What the nineteenth century can teach us about fuel efficiency.
In 1865, the most prolific economic mind on the planet was occupied with coal. More specifically, William Jevons was trying to understand why the consumption of coal in England continued to increase despite ever more efficient steam engines. What became known as the Jevons Paradox explains why increases in efficiency result in higher total consumption. The news has yet to reach Washington.
England, being an island with limited resources, had a problem once the industrial revolution got into high gear. With limited coal reserves, the rate that coal was being consumed was an important economic consideration. When James Watt improved the efficiency of Thomas Newcomen’s steam engine, the rate of coal consumption was expected to slow. Instead it rapidly increased.
What Jevons discovered was that the efficiency improvements changed the business playing field in significant ways. Endeavors that were once cost prohibitive were now feasible. Products and services that were once available to only the wealthiest were suddenly available to far more consumers. As a result, the total amount of coal consumed increased along with the rate of reserve depletion.
Today, energy consumption is an important topic affecting the US economy. So far the US government has responded with increased CAFE (Corporate Average Fuel Economy, the fuel efficiency the government requires of automobiles) standards and new efficiency standards for light bulbs. According to Jevons, we can expect that these measures will have the same effect as the original CAFE law. In other words, they will lead to increased energy use.
This is an example of politicians making matters worse. By mandating energy efficiency, the government makes value judgments for individuals and businesses. While various attributes of a product may appeal to consumers, energy efficiency standards require those features demure to efficiency. Even worse, mandated efficiency measures lower prices before meaningful behavior changes destroy long term demand.
Our political leaders and the media tell us we can increase efficiency to conserve our way out of our current energy problems. To believe this requires economic illiteracy. If it is government policy to reduce energy use, there is only one approach that will satisfy this goal: an extended period of painfully high energy prices. High prices are their own solution. They destroy demand and encourage alternatives. Conservation does neither.
This fall, candidates from both parties at all levels are going to try to sell you an energy policy. One thing you can be sure of, none of them know Jevons.