The economic view of systemic efficiency: rebound and backfire—Jevons’ legacy

As I stoke the boilers here at Beyond this Brief Anomaly after another (much) longer-than-anticipated intermission, it’s worth checking in on what this project has been all about to date. In a nutshell: I’ve attempted to make some modest in-roads into improving how we make sense of energy-related concepts, given the central role that I see for these in coordinating social action as we seek ways of living well together in the face of the increasingly urgent socio-ecological dilemmas confronting humanity. And in doing this, I’m drawing on principles from the field of inquiry known as systems thinking, or simply systems. If I were to try capturing what this means in essence, it would be along the lines of “considering the situations in which we’re interested as comprehensively as we’re able, by paying attention to their encompassing contexts.” The approach I’m taking extends this question of context to include considerations around cognition, language and meaning. Put simply, this implies treating the energy-related concepts that the inquiry deals with as sense-making “tools” and “artefacts” constructed by us. As such, they constitute important and influential parts of our shared culture. With them and through them, we bring our circumstances into being. What this implies is that the quality and coherence of our conceptual spaces “in here” affects the nature of our physical, social, economic, political etc. conditions “out there”. Attending to this “interior dimension” can have profound implications for the quality of the worlds that we bring about through the actions we engage in together.

If there is a “visionary hope” implicit in this project it’s that we might reconnect the conceptual abstractions we use to make sense of the world in energy terms with the realms of our immediate, concrete experience: the “ultimate” context that the systems approach sweeps within the boundary of what is deemed relevant is that of directly lived and embodied human experience. And here it’s worth highlighting the limits of the inquiry to date. Despite the attempt to look at energy concepts in a more comprehensive way than they’re usually treated within the physical sciences, engineering disciplines and—to the extent they’re considered at all—economics, the inquiry so far remains, relative to the full scope of experience available to us, a narrow one. What I mean by this likely bears elaboration, as the ability for such narrowness to remain hidden in full view could be considered a defining feature of the historical juncture alluded to in the project’s title. The conceptual language of energy and its related ideas—as understood by physicists and engineers at least—remains the product of a thoroughly scientized culture. This is a language of what we might call surfaces rather than depths. It deals—powerfully and effectively, and this is its point—with certain aspects of experience relating to the transformation of material reality. Perhaps the greatest testament to the power-over-matter that adoption of this way of sense-making affords us is the extent to which we are now, as a matter of cultural fact pertaining to the modern globalised manner of being human together, alienated from dimensions of reality other than these surfaces. This alienation has a two-fold character: on one hand, we’re desensitized to other dimensions—our capacity to actually feel them is itself numbed, and with this our capacity to attend to them atrophies; and on the other, their significance, if recognised and acknowledged at all, is severely discounted. And so the extent of what industrial societies are today prepared to entertain as “legitimate experience” tends to be a remnant of that which is naturally available to the full human sensing and sense-making endowment.

Adequately coming to terms with the nature, causes and avenues of effective response to the multi-faceted and intertwined energy-related dilemmas of late modernity requires that we eventually look beyond the boundaries of reality and experience delimited by a scientized cultural outlook, of which the energetic perspective is itself part-and-parcel. “Looking beyond” doesn’t imply an abandonment or dismissal of the secular-scientific values that have been ascendant for several centuries within that dominant cultural pattern. But in seeking to bridge the full rift between abstraction and experience characteristic of our age, re-humanising scientific knowledge will not suffice on its own. If we’re to deal with this seriously, scientific knowledge, including that which deals with the world in energy terms, will have to cede its primacy to an expanded view of what it means to be human. That’s a much broader undertaking than I’ve engaged in via Beyond this Brief Anomaly so far, but it perhaps gives a sense of where I see an inquiry such as this heading longer term.

For now though, picking up the thread from the previous post in the series on efficiency will take us into the territory of what we might call in very general terms perverse consequences: the strange world of rebound and backfire effects.Note 1 This is an area that seems primed for controversy. Why this is so is fairly straightforward to grasp: take a concept in which progressive hopes and aspirations tend to be heavily invested across the political spectrum (as I’d argue is the case in contemporary industrial society with energy efficiency, an idea imbued with a degree of significance and meaning that, in our secular world, sometimes verges on reverence), dare suggest that it may not under all circumstances deliver on expectations, and a certain degree of consternation is almost guaranteed to result. We’re dealing here with a prime sacred cow.

