Aaron wrote:Not to be flippant with you, but I hope everyone here recognizes that it's the relative price changes which are the whole point of Jevon's argument.
That's why this idea of "price stabilization" is without merit.
All Jevon says is that "to the extent you make any useful commodity more affordable, you encourage it's consumption by that same margin."
Another way to put this is by looking at the difference between what any given commodity costs today, and what it would have cost absent the additional supplies which conservation & efficiency have provided.
Lower relative cost = greater relative consumption.
And unless you plan on invading China, India, South America & Africa and force them to comply with your conservation plans, the net effect will be generating energy subsidies for these emerging energy consumers in the form of lower energy commodity prices.
This is why all efforts at conservation & efficiency are actually counterproductive, and lead us even further into the quagmire of Hubbert's Peak.
It is indeed this sobering analysis, coupled with the notion that so many believe otherwise, which makes me the doomer I am today.
I have said so many times here, but it bears repeating...
Be aware of peak oil.
Be afraid of how your neighbors will react to it.
I know this is an older thread, but going back through it, I have to respectfully disagree that conservation & efficiency are counterproductive, and I look at it through the lens of sustainable competitive advantage and re-investment of excess returns versus Jevon's Paradox.
Roughly speaking we have per unit of energy of input per unit of output. Economic efficiency. Turning inputs into outputs. Revenue minus costs equals profits. Energy is not the only input we are concerned about, but it is the topic at hand, so for argument's sake we'll keep all else the same.
Although, it is true that at the production frontier marginal supply equals marginal demand at any price, so that any drop in demand results in a drop in price and therefore stimulates extra demand, and any increase in supply decreases price and therefore increases demand. This holds true in a post peak oil world as less supply will increase price and decrease demand so that at any given time supply equals demand at the new higher price.
Therefore, it would appear completely counterproductive to reduce demand, but it is not.
Energy demand is a cost of production. Lowering your costs of production is half of the formula for revenues minus costs equals profits. So lower costs equals higher profits if revenues stay the same. And that is part of a sustainable competitive advantage and the starting point to re-investing excess returns.
Now let us assume that the following holds roughly true in terms of energy inputs to economic output (and I think it does): Base 100.
Japan 67%
Germany 85%
USA 100%
China 400%
Who's costs rise the quickest is energy prices rise per marginal unit of output? China's. They may compensate by using more labor than energy, but that is not the point. All else being equal they use more energy per unit of output, so they are hit the hardest by either scarcity or higher prices. Even if they acheive their lofty goal of boosting output and at the same time improving efficiency to 200% from 400%.
Japan is still benefiting not only if energy price rise, but even if they stay the same or go down. They use less energy which is a cost of production. It is not the only cost of production, but assuming that China, USA, Germany and Japan all compete with one another, as they do, then they must all possess comparative advantages that help them remain competitive in at least some markets relative to one another. So again we can safely look at only their energy use in isolation.
Japan has a sustainable competitive advantage which increases their excess return from production. Their costs are lower (in energy terms), so their profits are higher, at every level of revenue relative to its competitors.
Profits are always good if you want to stay in business. They are even better if they are re-invested in order to prolongue or extend your competitive advance which is why it is called sustainable.
Now if we take energy and divide it into non-renewable and renewable as well as priorize which is likely to run out first: oil, gas, coal, hydro-electric, biofuels, geothermal, wind, solar, etc. then it makes sense from a competitive point of view to wean yourself off the source of energy which is likely to be depleted first.
So natural gas and coal might eventually run out as well, but as far as competitive advantage goes it makes sense to re-invest your excess returns into the next best alternative that is likely to last longer and therefore prolongue your competitive advantage further along the curve. Even if eventually the world runs out of all forms of fuel, in terms of harvesting economic rents, you want to be the last to run out.
Therefore, Jevon's Paradox makes it clear that one country's savings will end up as another country's use at a cheaper price and therefore cancel out any net gain, a country can still gain an advantage by reducing costs first, and using those extra profits to invest in alternative fuels that will last longer.
In this sense, it also makes sense to import energy rather than use your own limited resources, if it is cheaper, and if you feel you will need them later in any case. I just read a headline that Germany plans to import more coal to run its power stations. I can remember when Germany was paying subsidies to keep coal mining jobs in Germany. How silly when you can import coal cheaper. Whatever coal is under Germany will not go away and it can be reclaimed later when price or the needed technology justisfies it. An untapped resource is a savings account for the future, but of course with an opportunity cost attached to it.
So the USA would be better off to conserve energy and find alternatives, if only to compete with Japan and Germany, even if this somewhat lowers China's costs because in the long-run China will suffer more than Japan, Germany and the USA from higher prices and scarcity of energy. And likewise, through cost savings, those excess returns can be invested in the next best alternative and in alternatives that are likely to outlast crude oil. Prolonging your competitive advantage even by a generation is not a bad thing in the seearch for alternatives.