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Why focus on efficiency?

28 September 2017

Why focus on efficiency?

The Magic Nexus team

Efficiency has become a  popular measure in many of the policy areas of the European Union, including energy policy, the circular economy and climate policy. However, despite its ubiquitous use, the term efficiency is surrounded by considerable confusion. Indeed, in some cases improvements in efficiency may lead to increased consumption. This edition of The Nexus Times enters in the current debate on efficiency targets with a critical analysis of the term efficiency and its related paradoxes.

In this edition, you will find two articles that discuss the efficiency paradox from different points of view, highlighting some of the challenges that efficiency targets may pose for the governance of the water-energy-food nexus. We also take you through the historical origins and development of the concept of efficiency, and talk about how this concept is used in two of the policy areas that MAGIC is analyzing: energy policy and the circular economy.

These articles are meant to initiate a discussion on the use of the term efficiency in setting policy goals. We welcome any comments and contributions to the discussion. You can either use our discussion forum or write to us. We also welcome contributed articles in The Nexus Times.

» Read "The Nexus Times" Issue II - EFFICIENCY PARADOX (September 2017)

VIDEO: The paradox of energy efficiency

The paradox of efficiency: Can uncertainty be governed?

The paradox of efficiency: Can uncertainty be governed?

Zora Kovacic, Louisa Jane Di Felice and Tessa Dunlop

In a world of limited resources and increasing human impact on the environment, using resources more efficiently seems sensible. Many policies see efficiency as an important instrument to achieve their goals. In the case of energy policy, the EU has published in 2012 a directive on energy efficiency and in June EU energy ministers agreed to support a 30% energy efficiency target for 2030 as part of proposed legislation to improve the EU's electricity market. In water management, efficiency is seen as a means to deal with water scarcity in arid regions. In waste management, resource efficiency is pursued as a means to reduce waste production. But does efficiency guarantee that less resources will be used? Does it guarantee that resources will be used better? The Jevons paradox suggests that the answer is not so straightforward and that efficiency policies may not achieve the desired results.

In 1865, William Stanley Jevons observed that increased efficiency in coal engines led to an increase in consumption of coal in a wide range of industries. The improvements in coal engines made it possible to use engines not only in coal mines, but also on rail and sea transport. Jevons concluded that, contrary to common intuition, increases in efficiency do not necessarily reduce resource consumption because they also open up for new applications and uses and ultimately new demands. This is called “the Jevons paradox”. This paradox is one of the many ways that complexity displays itself. In a complex system, if a part is changed or taken out and substituted with a different part, interactions within the system may change and lead to surprising and paradoxical changes throughout the entire system. The Jevons paradox suggests that efficiency policies may not lead to the desired outcomes, because the economic system will adapt to increased efficiency and technological improvements.

A similar concept has emerged also in economics, called the rebound effect. The rebound effect is the reduction in expected gains from increases in efficiency, because of systemic responses to the increase in efficiency. While the rebound effect recognises that systemic responses may offset the benefits of technological improvements, it does not presuppose changes in the essential workings of the system. The rebound effect can be calculated through mathematical formulas, which assume that the interactions between the parts of the system remain stable. There are sometimes varying definitions, but scholars generally differentiate between 1) direct, 2) indirect 3) economy-wide and 4) transformational rebound effects, with the latter most comparable to the Jevons paradox. From the point of view of complexity, however, the rebound effect is different from the Jevons paradox in as far as changes in complex systems cannot be precisely calculated.

What this means is that the rebound effect essentially leads us to do more of the same thing, while Jevons paradox leads us to do something different. To make this distinction clearer, we can draw a parallel with diets. If I am trying to cut my calories to lose weight and decide to buy fat free yogurts, I may end up eating two fat free yogurts instead of a regular one – leading overall to a higher caloric consumption. This would be the rebound effect. On the other hand, I could also eat a fat free yogurt and then, feeling that I have saved on calories, I could take the bus instead of walking, or go out and eat a slice of pizza. This would be the Jevons paradox. This doesn’t necessarily mean that one should stop buying fat free yogurts, or stop improving our efficiency, but it does have implications for governance.

The existence of direct rebound effects is uncontroversial, with quantitative evidence in a large number of studies. The possible effects of the Jevons paradox and how to measure it, however, are in dispute. But rather than focusing on technicalities, the Jevons paradox reveals an important philosophical dilemma regarding complex systems. Because it focuses on unforeseen changes in the interactions between the parts and the identity of the whole, the paradox cannot be modelled nor predicted with precision. Therefore The Jevons paradox and the rebound effect have different implications for policy, and cannot be treated as equivalent. The rebound effect suggests that gains in efficiency can be estimated and that efficiency policies are a means to govern complex systems (although these are not as effective as one may hope). The Jevons paradox instead suggests that complex systems cannot be controlled, and that increases in efficiency may not produce the expected results. Given this uncertainty, which theory should policy rely on for advice? If one takes the Jevons paradox seriously, governance is as much a matter of relying on evidence as it is about taking into account uncertainty.

