Energy-efficiency has become the talk of the town. Scientists, marketers, journalists, and politicians alike are showering praises on the new technologies that promise to revolutionize our planet. From "zero-emission" electric cars, to smart electric grids, to "green" laptops, high-tech "sustainable" solutions seem to promise the world a brighter future (1). It’s a positive message at heart: to solve the world’s energy problems, all we need is better engineering. And with many prototypes near completion, who wouldn’t be excited?
The economists aren’t, for one. These contrarians are quick to point out that most attempts towards energy-efficient technology have proved utterly futile. History has repeatedly shown that energy-efficiency rarely leads to net energy reduction. In fact, quite frequently, efficiency improvements makes things worse by actually encouraging a net waste in energy. This counter-intuitive effect is known as the Jevons Paradox.
This energy-efficiency paradox was first described in the mid-1800s by a British economist named William Stanley Jevons. During this era, coal was the fuel that powered industrialization in Britain. Britain was blessed with this valuable resource: geologists estimated that it had around 90 billion tons of natural coal reserves (2). This ample supply of cheap energy provided the power for the nation’s vast array of steam engines. These engines, in turn, powered the manufacturing industries that made the British Empire wealthy.
Over time, Britain’s economy became increasingly dependent on coal. Since 1770, the amount of coal being consumed each year was growing exponentially. Assuming continued exponential growth, England would exhaust its vast coal reserves in the next 100 years–not good at all for the powerful British Empire. Engineers, therefore, were racing to produce machines with better energy-efficiency. If only efficiency increased, they believed, we could reduce the demand for coal. Jevons, however, knew better.
In 1865, Jevons published The Coal Question, which investigated the relationship between efficiency and total energy use. His results were absolutely startling: energy-efficiency was worse than useless–it was positively harmful. Historical records showed that the more efficient steam engines became, the more coal Britain ultimately consumed. Better technology within the 18th century had actually caused coal consumption to grow exponentially.
This paradox is best illustrated by example. Suppose the average car gets 25 miles to a gallon of gasoline, with each gallon costing $4. Using hybrid electric technology, engineers could create an improved car that gets 50 miles using a single gallon. As a result of this breakthrough, the improved car could produce the same amount of work using half the amount of gasoline.
The economics, however, look different from the consumer’s point of view. To the consumer, this improvement in efficiency has effectively halved the price of...