That measures to improve the efficiency with which energy sources are used may have effects other than those initially anticipated is not a new insight. Most people with more than a passing interest in energy issues are familiar with such a view under the guise of the Jevons paradox (or effect), named after the nineteenth century economist William Stanley Jevons. Nonetheless, it’s worth starting the discussion here by revisiting his original treatment of the issue, as this remains key to making some sense of the contemporary controversies around these ideas.

Jevons’ now-famous book, The Coal Question: An Inquiry Concerning the Progress of the Nation and the Probable Exhaustion of Our Coal-Mines was published in 1865.[1] In chapter VII, ‘Of the economy of fuel’ he states the basic proposition (p. 123):

It is wholly a confusion of ideas to suppose that the economical use of fuel is equivalent to a diminished consumption. The very contrary is the truth.

Towards the end of the chapter, he sets out his reasoning (pp. 136-7):

[T]here is hardly a single use of fuel in which a little care, ingenuity, or expenditure of capital may not make a considerable saving.

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. The several branches of industry are closely interdependent, and the progress of any one leads to the progress of nearly all.

And if economy in the past has been the main source of our progress and growing consumption of coal, the same effect will follow from the same cause in the future. Economy multiplies the value and efficiency of our chief material; it indefinitely increases our wealth and means of subsistence, and leads to an extension of our population, works, and commerce, which is gratifying in the present, but must lead to an earlier end. Economical inventions are what I should look forward to as likely to continue our rate of increasing consumption.

Today, the phenomenon identified by Jevons—based on his observations of exponential growth in British coal use with the introduction of innovations such as Newcomen’s original “fire-engine”, and the later performance improvements introduced by James Watt, as well as developments in steel production—relates to a more general class of economic phenomena known today as rebound effects. The term rebound is typically used to describe situations in which some part of the potential saving in energy use attributable in principle to a technical efficiency innovation is eroded due to expansion of the original service provided by that energy use, as a consequence of the reduced energy cost per unit of service. So for example, a situation in which savings accruing from efficiency improvements in space heating or from improved building insulation are reinvested in heating a larger floor area is an instance of efficiency rebound. Taken to its extreme—especially due to systemically amplified effects as micro-scale phenomena aggregate and interact at the macro-economic scale—the increased service use might result in overall energy use exceeding the level prior to introduction of new efficiency measures. This is the situation that Jevons identified, and that today is often described as backfire.

The distinction between rebound and backfire adds some additional nuance to Jevons’ original insight, and sits at the heart of the controversy surrounding claims that efficiency improvement drives increased energy use. The mainstream position within environmental circles, perhaps best exemplified by Amory Lovins and the Rocky Mountain Institute but also held by a significant number of economists who’ve conducted original research in the area, accepts that while rebound effects erode some of the reduction potential of efficiency measures at the device, application or enterprise scale, the idea that “efficiency causes increased energy use at the overall macroeconomic scale” is not regarded as tenable. Public debate relating to rebound effects and their economic significance has escalated in recent years, much of it in response to the 2012 publication of David Owen’s book The Conundrum: how scientific innovation, increased efficiency, and good intentions can make our energy and climate problems worse, expanding on a 2010 article published in The New Yorker.[2], [3]

Owen’s original article drew sharp rebukes from a number of economists highly critical of the conclusions he reaches about the relationship between efficiency measures and increased energy use at the macro-scale (see for instance some of the links at the end of this Rocky Mountain Institute blog post). The case that he makes, though, is hardly a fringe perspective—in fact, for the most part he simply reports on the findings of researchers (including Len Brookes, Harry Saunders, Blake Alcott, Jørgen Nørgård and Steve Sorrell) whose published work on the subject, taken collectively, stretches back over several decades now. That’s to say, it represents a long-established view within economic thinking, even if there remains no clear consensus regarding the nature and significance of rebound effects amongst all economists.

