The Tata Nano and Jevons Paradox

A small snippet of news to underline the comments that I have made about the Tata Nano. In a normal year automobile sales in India run about 1.5 million cars. The Tata Nano went on sale in April, and over the last two months sales have averaged 100,000 cars a month. Because production was only set to be that many this year, many customers are going to have to wait until production gets geared up next year before they can expect delivery. (And just to remind you it is taking Ford up to 6-months to deliver our Fusion Hybrid, so the Indians are not alone in having a long wait).

This is an illustration of Jevons Paradox, in that making cars cheaper and simpler and thus more efficient is resulting in more sales of cars, and thus an overall increase in gasoline demand. Interestingly most of the cars sold are not baseline (the $2.050 version) but also include air conditioning and power windows.

Gentle Cough - Jevons Paradox and the Christian Science Monitor

The Christian Science Monitor has a comment on the likelihood of people driving more as fuel efficiency gets better. It notes that in its modern form, the rebound effect, should see folks driving more as the cost per mile declines. After all driving was curtailed when gas prices rose above $4.

The author of the piece (Eoin O'Carroll) worked out, with help, the likely effect.

How big is the actual effect? I asked Jim Kliesch, a clean-vehicle expert with the Union of Concerned Scientists, who has reviewed a number of studies on the subject. He walked me through the math, and we calculated that doubling fuel economy would increase driving for the average person by a little over 7 percent.

“It is certainly not of the magnitude to have any significant impact on energy savings,” he said.

Thereby he believes that Jevons Paradox does not apply to cars and fuel efficiency.

I think he misunderstood the Paradox, so this is what I wrote in a comment at the site.

I believe you misunderstand the application of Jevons Paradox. In his original example, Jevons pointed out (as you note) that increasing the efficiency of a locomotive led to an increase in coal demand for coal, their fuel supply.

But you have considered that increasing efficiency would increase the mileage driven by an individual vehicle. That is not what he said, nor, realistically what will happen. Rather it is that by lowering the cost of locomotives, people used more of them, and thus demand rose, not that an individual locomotive drove more miles.

Relevant to the current debate the example is the Tata Nano - by improving manufacturing efficiency to create a car cheap enough for a lower stratum of Indian society (and later the world) their ability to afford the car will drive up gas consumption.

There are many examples - computers, i-pods, cell phones etc etc. It is in the marrying of price with improved efficiency that provides the engine for the Paradox.

And yes, in its correct mode of use, I expect Jevons Paradox to continue working.

The risks of "cap and trade"

When discussions arise about Climate Change, and the possibility that carbon dioxide and the other greenhouse gases are responsible for the rise in global temperatures, one prevailing argument is that “we cannot afford to take the risk of the AGW argument being right, without doing something.” However, in that discussion, there is rarely any mention of possible negative consequences to mitigating against increased levels of carbon dioxide in the atmosphere. The only positions mentioned are frequently the projections of dramatic rises in sea levels, the promise of worse storms, droughts and climate conditions and other projected severe costs of inaction. The costs of the actions themselves are not addressed, and the implications are that the world will be a better place if some of the current trends in Climate Change are, if nothing further, stopped from progressing further.

But there are costs to the required changes in lifestyle that a reduction in carbon dioxide production will require, and those potential impacts are rarely spelled out to the public, or to the politicians who must enact the legislation to put new laws in place. However politicians, particularly in those districts that are likely to be impacted by the changes in regulations, are already showing some sensitivity to the potential negative aspects of “cap and trade” and so it might be worth exploring the topic in a little more depth.

The Energy Summit in Columbia last week allowed some of the utility companies to spell out the levels of cost that will be incurred if cap and trade legislation is enacted, based on a projected cost for the allowance to generate a ton of carbon dioxide. But they largely built their discussion around the price of that portion of the electricity that they will still be allowed to generate. A cap and trade system, however, comes in two parts. The first part is to look at the overall production of carbon dioxide, say 6 billion tons/year, where the program cuts this back by, say 500 million tons a year. (This is the reduction in the capacity to produce or the “cap.”) For the sake of the following discussion I will assume that 1 ton of coal produces very roughly 3 tons of carbon dioxide to make the arithmetic easier.

The first argument of those who look at this problem of a reduced supply is to suggest that the gap can be met by improving efficiency of electrical use, and conservation. However the implementation of a cap and trade policy is not predicated on that efficiency change happening, but it will occur as a separate event. And Jevons Paradox will tell you that “improving energy efficiency increases energy consumption.” So that the savings in power required are unlikely to be realized.

