Not All Energy Efficiency is Created Equally

We are constantly bombarded with advertisements of goods that market their innovations in efficiency. Whether it is a car with a higher MPG, or a washing machine that uses less water per load, companies are quickly realizing that environmental efficiency is a huge appeal to a broad range of consumers. Although energy efficiency with everyday goods is a step in the right direction, not all energy efficiency should be treated equally. In fact, some cases of energy efficiency might end up being more harmful in the long run. Although this may seem counterintuitive, it can be explained with Jevons Paradox. Developed in 1865 by English economist Stanley Jevons in his book The Coal Question, the idea was developed through the observations of the technological innovations in the British iron industry at the time. Jevons Paradox is the idea that an increase in energy consumption lowers the cost of consuming energy at every level of production, leading to more uses for the energy, which eventually creates a greater quantity demanded, and ultimately, a greater consumption of the energy. To put more technically, it is a natural occurrence that happens due to the law of demand: when the price of a good falls, we almost always demand more of it. Using the example Jevon wrote about, if a technological advance made companies able to produce iron with less coal through a more efficient furnace, profits would rise, iron production would be more invested in, the price of iron would fall, and thereby increasing the quantity demanded of iron to consumers.

I want to reiterate that I’m not trying to critique innovations in energy use as a whole. In fact, in this day and age, there are many examples of advancements in energy use that don’t apply to Jevons Paradox. Many economists agree that it is much more limited in scope than it was during its inception, although it has yet to be disproved. The attribute of the demand of a good that indicates whether or not Jevons Paradox still pertains is its elasticity of demand. Elasticity is the ratio of the change in the quantity demanded of a good due to a change in price. A good can be considered elastic or inelastic. An elastic good is one that a small increase in price yields a relatively larger decrease in quantity. Visually, it is a demand curve with a flatter slope. Elastic goods tend to be more luxury goods, such as iPhones. On the other side, an inelastic good is one where quantity demanded of a good changes much less with a change in price, which would yield a demand curve with a steeper slope. Inelastic goods tend to be more necessary commodities, such as water. Jevons paradox applies to goods that are more elastic. For example, research has shown that the demand for driving cars has increased over recent years. This means that a decrease in the cost of driving through fuel efficiency will increase the quantity demanded of fuel more significantly, which will increase consumption. On the other hand, electricity is a much more inelastic good. Because consumers don’t directly see the amount of electricity they are using on a regular basis and the fact that most of our everyday activities require electricity, consumers are less sensitive to changes in electricity cost. Because of our constant daily habits revolving around this inelastic good, very few people would expect to significantly increase their consumption with an increase in electricity efficiency.

Of course, Jevons Paradox doesn’t account for all consumption effects of goods in economies as a whole. Nevertheless, it is an interesting theory that has explained the consumption effects of both historical and some current energy efficiency increases. It also brings up the question of whether we should start focusing on finding ways to incentivize a major reduction of aggregate consumption, rather than merely focusing on ways to increase energy efficiency in goods in order to counteract any foreseen effects derived from Jevons Paradox.

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