What, then, are we to make of the furore Owen raised in drawing attention to the potential for efficiency measures to have perverse outcomes? It seems that to date this has been framed as an oppositional debate between two absolute positions, one or the other of which must be wrong for the other to be right. But there is an alternative to this: accept both views as right—at least partially—relative to their respective frames of reference. And taking this a step further: why only two positions? Might we actually need to define a broader spectrum of “camps” on the subject, in order to adequately locate the full range of positions? Perhaps an approach along these lines can make clearer sense of the slow headway that has been made on the “rebound question” since the late nineteen eighties when Daniel Khazzoom and Amory Lovins argued their cases for and against efficiency backfire in the pages of The Energy Journal.[4],[5],[6]

Reconciling the positions for and against the significance of rebound effects is a matter of simultaneously accepting two propositions:

  1. The case that energy efficiency improvements in specific microeconomic situations lead only to minor or even negligible rebound at that scale does not in its own right preclude energy efficiency improvements making significant contributions to increased energy use at the macroeconomic scale; and
  2. The case for energy efficiency improvements at the microeconomic scale contributing to increased energy use at the macroeconomic scale does not imply that all energy efficiency improvements necessarily entail significant rebound.

These propositions reflect a number of insights that a systems view brings to light particularly clearly. Firstly, macroeconomic phenomena do not result from the simple aggregation of otherwise discrete and independent microeconomic phenomena. Macroeconomic behaviour involves emergent phenomena that are not necessarily apparent in the partial behaviour of individual enterprises and consumers. This, however, is not the orthodox view in economics today. As heterodox economist Steve Keen emphasises, in orthodox neoclassical economics, the macro view is treated simply as applied microeconomics—the macroeconomy is modelled as a “scaled-up” individual.[7] This on its own may account for a significant part of the difficulty in seeing eye-to-eye on rebound: those who argue that its extent at the economy-wide scale must follow directly from its extent at the appliance or enterprise scale are effectively speaking a different language to those who argue that macroscale rebound results from interactive effects and must be studied at the level of whole economies.

The debate relating to rebound often hinges on questions of causality: when energy use associated with some area of activity increases, is it reasonable to attribute a causal role to increased energy efficiency? The problem is that while agreement about such questions is relatively straightforward to reach at the microeconomic scale, dealing with causality at the macro-scale is very different. The challenge faced in reconciling micro- and macro-scale perspectives is in important respects related to issues surrounding the nature of causality, and how cause-effect relationships are conceived—the significance of causality-related questions for coming to terms with efficiency rebound was in large part my motivation for an earlier post looking in some detail at conceptions of causality. At the micro-scale, cause-effect relationships tend to involve interactions with a physical basis, or that at least can be characterised in a quasi-physical manner i.e. that can be approached via research methodologies founded in or based on those of the physical sciences. In this realm, cause and effect appear to have a natural and hence relatively unambiguous character. What potentially counts as a cause, and what counts as an effect, are relatively closely circumscribed in space and time. The “problem boundary” is close to the site of the research, and all influences related to the research question appear to be easily identified and are hence subject to control. A case can be made for independence of key variables and hence of causal mechanisms relating these variables. We can therefore make relatively unambiguous determinations of what is important and what is not in understanding what is happening, in causal terms, in the situation that interests us.

At the macro-scale, questions of causality are far more likely to be subject to ambiguity. The idea that the situation we’re investigating is characterised by clear, obvious and independent causal factors and effects is far more problematic. Simple linear cause-effect relationships are less likely to characterise the situation well. We’re more likely to be dealing with phenomena that are better characterised in social and cultural as well as physical and behavioural terms. At this scale, cause-effect relationships are better appreciated as constructed by the investigator for the purpose of making sense of a situation in causal terms, rather than as a matter of recovering fundamental, real causes of the phenomenon under study. Confusing the different approaches to causality at these two scales is likely to result in a situation where people basing their arguments on phenomena at different scales, while superficially talking about the same thing, are actually focused on distinct questions. We might even say that they are ‘speaking different languages.’