 

References

Sorrell, S. Jevons’ Paradox revisited: The evidence for backfire from improved energy efficiency. Energy Policy. 37 (2009) 1456–1469. (footnote for paradox being in dispute)

Greening, L. A., D. L. Greene, and C. Difiglio. 2000. Energy efficiency and consumption—The rebound effect—A survey. Energy Policy 28(6–7): 389–401.

 

Paradox or Paradigm? A deeper discussion about societal goals

28 September 2017

Paradox or Paradigm? A deeper discussion about societal goals

Jan Sindt

The Jevons Paradox and rebound effect can be seen as one of the same thing as both observe higher consumption levels due to increased efficiency. But the real public policy question we should be asking is: do we want to live in a consumption-driven society?

Some 150 years ago, when the industrial revolution took up steam in England, the British economist William Jevons described how efficiency gains could paradoxically increase resource consumption. Today, energy conservation policies in Europe are observing efficiency gains again in order to try to mitigate the greenhouse effects caused by the revolution’s spread across the globe. This time seemingly to solve the problem of which efficiency gains created or at least contributed to an increase in energy consumption in the first place. But could we reasonably expect different results from increased efficiency compared to 150 years ago, given that the generalised economic goals are similar in both circumstances?

The short answer is that Jevons Paradox has a number of particular preconditions, which include economic objectives of unregulated growth and increased consumption of resources. Some of the preconditions could be created by and trigger at least a rebound effect. A rebound effect is an increase in demand following a price reduction of a certain product or service due to its reduced resource intensity, i.e. efficiency gains. Hence, it depends on the relation between product price and consumer demand. Jevons Paradox is basically a special case of a rebound effect with elastic demand for energy. Jevons observed an increased demand for coal in excess of the actual efficiency improvement of the steam engine, caused by the efficiency gains of the steam engine (c.f. Alcott 2008 for a detailed assessment). The range of economically viable applications expanded, including of coal mining through providing cheaper water pumps, which in turn allowed the exploitation of previously inaccessible coal veins. Thus, the rebound effect was greater than the efficiency gains, which was possible because it affected the production of the very resource that was being used more efficiently.

An example of rebound effect of around 20% has also been more recently observed with respect to efficiency gains in vehicle fuel consumption. If vehicles are more efficient and hence cheaper to use, people feel more inclined to use them. A meta-study estimates such particular effect at around 3% of increased transport demand per 10% of increased efficiency (Dimitropoulos, Oueslati & Sintek 2016).

So what? On the one hand, increased efficiency does not necessarily translate into reduced resource consumption. In terms of transport, fuel efficiency gains in the US before 2001 have been compensated by the size and weight of cars (c.f. York 2006). This ought not be confused with Jevons Paradox, as there is no direct causal link between efficiency gains and bigger cars. Furthermore, improved efficiency has not created demand but removed restraints, and has ultimately not increased fuel consumption but only proven insufficient to reduce fuel consumption on its own.

On the other hand, increased efficiency does not necessarily cause a rebound effect, let alone a Jevons Paradox. As the rebound effect and Jevons special case thereof are entirely driven by cheaper supply due to efficiency gains, all it takes to curb the effect is to increase the price through market interventions like taxes on energy in order to at least compensate the efficiency gains. Economists may argue that such an intervention would strangle economic growth, but that is exactly the point to take away from an economist predating the industrial revolution: efficiency gains can technically reduce resource consumption with equal output, however widespread normative convictions demand instead that output must be increased. The freed resources provide an opportunity for economic expansion, instead of closing the mine. Cheap resources have fuelled economic growth from the very beginning, literally. Growth is a paradigm of capitalist societies, rather than a paradox of efficiency. The question is not so much if we can avoid such growth but if we actually still want that growth after 150 years, also keeping in mind who benefits and who pays for it. With an answer to that normative question, Jevons could finally rest in peace.
 

References

Alcott, B. (2008), “Historical Overview of the Jevons Paradox in the Literature”. In: J. M. Polimeni, K. Mayumi, M. Giampietro & B. Alcott: The Jevons Paradox and the Myth of Resource Efficiency Improvements. London: Earthscan.

