Energy Efficiency Gives Us Money to Burn
William Stanley Jevons was born in Liverpool in 1835. When his father’s business ran into trouble, he left his studies at University College London and went to work for five years in Sydney, assaying precious metals at a mint, before returning to London and academia. He made some important contributions to economics – the young John Maynard Keynes thought Jevons was one of the outstanding minds of the 19th century – but he died at 46, drowning in the sea off Bexhill.
Despite Keynes’s admiration, Jevons might now be forgotten, save for one famous prediction and one intriguing argument. The famous prediction – that the UK’s economic prosperity was at risk because the country would run out of viable reserves of coal – was contained in The Coal Question (1865), a book that made Jevons a celebrated pundit at the age of 29. The coal industry did fall into decline. Production peaked exactly a century ago, when there were 1.1 million coal miners – four times as many as when Margaret Thatcher was elected in 1979. Whether this had much to do with the fall of the Empire is a fascinating question.
Jevons remains notable in some circles for an argument he made in The Coal Question, rebutting critics who claimed that a coal shortage was no problem because steam engines would become dramatically more efficient. Jevons replied: “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.” This idea became known as the Jevons paradox: that energy efficiency does not reduce energy consumption. When light was hugely expensive, a person might read by the fickle flame of a single candle; now it’s so cheap we flood our cities with it. Double glazing could mean lower heating bills but in practice it means warmer houses.
So was Jevons right? That’s a hotly contested topic. On a microeconomic level, he was not: a 50 per cent increase in the energy efficiency of a device will lead to increased use, but rarely to the doubling in usage that would be necessary for Jevons to be correct. Aha, reply Jevons’s defenders: even if a fuel-sipping car does not induce me to drive much further, I may still spend my cash savings on some other energy-guzzling device. True. But energy is a small enough part of the economy – about 6 to 10 per cent – that the actual cash savings available to spend elsewhere will usually be modest.
The broadest version of the Jevons paradox is that energy efficiency, in a very general sense, makes economic growth possible, and this in turn creates new demands for energy that swamp the initial energy saving. This claim – sometimes called the Khazzoom-Brookes postulate – is hard to evaluate. In the UK, energy consumption per person is at its lowest level for 50 years, which is a mark against Khazzoom-Brookes. Yet world energy consumption continues to increase despite a cornucopia of efficiency gains over the decades. This perverse correlation is not necessarily causal – and more importantly, it is not inevitable. It is possible to enjoy the benefits of energy-efficient devices without burning yet more energy.
Which brings us to policy conclusions. Jevons has been used to argue that energy efficiency is pointless as a goal of public policy. That’s wrong: what matters is how that goal is pursued. Government rules requiring efficiency may fail to deliver lower energy consumption. But there is a complement to the regulatory approach: using taxes (or tradeable pollution permits, which have a similar effect) to raise the price of consuming fossil fuels. A new efficiency standard may not do much in isolation but it will work wonders when coupled with a tax on carbon.