The consequences of leaving questions around causality unexamined are well illustrated by statistics that Amory Lovins presents in a letter to The New Yorker responding to Owen’s original article:

In 2009, America used half the energy it would have used at 1975 intensity (energy per dollar of G.D.P.), and efficiency probably boosted G.D.P. by one to two per cent—which Owen considers a cost, not a benefit. Energy savings have also offset eighty-one per cent of the energy consequences of U.S. economic growth since 1975, and effectively “fuel” half of today’s G.D.P.[8]

The figures presented here are intended as a final “knock-out blow” in dismissing the case for energy efficiency backfire. Considered superficially, the argument sounds convincing: take the 1975 energy intensity of the US economy, and multiply US G.D.P. in 2009 by this figure to arrive at a figure for US energy use in the absence of efficiency improvements; compare this figure with actual US energy use in 2009; attribute the difference to the energy efficiency improvements actually implemented between 1975 and 2009.

The problem here is that this analysis overlooks the role that energy supply plays in enabling G.D.P. growth in the first place—consistent with the orthodox neo-classical economic view, where the role of energy as a factor of production is considered to be of minor importance (at best) due to its—historically at least—relatively small share of G.D.P. (typically in the order of 6-10 percent). This view has long been seen as inadequate amongst those who appreciate that economies must be understood in physical and not just financial terms—a recent article by Ayres and Voudouris in the journal Energy Policy adds further empirical weight to this view, though it’s also worth reflecting for a moment or two on why such substantiation in the abstract holds precedence over what is so experientially obvious.[9] It’s noteworthy that while alternatives to the demand-driven view of energy supply growth sit outside the mainstream of economic thinking, they are not altogether absent—and where it passes the pragmatic test of accounting better for observed energy market behaviour, it is relatively uncontroversial, as this presentation by Steve Koplits to the Columbia Center on Global Energy Policy suggests.

Lovins’ position described above seems to be based on the assumption that, had overall energy efficiency not improved during the period from 1975 to 2009, energy supply would simply have expanded in response to demand, to whatever level the demand-side dictated. This overlooks the possibility that supply would have constrained demand in the absence of efficiency improvement—as indeed the past decade’s experience with petroleum production suggests would very likely have been the case. In other words, in the absence of energy efficiency improvement, growth in the US economy between 1975 and 2009 would have been influenced by energy supply-rate constraints to a greater degree. Energy supply-rate limits would likely have been encountered earlier, placing a constraint on overall growth. It’s quite possible that overall G.D.P. growth would in fact have been less than it actually was.

We can consider this another way by thinking about the scale of the US economy’s energy supply sector relative to the size of the overall economy. In the absence of energy efficiency improvements, the energy sector would need to grow at a larger rate than that of the overall economy, in order to support growth in the non-energy sectors. With a greater proportion of the overall growth potential (in terms of available capital, labour and other resources) focused on the energy sector, less would be available for the rest of the economy. On this basis, demand for final energy services (i.e. useful work and heat) would likely be less than Lovins’ simple product of ‘actual 2009 G.D.P.’ and ‘actual 1975 energy intensity’ implies. Now, whether or not a lower demand for final energy services might have translated to a lower demand for primary energy supply is entirely a matter of conjecture within the scope of this thought experiment. What is quite apparent, though, is that Lovins’ inference that primary energy use in 2009 would be double the actual level in the absence of efficiency improvements is hopelessly simplistic. Energy supply and demand are not independent of one another—they are much more effectively approached as a duality—a system of mutually influencing variables, where the cause-effect relationship is treated as circular rather than linear.

A further way in which a systems view informs the two earlier propositions is in relation to one of Beyond this Brief Anomaly’s central themes: the confusions that arise when abstract concepts are reified as concrete “features of reality”. Approached from this perspective, “energy efficiency improvement” is not some inherently existing feature of the situations in which we’re interested. Viewing any situation in terms of energy efficiency is a matter of us characterising it in terms of a conceptual abstraction that we construct. As such, the extent to which we can generalise any observation about the relationship between energy efficiency and overall energy use depends on the specific context within which observations are made. We need to know something about this context in order for a statement about the relationship between efficiency improvement and energy use to be meaningful beyond the original situation that informed it. This calls for a greater degree of circumspection than is sometimes the case when general claims are made about rebound effects. Things are often far more nuanced than the sweeping headline summary suggests. I suspect that some of the less-than-appreciative reception that Owen’s writing on the subject has received stems from the very broad generalisations he relies on to make the ideas so widely accessible.