Dimitropulos, A., W. Oueslati & C. Sintek (2016), “The Rebounf Effect in Road Transport: A Meta-analysis of Empirical Studies”. OECD Environment Working Papers, No.113, OECD Publishing, Paris.

York, R. (2006), “Ecological Paradoxes: William Stanley Jevons and the Paperless Office”. Human Ecology Review, Vol.13, No.2.

Is renewable energy efficient?

28 September 2017

Is renewable energy efficient?

Louisa Jane Di Felice

Renewable energy and efficiency are both essential to meet the EU’s sustainability goals, but synergies and trade-offs between the two measures are under-studied.

The EU 2050 Energy Strategy, released in 2011, identified four pillars needed to reach a sustainable energy system: energy efficiency, renewable energy, nuclear energy and carbon capture and storage. Across other EU strategies and communications, energy efficiency and renewable energy are predominant: on one hand, similar targets are set for both – see, for example, the 2020 Energy Strategy, calling for a 20% increase in both renewable energy and efficiency; on the other, they are both seen as measures needed to reach similar goals: namely, the reduction of greenhouse gases, with a 2020 target of 20%, and 30% by 2030.  However, the reduction of greenhouse gases isn’t the only motive behind renewables and efficiency, with renewable energy also increasing local production and security, and efficiency lowering energy bills.

With both measures dominating EU energy strategies, as well as national and regional energy plans, a question arises: do they contradict each other? While many studies focus on the importance of either one of the two, it is becoming apparent that, if the EU is to meet its ambitious targets, cross-checks among policies (both in the same realm, such as energy, and across different areas) are essential. The question, however, isn’t simple. An initial search on the synergies and trade-offs between renewables and efficiency yields diametrically different opinions.  Renewable energy supporters claim that renewable energy systems are vastly more efficient than their fossil-fuelled counterpart. They are not wrong: losses in the transformation from renewable energy sources to electricity are almost negligible, while thermal combustion plants have an inevitable heat loss, dictated by Carnot’s principle, limiting their conversion efficiency to a theoretical maximum, dependent on the maximum temperature at which the conversion process can operate. This is called thermal power generation efficiency. Coal plants, for example, have an average thermal efficiency ranging between 32% and 42%. Those who are more sceptical of renewable energy systems, however, argue that they are clearly less efficient than conventional power plants. Again, they are not wrong: wind turbines and solar panels operate at their full potential no more than 40% of the time, at best. Moreover, for the same electricity output, renewable energy generally requires more land, labour and investment.

So, who is right? To help untangle this mess, the first step is being able to compare renewable and non-renewable plants, and this in itself is not an easy task. Energy systems are composed of various phases, from extraction and transport of primary energy sources, to their conversion into fuels or electricity, to the transport of the former and the transmission and distribution of the latter leading, finally, to consumption. Each of these steps can be characterized by its own efficiency, and they are not easily comparable: an efficient coal plant is not the same as an efficient toaster. By harnessing primary energy sources when they are readily available, renewable energy systems avoid the steps of extraction and transportation of primary energy sources. Moreover, by relying on the conversion of renewable elements such as the sun and the wind, no resource is wasted in the process.  However, by comparing energy systems based on their structure, and not on their differences in output, only part of the picture is visible.

One of the main issues with renewable energy is intermittency. This means that while a wind turbine and a natural gas turbine may both produce a certain output of electricity, these two outputs are not the same: one can be controlled and used when needed during peak demand, while the other is produced randomly, regardless of demand curves. So to compare renewable and non-renewable systems, one has to start by assuming that they are producing the same output, and this means factoring storage into the equation. Only by considering the combined system of “renewable energy plant plus storage” can it then be compared to a conventional power plant, as both produce the same kind of electricity (the useful kind).

Quantifying the efficiency of energy storage, however, isn’t trivial. Similar to energy conversion, the efficiency of storage can be considered from different angles: one could, for example, check how much energy is lost in the storage cycle. Pumped hydro storage (PHS), where water is pumped to a high basin when electricity demand is low and then released during high demand, loses on average 25% of electricity over one cycle (also known as round-trip energy efficiency). But this isn’t really a loss, or we’d be mad to go through the cycle in the first place – the electricity pumped up-hill, and the portion that is lost in the process, is cheap electricity, generated at low demand times, while the one produced at a later stage is expensive, covering a much needed peak. They may both be electricity, but one is more valuable than the other. Lithium-ion batteries, another popular storage technology, have a higher round-trip energy efficiency of up to 90%. However, round-trip energy efficiency isn’t the only way to describe the efficiency of storage technologies. In 2014, researchers at Stanford University introduced the concept of “energy stored on investment” (ESOI), quantifying the storage potential of a technology against the storage capacity over its lifetime. In this case, PHS fares much better than chemical storage, with an ESOI of 210, over twenty times higher than that of lithium-ion batteries.

