Jevons' Paradox

What Is Jevons' Paradox, And How Can We Beat It?

Contents

1. Introduction

2. Jevons’ Paradox: More Energy = More Consumption

3. Beating Jevons’ Paradox

4. The Changing Energy-Economic System

5. Concluding Remarks

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Bitesize Edition

• Since the Industrial Revolution started in Britain, many nations in the world have developed rapidly. In 1865, an economist named William Stanley Jevons observed that efficiency improvements from using coal led to increased energy consumption, not decreased energy consumption. Common intuition would lead us to assume that increased energy efficiency would lead to less energy usage, and hence reduced consumption. Yet this concept known as Jevons’ Paradox noted the opposite.

• As energy prpduction becomes more efficient, we increase our energy consumption, which fuels technological growth and hence GDP growth. We have tied energy consumption and GDP growth together. GDP is often referred to as the number of hours worked by the number of workers in the population multiplied by productivity. Today, demographic issues are predicted to arise in the next decades with ageing populations and declining birthrates, and work-life balance is seeing some countries trial 4-day workweeks. In contrast, Greece has gone the other way to a 6-day week, highlighting the potential economic issues a concept such as this can introduce. As number of workers and hours worked in the developed world generally seem more likely to trend to the downside, this discussion comes down to how we see productivity and energy consumption.

• Alternatively, is there a way we can decouple energy consumption and gross domestic product as a reflection of economic growth? Can we beat Jevons’ Paradox and see efficiency gains lead to decreased energy consumption? Let’s explore below.

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Introduction

Would you expect that as energy efficiency improves, we would use less energy? If energy systems use less energy to achieve the same output, then consumption will surely drop. This isn’t always the case in practice, and it’s due to Jevons’ Paradox.

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Jevons’ Paradox: More Energy = More Consumption

Jevons’ Paradox refers to the paradox that with more energy, we utilize more energy.

As technological efficiency rises, the cost of using a resource falls. Hence, demand rises. This cheaper energy usually negates all efficiency gains. If we pursue more energy, we use more energy. Is this economic growth? Is this a pathway to utopia? Or is this a slippery slope that we’ll eventually lose control of in the form of an energy crisis?

Supply and demand are fundamental concepts of economics. When supply and demand become unbalanced, we see this represented in price. Demand rising respective to supply sees prices rise, and supply rising respective to demand sees prices fall. This is seen in Panel A and Panel C below. You can also see the effects of falling demand and falling supply in Panel B and D respectively.

https://open.lib.umn.edu/principleseconomics/chapter/3-3-demand-supply-and-equilibrium/

How much the quantity of goods or services supplied and demanded changes during these price shifts introduces the concepts of elasticity and inelasticity.

With elastic demand, if supply decreases prices will rise, and demand drops due to consumers being price sensitive. The reverse occurs if supply increases. This is seen in the graphs above.

In situations of inelastic demand, if the supply decreases and prices rise, demand may not drop significantly due to the necessity of the good or service in question. This leads to greater price increases relative to the change in quantity as seen below.

https://www.economicshelp.org/blog/531/economics/inelastic-demand-and-taxes/

Energy is very susceptible to inelastic demand because of its role as a necessity in life. We take it for granted in everyday life, and what substitutes for energy really exist? None. This is a problem that would see energy crises have the potential to be long and painful. Hence, we need to pursue a diverse energy production portfolio. When we’re too overreliant on one method of energy production, we risk vulnerabilities in rising prices or falling supply. We need options to back up existing systems to avoid heavy reliance on singular energy production methods. I’ve discussed this countless times before. We need an array of energy production methods, prioritising the ones best suited to our individual environments. But in my eyes, this paints a fragile image of our current societal systems.

This fragility of energy production on a global level led me to consider if there are any other methods we could pursue to reduce the fragility. Alternatively, could we seek to defeat Jevons’ Paradox? Could we pursue increasing energy efficiency and see reduced consumption?