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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

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.