Quantifying the efficiency of renewable energy systems is no simple task. When it comes to discussing renewable and non-renewable energy systems, it is essential that they are compared against the same output. This means that storage cannot be left out of the equation. However, the question of what efficiency means in terms of storage is still under-explored, and better tools to assess storage technologies are needed, as renewable energy plays a greater role both in energy systems and in energy policies. It’s unclear whether renewable energy is more or less efficient, but accepting that there may not be exact answers to these kinds of questions, and that different framings and definitions of efficiency lead to different results, may be a necessary step forward in shaping comprehensive policies in times of uncertainty.

From religous concept to industrial tool

28 September 2017

From religous concept to industrial tool

Tessa Dunlop

Far from having a straightforward definition, the term 'efficiency' has taken on many different meanings throughout history, showing that its meaning is highly contextual, writes Tessa Dunlop.

In its most general sense, the term ‘efficiency’ has become a central ideal in the world’s advanced industrial cultures. Efficiency often signifies something good, as in a job well and economically done, and is associated with ideals of individual discipline, superior management, and increased profits.

But if you pull apart the meaning of efficiency, and observe how the term has evolved over time, its underlying definition is far from simple. In her book, The Mantra of Efficiency, Jennifer Karns Alexander traces the complex history of the meaning of efficiency, from its beginnings as a religious philosophical concept to describe divine agents and causes of change, its use in the 19th Century as an industrial tool to measure the performance of machines, right through to its varied and sometimes contradictory usage today. Throughout the 19th and 20th centuries efficiency has been applied to various fields including biology, economic thought, personal development, worker management, and social history.

Interestingly, Alexander teases apart two dominant, yet distinct, interpretations of efficiency over this time. One is an efficiency of balance, a static efficiency, that accounts for the conservation of measured elements. The other is a creative and dynamic efficiency, which brings about growth through careful management.

Static efficiency was a priority during the Progressive era in the United States when factory owners prioritized stability, reliability and control of their production lines amid social turbulence. To help them maintain stability, production managers enlisted the help of efficiency consultant and mechanical engineer Henry Gantt. When analyzing worker practices, Gantt noted a problem with the incentives that workers were given. Workers that were paid a piece rate depending on the amount or ‘pieces’ they produced were at first motivated to greater productivity, but eventually lost motivation once they saw that managers eventually cut the rate per piece the more they produced. This meant that the workers had to work even harder just to break even. To solve this problem, Gantt proposed a differential piece rate, in which workers who met a daily quota received a higher rate for each piece. He wanted not just to stimulate production, but more importantly, to make it predictable.

Dynamic efficiency is allied to visions of change and progress, including the evolution of mechanical engineering during the 19th century. This encompassed the development of laws of thermodynamics such as the conservation of energy. Dynamic efficiency was famously used by Charles Darwin to describe the dynamic effectiveness natural selection and change through evolution. While the two ideas of static and dynamic efficiency often interwoven together, sometimes they created conflict, notably in the different ways to measure efficiency. In the 19th century, engineers and physicists argued about different measures of dynamic efficiency in waterwheels and thermal combustion engines. Although the efficiency of a waterwheel may seem like a simple idea (which waterwheel design is most effective in producing the most energy), engineers and scientists struggled to decide how to conceptually relate the source of a water wheel’s motion to the work it produced. Some believed that one should measure the water wheel efficiency statically – that is, measuring the energy throughput of the wheel before and after it turned – ie, in two static states. But an English engineer, John Smeaton, raised a philosophical dilemma for his time: How does one measure matter in motion? Ie, dynamic efficiency. The vast majority of engineers during, and for the century following Smeaton’s experiments, chose to conveniently sidestep this issue of motion, due to its inherent complexity of measurement. But Smeaton’s measures of dynamic efficiency led to significant disputes not only on how to measure efficiency but over who had the right to define the terms and measurement.

The multiple and sometimes contradictory definitions of efficiency imply that the term is highly contextual. It can be measured in different ways, depending on who is making the calculations. According to Alexander, this means that efficiency is an instrumental value, without inherent meaning of its own. Given the rich history of the term efficiency and its varied applications today, one must carefully scrutinize what efficiency means in each specific context – does it refer to conservation and stability, or dynamism and growth?