An important contextual consideration at the macro-scale is the way that energy use relates to utilisation of other factors of production, and hence the way in which efficiency improvements related to other factors impact overall energy use. Where energy is one of multiple factors of production, changes in energy use need not relate exclusively to changes in energy efficiency. In situations where factors other than energy efficiency cannot be held constant (essentially all “real world” research situations, and certainly the case at macroeconomic scale), it’s something of a contrivance to suggest isolated cause-effect relationships between energy efficiency and energy use in isolation of effects related to other changes. While the nature of Jevons’ original hypothesis makes rigorous confirmation very difficult (and perhaps impossible), the general insight would perhaps be more readily accepted if presented in terms of efficiency more generally, rather than in terms of energy efficiency specifically. The point has been widely made (including by Owen) that there is no controversy surrounding the idea that measures to reduce the cost of employing factors of production such as labour and capital lead to greater rather than lesser utilisation of those factors overall. It seems only to be in relation to energy that this becomes contentious. If we step back from a specific focus on the question of causality between energy efficiency and energy use, and frame the dilemma to which Owen draws attention in terms of a broader question about efficiency, then our prospects for coming to grips with the drivers of continuously increasing primary energy resource use and associated greenhouse gas emissions may be significantly improved.

This brings us to what I think is perhaps the most important systemic insight relating to rebound effects: efficiency measures taken on their own deal with only a limited aspect of system performance. A comprehensive approach to understanding system performance involves taking into account the purposes to which efficiency measures are directed. This has major implications for the debate surrounding energy efficiency rebound, as advocates for efficiency improvement may be pursuing different—and even contradictory—ends even when their preferred means are identical. This is almost certainly the case where, from a conventional economic perspective focused on economic growth as the principal determinant of societal well-being, any cost-effective efficiency measures are embraced as a matter of course for their contribution to increased productivity. Within this worldview, there’s no immediate justification for treating energy efficiency improvements any differently to improvements in the use of other resources. From an environmental sustainability perspective, however, energy efficiency improvements tend to be advocated on the basis of fossil fuel emissions reduction; and from a civilisational conservation perspective, the motivation is typically to slow depletion rates of non-renewable resources for which no ready substitutes are available. But by keeping the focus on how we do what we do, and leaving off the table uncomfortable questions around why we do it in the first place, efficiency programs often manage to avoid the political quagmires in which other emission reduction initiatives are so often stranded. With the focus at this level, and by defining one’s interest in terms of efficiency targets, everyone can convince themselves that they’ve got what they want. Unless, that is, someone points out that fossil energy use and its associated emissions inconveniently continue rising.

From a policy perspective, the necessary response here from those motivated by concerns for environmental and resource conservation should be relatively straightforward: include as a policy design criterion the requirement that energy efficiency improvements be directed towards conservation over productivity increase, for instance by coupling efficiency increase with measures to increase energy costs. From a political perspective, though, this is far from a straightforward matter, as it surfaces the underlying conflict between growth and conservation. Stated so bluntly, this conflict is obvious. But I suspect this is also why the matter is so difficult for us to confront. Rebound and backfire do make obvious the intractable nature of humanity’s civilisational dilemma, and they achieve this by exposing the flaws in the industrial world’s most cherished guiding narratives around the primacy of technological ingenuity. As mundane as they may at first appear, the story that these concepts point towards calls into question our faith in the idea that we, as agents of techno-economic progress, are in control of our destiny.

Notes

Note 1 For comprehensive technical exploration of energy efficiency, rebound and backfire, see: Jenkins, J., Nordhaus, T. & Shellenberger, M. (2011), Energy Emergence: Rebound & Backfire as Emergent Phenomena, Breakthrough Institute, Oakland, CA; and Sorrell, S. (2007), The Rebound Effect: an assessment of the evidence for economy-wide energy savings from improved energy efficiency, UK Energy Research Centre, London.

