Jevon’s Paradox

2 minute read

It’s hard to imagine any argument against energy efficiency holding up. Even climate change deniers wouldn’t argue with the benefits of not consuming energy if you don’t need too. The benefits of not wasting energy are so evident that it should be a high priority. Unfortunately it’s not quite that simple.

1865’s The Coal Question introduced what we now call Jevon’s paradox - that technological progress in the efficiency of using a resource leads to increases in resource consumption.

Jevon’s paradox is an inconvenient truth for energy efficiency. It’s not that efficiency doesn’t work - we do use less primary energy per unit of utility. It’s what happens afterwards where the gains in efficiency are cancelled out by second and third order effects.

Lets look at some of the possible first, second and third order effects (thanks Ray Dalio for this mental model). We will use gas fired heating as the example.

  • the first order effect of improving heating efficiency is that less gas is required to supply the same amount of heat. This effect is positive - we don’t burn as much gas to provide the same utility.

  • a secondary effect of improving heating efficiency could be that we now get more heat for the same amount of money. We spend the same amount, we get more heat - but no carbon saving. We can afford to heat bigger homes for the same amount of gas.

  • a third order effect could be that increased efficiency leads to less gas consumption - meaning saved carbon and money.  The question is then what does the economy do with the saved money?

If the efficiency saving is spent on taking a long haul holiday, we could actually see an increase in global carbon emissions. We improve the efficiency of supplying heat but overall as a civilization we burn more carbon. Alternatively if the saving is spent on building cleaner energy generation then even increases in utility could lead to a carbon saving.

It’s very difficult to generalize on what effect Jevon’s paradox has across different consumers, economics and technologies. Measuring the first order effects of energy efficiency projects is notoriously difficult - let alone any second or third order effects.

It’s important to note that energy efficiency is still worthwhile. It allows economic progress - this alone is worth doing. Yet for someone purely concerned with decarbonization, energy efficiency may not be the correct first option.

Jevon’s paradox is not guaranteed problem. Any negative second or third order effects of energy efficiency can be smaller than the efficiency saving. It perhaps suggests that focusing on making sure any energy we use comes from as clean a primary source as possible is a safer bet than trying to use less dirty energy.

Further reading