 

Reference

Alexander, J. K. 2008. The Mantra of Efficiency: From Waterwheel to Social Control. The Johns Hopkins University Press

The circular economy: A new efficiency paradox?

28 September 2017

The circular economy: A new efficiency paradox?

Tessa Dunlop

Proponents of the circular economy call for actions to be 'eco-effective': but is this another efficiency paradox?

The goal to create a Circular Economy has gained traction in recent years with calls from both government and civil society to ‘close the loop’. The European Union has pledged over EUR 6 billion as part of its Circular Economy Package and various NGOs around the world have championed the cause. Broadly speaking, the circular economy aims to increase environmental sustainability and spur economic growth through greater resource efficiency in the recycling and reuse of products. The idea is to decrease environmentally intensive primary production in favor of lower-impact secondary production whilst creating less waste, or ‘output’. Some are distancing the objective of circular economy away from the concept of efficiency in the traditional sense (the ratio of useful output to total input, for example the amount of coal used to power a steam engine), and replacing it with the idea of eco-effectiveness. According to the Ellen MacArthur Foundation, the idea behind eco-effectiveness is to transform products and their associated material flows such that they “form a supportive relationship with ecological systems and future economic growth” in a cyclical way such that materials can “accumulate intelligence over time (upcycling)” as opposed to simply trying to minimize the linear flow of materials that characterizes our current consume and throw-away culture. But is this perspective really that different to the objectives that underpin efficiency? Whether considering efficiency in relation to energy generation, or eco-effectiveness as applied to product manufacturing and consumption, both terms imply a reduction of resource inputs into the economic system, because natural resources are finite. And what if, like the paradox of efficiency, a circular economy could perversely lead to an increase in product demand, and thus more primary production and resource extraction?

Zink and Geyer (2017) have introduced the term ‘circular economy rebound effect’ to describe a phenomenon whereby increases in production or consumption efficiency are offset by increased levels of production and consumption. They have criticized the fact that circular economy proponents focus too much on the engineering aspects of the circular economy and not enough on its complex economic effects. In other words, they question whether a circular economy would reduce or displace primary production, or even if it might increase it.

While there is a solid body of research that measures the environmental impacts of recycling and repair activities, there is little known about the impact that these practices have on primary material and product production. This is in large part due to the complexity and difficulties in measuring the economic interactions between the primary and secondary goods markets, which are expected to become more competitive in a circular economy. Zink and Geyer (2017) argue that there is evidence pointing to the existence of circular economy rebound effects that could erase any gains in product recycling or reuse by increasing market demand for products. Take, for example, the income effect when lower-price recycled goods enter the market. Wholesalers often sell lower-grade quality recycled or reused products such as recycled paper or plastic at a discount to higher quality first-use goods. When purchasers perceive themselves as wealthier because they are able to buy more for less, they can purchase more material and use it to make more products than before. The excess wealth may be spent elsewhere, with unpredictable results.

One can also conceive of unexpected consequences of circular economy actions on a larger scale, explain Zink and Geyer (2017). An increase in recycling could, for instance, prompt consumers to purchase more disposable products under the belief that they are reducing their environmental impact. Wealthy consumers may sell their second-hand phones to subsidize their purchase of more expensive first-hand phones, thereby increasing demand and primary production. This effect may be fueled by an increase of secondary phone buyers, for example in poorer countries, who did not previously have an option to buy a phone. And how might a shift towards reuse and repair occupations effect the macroeconomy, including  employment levels, affluence, immigration and consumption patterns?, query Zink and Geyer (2017). What if cheaper recycled products become less cool? (And thus less valued than their harder-to-come-by primary production alternatives?)

This is not to say that the circular economy will necessarily lead to increased primary production. Many initiatives can reduce negative environmental effects if products truly substitute primary production alternatives and they do not create perverse market incentives to consume more new products. The point is that there is currently not enough research to say definitively whether circular economy initiatives will displace and/or reduce primary production. Thus one must critically examine the credentials of circular economy initiatives in their claims to increase ‘eco-effectiveness’.   

 

References

Welch, D., Keller, M. and Mandich, G. 2017. Imagined futures of everyday life in the circular economy. Interactions. Vol. 24, Number 2.

Zink, T. and Geyer, R. 2017. Circular Economy Rebound. Journal of Industrial Ecology. Vol 21, Number 3.

Ellen MacArthur Foundation: https://www.ellenmacarthurfoundation.org/circular-economy/interactive-diagram/efficiency-vs-effectiveness

European Union: https://ec.europa.eu/commission/priorities/jobs-growth-and-investment/towards-circular-economy_en