References

[1] Jevons, William Stanley (1865), The Coal Question: An Inquiry Concerning the Progress of the Nation and the Probable Exhaustion of Our Coal-Mines, Macmillan and Co., London.
[2] Owen, David (2012), The Conundrum: how scientific innovation, increased efficiency, and good intentions can make our energy and climate problems worse, Scribe, Melbourne.
[3] Owen, David (2010), “The Efficiency Dilemma: If our machines use less energy, will we just use them more?”, The New Yorker, 20 December, pp. 78-85.
[4] Khazzoom, J. Daniel (1987), “Energy saving resulting from the adoption of more efficient appliances”, The Energy Journal, Vol. 8 No. 4, pp. 85-89.
[5] Lovins, Amory (1988), “Energy saving from the adoption of more efficient appliances: another view”, The Energy Journal, Vol. 9 No. 2, pp. 155-170.
[6] Khazzoom, J. Daniel (1989), “Energy saving resulting from the adoption of more energy efficient appliances: a rejoinder”, The Energy Journal, Vol. 10 No. 1, pp. 157-166.
[7] Keen, Steve (2011), Debunking Economics: The Naked Emperor of the Social Sciences, 2nd ed., Zed Books, London.
[8] Lovins, Amory (2011), “Re: The Efficiency Dilemma: A letter in response to David Owen’s article (20 & 27 December , 2010)”, The New Yorker, accessed 13 April 2014 at http://www.newyorker.com/magazine/letters/2011/01/17/110117mama_mail1.
[9] Ayres, R. & Voudouris, V. (2014), “The economic growth enigma: Capital, labour and useful energy?”, Energy Policy, Vol. 64, pp. 16-28.

3 thoughts on “The economic view of systemic efficiency: rebound and backfire—Jevons’ legacy

  1. Nice surprise to see you picking up that stoking shovel again, Josh.
    Bit by bit I’ve been reading through the back catalogue of posts at BtBA, distracted by books (Organic No-dig Gardening & The Moneyless Manifesto at the moment). I very much appreciate your efforts and intentions here, very comprehensive, detailed, enlightening and valuable. A great extension to ‘Energy for the Future’ in terms of both its topic and approach.
    Interesting to see how often Jevons pops up in articles these days. Seems to me that the more we (believe we) have of a resource, the more we (freely) use it. We seem to need to feel the scarcity (or at least finite-ness) of a resource before we can bring ourselves to treat it with greater respect/care.
    Building efficiency into systems – a laudable, but technical response which renders the required care almost invisible – means we users continue on blindly. For example – a more efficient microwave does little to increase one’s awareness of energy use, where the installation of an indoor energy monitor (linked to external Smart gas and electricity meters) does seem to allow for greater response. Here in the UK, the roll-out of such meters is almost as controversial as in Australia – but at least here (UK) there are visible outcomes for the homeowner. My parents now actively monitor their combined reticulated energy use against a daily budget – they at least care about (and manage) the £.
    Keep stoking.

    • Hi Tony, that’s a very interesting way of thinking about how efficiency improvements affect appreciation of energy use. I’d never thought about it in quite that way before, but I can now see that it’s actually very closely aligned with what I’m trying to encourage in terms of the shift from understanding energy issues in very abstract terms, to making sense of them in terms of immediate day-to-day experience. Thanks for mentioning your parents’ experience with smart meters, too–that sounds like a good outcome. I have to say, though, that I find our own smart meter here–operating as it is in a “dumb” (i.e. literally not set up to “talk” to us) mode–leaves me feeling less aware of electricity use than the old meter. The old one was always there at the front door, with the meter reading visible at a glance night or day, and with the rotating disc providing a very intuitive sense of power draw. Now, I have to press a button to scroll through the different modes to get the current meter reading–and there’s no indication at all of current rate of electricity use! Best, Josh.

  2. Pingback: EROI and the limits of conventional feasibility assessment—Part 3: Intermittency & seasonal variation | Beyond this Brief Anomaly

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