Friday, April 27, 2007

Jevons' Redux

Peak Oil Law Center: Jevons’ Redux & Efficiency Policy

Yesterday my article on Jevons’ Paradox was posted at The Oil Drum, and it led to quite a lively debate. Due to the complexity of the issue, I make no claims that I’m “right” on the topic, but by taking a position and defending it I certainly enhanced my understanding—hopefully others at TOD learned as well. Probably the greatest conclusion that I draw from the debate is that Jevons’ Paradox, like all other “real-world” economic phenomena, is incredibly complex and interconnected, and cannot easily be reduced to a “this is a good idea” or “this is a bad idea” dichotomy. Not coincidentally, this was exactly the point that I was trying to make by highlighting the “shadow rebound effect” caused by Jevon’s Paradox, but I ended up learning about several additional unanticipated effects as well.

So what are my conclusions about the validity of efficiency policy in light of a full consideration of Jevons’ Paradox? My ultimate conclusions—though this is a bit out in left field—is that our economic system has grown too complex for us to accurately implement policy with a full understanding of all effects of that policy. The system is simply too complex, too non-linear, and as a result I have to question the rationality of economic policy in the first place. Anyone who says that they understand how the economy works is flat-out lying. We have lots of theories. They work sometimes. But as the debate on Jevons’ Paradox, and the nesting Matryoshka dolls of paradoxes that spin off from Jevons’, we are not capable of identifying and accounting for all the ramifications of any economic policy. We are often unable to even predict the big-picture direction or impact that will be the result of a policy. What to do? The only proposal that seems rational at this point is to advocate a reduction in societal complexity. That is, unfortunately, the very policy choice that stands the least chance of ever being implemented in our current political system.

So from a policy perspective, what do we do? Does efficiency legislation or rule promulgation make sense? To reduce energy consumption, probably not. To enhance resiliency to systemic shocks, probably not. To reduce the vulnerability of critical sectors of our national, social, or personal economies—probably. This seems to be the most valid rational to back efficiency. If we, as individuals, enhance our energy efficiency in core areas of energy use (areas we can least afford to do without), we are more resilient to future scarcity. The same is true on a larger scale—this is probably the most valid reason to support electrified rail, for example.

The ultimate take-away that I hope most people gained from the essay on Jevons’ Paradox is that simplistic answers or solutions, and simplistic models of our predicament in the face of Peak Oil, are the most likely to be wildly inaccurate. Our predicament is highly complex, but that in no way justifies ignoring the complexity and arriving at policy choices based on simplified, and inaccurate, economic models.


Anonymous said...

Excellent post, Jeff.
I will check out the TOD piece immediately.
Your last paragraph is provocative: are you suggesting a Texas steel-cage death match between Jevon's Paradox and Occam's Razor?

In all seriousness, tho', I think your articles (and similar ones like Jason's on Anthropik) concerning complexity are revelatory. It's about time people start pulling their heads out of their asses of black/white binaries and simplistic and reductionistic reasonings, and open their eyes to the incomprehensibly magical interdependence and connectedness that is our world. Bravo.
~ Sventastic

Wilko said...

Doesnt Jevons' paradox imply that resource supply/production is constant? - wich is not the case post peak? I think a lot of economic laws only apply within certain boundary conditions; and Peak Oil might very well be outside the boundaries of most economic 'laws'.

Jeff Vail said...

Jevons' Paradox does, as you suggest, posit a relatively constant consumption of a resource at varying efficiencies. In a Peak Oil context, it doesn't apply in black/white, but rather gives us insight into a whole set of feedback loops--mostly negative feedback loops that work to maintain maximal use of resources, and prevent the creation of a cushion (enhanced resiliency) against systemic shock. It ties in nicely with the complexity model, through which we distribute risk by adding complexity, but at the cost of eventual diminishing marginal returns (accellerated by declining EROEI of primary energy sources).

I think, ultimately, this doesn't mean that a world experiencing Peak Oil isn't still goverened by economic laws, but rather that these laws are far less simplistic than commonly understood.

Anonymous said...

For a real world example...

there's a TV show here "Wasted" where energy efficiency experts visit a household, do an energy audit, help the family install better insulation etc. They encourage the family to reduce their carbon footprint, then leave them for 3 weeks.
When they come back they do another audit and the family get a cash prize equal to the amount they have saved on their utility bills extended out to a full year.

In one show, during the 3 week interim, the Dad of a particular family had the roof waterblasted, the carpet cleaned and was seen drying the carpet with a hairdryer! Even though he was, you know...On a nationally televised show with the explicit goal of reducing overall energy consumption!

Randy Kirk said...

Interesting piece on Javon's paradox. Though, the implication that we can't make superior policies from a governmental perspective due to a lack of ability to analyze all the effects, I take issue.

Certainly governmental policy analysis is complex but that doesn't mean it's hopeless. Look at the difference in development due to policies between Singapore and Malaysia, Czech Republic and Switzerland (per capita GDP was the same before WW1), Botswana and Zimbabwe.

We can can some guidelines: policy is made best when its transparent and fully debated. Policy analysis and implementation get into trouble when special interests and behind the door dealings become too prevalent.

Phil Henshaw said...

I found your nice summary from the OilDrum. Another "rebound effect" is that efficiency is always a great stimulus for economic growth, and that effect may be the best way to distinguish between it's local and global effects. Businesses use efficiency as a competitive growth strategy. Historically energy use has grown at about twice the rate of energy efficiency, and seems likely to continue to. The whole system normally responds in the opposite way as its parts in this regard.

That leads directly to your observation that the system is getting too complicated to understand the effects of policy. Not only are we confused by normal whole system behavior, bu growth also naturally multiplies the complexity of interactions. There are special complications as a system confronts unexpected rapid diminishing returns as it hits limits in what used to grow freely. To cut this short, I think we need this pause in growth to really stop and think!

I have various things that might help with furthering the inquiry. Best, phil ecoATsynapse9DOTcom

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