Which means that if the utilities are restricted in the amount of power that they can generate with carbon-producing strategies, then they must have alternate supplies in place. Theoretically that may well be the case. The number of states that are including a “sustainable source” quotient in their mandated supplies is steadily growing. However, as Montana, for example, is discovering there may be a difference between the targets and the practical realities. As credit has become tight, available funds for new farms are becoming harder to raise, and without a perceived increase in demand, it is harder to justify a new investment in plant when the old coal plant is still producing at a relatively low cost. And without the lead time being used to produce the new energy sources that will be needed, when the time comes to flip that switch, it may not yet be connected.

The problem actually is a little worse that this. Because most of the coal-fired power plants are quite old, and while maintained to continue to produce power, they are less efficient and more polluting that the more modern plants that are planned to replace them. But with the anticipated change in regulation now that EPA has ruled on carbon dioxide , almost all the originally about 200 planned new coal-fired power plants are holding back on commitments and roughly half have cancelled or indefinitely postponed their planned construction. Thus the increased supply of power from new plants may not appear.

There are two additional thoughts to consider. The first is the proposed restriction on emissions from these new plants:

The (Waxman – Markey) proposal unabashedly bans new coal-fired electric plants. In 2009 new coal-fueled electric plants are limited to 1100 pounds of carbon dioxide per megawatt-hour (MWh) and 800 pounds after 2020. Present fossil-fuel electric plants emit the following pounds of CO2 per MWh: 2100 for coal, 1900 for oil, and 1300 for natural gas. . . . The bill that includes "security" in its title limits our plentiful secure coal supply to discharges of about one-half that allowed for oil and natural gas.

The second is that some parts of the country do not have the ability to tap into the wind and solar resources that are currently being suggested as the solution to the problem.

Productive wind is only available in a limited number of states and their regions, and similarly solar power cannot be relied on in a North-Eastern Winter. One cannot legislate an alternative technology that does not yet exist to fill in the gaps between what will be allowed from the power plants of yesterday, and the demands that a rebounding economy may place upon them. Mandating that the older suppliers of power close, before the new plants to replace them are installed will have significant consequences to the available jobs that can be supported, if the factories and industrial base begin to lose the reliability of the power sources that they have today.

Even, however, if they find some way of meeting the target for the renewable portion of their portfolio, the utilities won’t be out of the wood. Because the purchase of the allocation for the carbon dioxide they do admit will also bring additional cost. As noted at the Energy Summit a price of $50 per ton of carbon allocation would likely double electric bills in Missouri. Burning a ton of coal, that now costs $50, would raise its price to $250. While if the price per allocation ton was raised to $200 per ton (which has been suggested as being necessary to support some alternate energy choices) this would raise the cost by a factor of five (i.e. a current electric bill of $200 would rise to $1,000 per month). In much the same way as Secretary Chu recognized at the EIA Conference that increases in the cost of oil contributed to the severity of the recession, one can equally imagine that a similar effect will be felt with an equivalent rise in the cost of electricity.

The current path forward, with a hesitation in construction of new power plants holds the risk that the United States will not have the power that it needs in the future to match industrial and domestic demands. In those cases it is often industry that is the first to see the cutbacks in supply when load shedding is needed. But the resulting drop in production, and international competitiveness, may well damage or destroy the recovering economy after this recession comes to an end. That too is a risk that should be protected against.

Jevons Paradox - or a gentle cough concerning energy efficiency

There is a common thread to almost all recommendations that deal with the problems associated with our dependence on fossil fuels, whether that concern arises because of Energy Security issues, or because of concerns over Climate Change. That thread dictates that the obvious first step is to engage in a program of conservation and improving energy efficiency. This is the “low hanging fruit” referred to by Secretary of Energy Steven Chu, and over the past weeks it was repeated in speech after speech, at both the EIA Energy Meeting and the Missouri Energy Summit I have just described.

Improving energy efficiency is not a new mantra, it has been proposed, and programs implemented to encourage it over many years. There is, however, one often unrecognized problem. Over the years that problem has become known as Jevons Paradox, after the English economist who propounded it in 1866. Writing about concerns over the availability of coal for the British economy he said

“A further class of opponents feel the growing power of coal, but repose upon the notion that economy in its use will rescue us. If coal becomes twice as dear as it is, but our engines are made to produce twice as much result with the same coal, the cost of steam power will remain as before. These opponents, however, overlook two prime points on the subject. They forget that economy of fuel leads to a great increase in consumption, as shown in the chapter on the subject; and secondly, they forget that other nations can use improved engines as well as ourselves, so that our comparative position will not be much improved.”

