Saturday, December 3, 2011

Jevons Paradox

I post with some frequency about Peak Oil, walkable neighborhoods, etc. However, I'm living in a contradiction because I drive a car that averages in the low 20 MPGs for fuel efficiency. I also drive a fairly typical 15,000 miles a year or so. Not exactly eco-friendly.

One point I like to bring up when justifying this to myself is the concept of the Jevons Paradox, or the Jevons Effect. Deferring to Wikipedia:
In economics, the Jevons paradox (sometimes Jevons effect) is the proposition that technological progress that increases the efficiency with which a resource is used, tends to increase (rather than decrease) the rate of consumption of that resource. 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 improvements could not be relied upon to reduce fuel consumption.
The idea is fairly simple: let's assume we can bring coal to the market for $1/lb. We can use that coal to make $2 worth of widgets. Now, let's say we can use that same amount of coal sold at the same price, through technological advancement, to produce $4 worth of widgets instead. Assuming the demand for the widgets is there at that price, we haven't actually used any less coal. In fact, profits are now way up. We might even want to buy even more coal for a higher cost (if we need so much it can no longer be sold as low as $1/lb) to make yet more widgets. On the other hand, maybe we start producing widgets for the discount market worth $1 per pound of coal, which would've been unprofitable with our older, inefficient system. We just created a whole new market segment that didn't exist before! Either way, we are using more coal than we used before the improvements, and we've enlarged the total size of the economy.

Of course, not everyone thinks this is sound economics and I would tend to agree that it's probably too simplistic to be a general law for a variety of reasons. It's still an interesting concept. To my original point about cars, you can argue that people will only drive a certain number of miles a year because of the cost of gas. In this case, I think it's fair to say that if fuel economy goes up, people will drive somewhat more. I don't think it's fair to say somebody changing to a more efficient car is going to strive to keep their gas budget the same by driving more. If it was that simple, we could mandate 1970s Cadillacs for all to control sprawl.

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