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Friday, October 31, 2014

Jevons paradox bust by new emissions fee mechanism.

Posted by steve on June 20, 2012

Many inventors’ eyes glaze over in wonder at the thought of having the opportunity to invent clean, more efficient,  technology.

If only there were a market for it, the most wondrous machines could be manufactured and sold at a huge profit, they reason. And pollution would stop.

But more effective solutions actually, according to the  famous Jevon’s paradox, encourage more consumption. Famously, refrigerators are far more efficient that they were 40 years ago. On the other hand, the total energy used by refrigerators is still increasing, as more people are buying larger refrigerators – because they are relatively cheaper.

Read a general account of the paradox on wikipedia here.

(http://en.wikipedia.org/wiki/Jevons_paradox)

So the challenge that Jevons lays down is to find a way to encourage more efficient uses of resources in a way that will, at the same time, reduce demand for them. As illustrated in the refrigerator example above,   making things more energy efficient merely increases their use and energy use goes up.

Extremely efficient cars would make them cheaper to run and encourage more people to buy them and to use them more thus pushing energy consumption up.

One researcher may have just found a way to bust the paradox. Anders Höglund, an engine efficiency expert who turned to exploring ways to apply advance control engineering to the economy, proposes a fee placed upstream of the energy source. For example, oil could be taxed when imported to the country, or when it leaves the refineries as petrol or diesel. The tax woudl be raised at regular intervals until the market responded by reducing demand.

If we are to understand Jevons, this would mean that more and more efficient uses would appear and a cat and mouse game with raised levies could go on for a long time: inventors would find ways to increase efficiency, demand would fall, the levy would fall, but then demand would rise again as the use of the fuel would be cheaper. Levies would be raised, demand would fall off, but innovators would be back on track for more efficiency gains. And so on.

But this cycle of increases efficiency then fee, then demand and efficiency again can be broken. Enter the next part of Höglund’s proposal: paying money collected back into tax payer’s accounts as a tax rebate.

Höglunds ideas have been explored in a report by the Nordic Council of Ministers. The report focused on putting a price on pollution. It reasoned that a flexible fee, levied high upstream (in the case of oil, at the harbor) could be made progressively higher until the market behaved to introduce renewable – based alternatives.

This progressive increase of fee acts like a price discovery mechanism: the price of pollution is the cost to not pollute.

- “But would this not just encourage more effective uses which would encourage the same or more consumption ,“ argued detractors.
“It would”, replied the inventor, Anders Höglund, “if it were not for the return of the fee income back into the economy”.

The mechanism investigated includes a general return of collected fees, possibly as a tax rebate.

Says Höglund “the more fossil fuel that is introduced into a country, and the longer it is used, the higher the fees and the more money collected”.

This money goes into the economy for consumers to spend. But fossil-fuel based solutions will be more expensive. So there will be an incentive for consumers to choose the alternatives. In this way we beat the Jevons paradox.
Read the full report here.

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