It is the first of these points that has become known as Jevons Paradox. More simply put – It is wrong to assume that the more efficient use of fuel will lower its usage. In fact the very opposite happens.

Jevons was writing at a time when the benefits of coal, in moving the world into the Industrial Revolution, were evident. Developing markets for coal had led to the creation of canals, the invention of the railway and the steam locomotive and, at the time he wrote, the increased popularity of marriage. In his book “The Coal Question: An Inquiry Concerning the Progress of the Nation, and the Probable Exhaustion of Our Coalmines,” he devotes Chapter Seven to the consideration of the paradox cited above. Although he separates domestic considerations from his argument , subsequently they have been found to be equally vulnerable to the paradox.

Jevons began his case by noting that seamstresses who master the use of a sewing machine find increased demand for their services, and then commenting that the improved efficiency achieved, first by Smeaton and then by Watt, on Newcomen’s original atmospheric engine, dramatically increased their range of application.

Consider that the duty (number of pounds of water raised one foot by burning a bushel (84 lb) of coal went from 5.59 million lb in 1769 with the original engine, through 9.45 million lb with Smeaton’s enhancement in 1772, to 26.6 million lb with Watt’s improved engine in 1788, reaching 43.3 million pounds in 1830 with the Cornish engine. With each step in the progression more engines were sold, and the market grew. And as the market grew the machines became cheaper, and then more widely adopted. It transformed society.

The reduction of the consumption of coal, per ton of iron, to less than one-third of the former amount, has been followed, in Scotland, by a tenfold (increase in ) total consumption.

And he adds this caution

But no one must suppose that coal thus saved is spared – it is only saved from one use to be employed in others, and the profits gained soon lead to extended employment in many new forms.

Later economists have modified this statement into what is now referred to as the rebound effect “some efficiency gains are wiped out by a greater demand for the product.”

There appears to be considerable support for the proposition that the Paradox still holds true. Jeff Dardozzi reviews some of the history

In the 1980s, Jevons' observation was revisited by the economists Daniel Khazzoom and Leonard Brookes. In their analysis, they looked beyond the relationship between energy resources and the machines that convert them to useful work to consider the overall effect of technological improvements in resource efficiencies on the energy use of a society as a whole. They argued that increased efficiency paradoxically leads to increased overall energy consumption. In 1992, the economist Harry Saunders dubbed this hypothesis the Khazzoom-Brookes Postulate and showed that it was true under neo-classical growth theory over a wide range of assumptions. Since the appearance of the Khazzoom-Brookes Postulate, numerous studies have weighed in on the debate arguing a range of impacts of the rebound effect.

In January 2008, Earthscan released Jevons Paradox: The Myth of Resource Efficiency Improvements as the latest and most comprehensive review of the paradox in economics literature. Prefaced by anthropologist Joseph Tainter (The Collapse of Complex Societies, 1988), the book reviews the history of the debate, current findings and includes the latest multi-disciplinary studies regarding the existence of the rebound effect. The book clearly supports the proposition that the rebound effect is present in the US, Europe and most other economies and that strategies to increase energy efficiency in themselves will do little to improve the energy or the ecological situation. In fact, they may well worsen it as the historical impact of resource efficiency improvements shows that increasing the efficiency in the use of a resource in turn increases the consumption of that resource.

There is an excellent video available on the subject (though it lasts 18 minutes) ( courtesy of San Francisco Bike Blog)

Treehugger illustrates the Paradox using the example of the Tata Nano car – that gets 47 mpg but, at $2,500, expands the car market to vast numbers of Indians.

Jevons work has been confirmed by economists such as Mark Mills and Vaclav Smil, “energy efficiency increases energy consumption.” It is becoming the topic of new books which support the concept,

As Huber and Mills make clear in The Bottomless Well: "Over the long term, societies that expand and improve their energy supplies overwhelm those that don't." Given the harsh realities of the Jevons Paradox, the U.S. (and the rest of the world) need to get busy expanding and improving those energy supplies.

It might make a topic for an interesting session at a future Energy Conference.