even denying its likelihood, and so the central worry of the book turned out to be misplaced.  But The Coal Question contains a gem that enshrines the book as among the most significant worlds of resource economics.  That gem is known today as the Jevons Paradox. It cannot be expressed better than in Jevons’s own Victorian prose:

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, 1866, p123)

As a rule, new modes of economy will lead to an increase of consumption…(Jevons, 1866, p123).

Now, if the quantity of coal used in a blast-furnace, for instance, be diminished in comparison with the yield, the profits of the trade will increase, new capital will be attracted, the price of pig-iron will fall, but the demand for it increase; and eventually the greater number of furnaces will more than make up for the diminished consumption of each. (Jevons, 1866, p124-125).

My own example would be, in part, that the energy saving methods of the 1970s lead to the everyone driving around in an SUV.  And further, the introduction of the hybrid vehicle does not have us all driving in a Prius, but has many of us driving in hybrid SUVs.  In a large economy, there are too many moving parts to make a one for one analogy.  Some of the drop in oil prices was certainly caused by greater exploration in reaction to the price spikes of the 1980s and the search for the Eldorado of energy independence.  But when the new oil met the decreased (per unit) demand generated by 1970s and early 1980s efficiencies, it allowed the SUV driver to take advantage of energy efforts of others.


PioneerPreppy said...

Seems to me the fallacy is that it assumes increased demand at some point is automatic. I see that decreasing the needed materials to produce the same amount of finished product would in turn allow more material available. That makes sense but there must be people not only willing but able to use the new found surplus of base material.

Your example I believe contains alot of merit but the paradox could be proven moot if in fact it occurred at the same time as a large population decline.

At least over the short period until growth can once again begin.

russell1200 said...

I agree PP, there are a lot of moving parts.

Not all future trends are bad. There are rays of hope.

The key is testability. If you have a scenario (good or bad) what will need to take place to have it occur.

Joven's Paradox simply shows that one of the assumptions that will lead to the "saving" of our planet, people, etc. can be very much mistaken, and should not be taken at face value.