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Monday, September 12, 2011

Strategic CSR - The Jevons Paradox

The article in url below makes you want to throw your hands up in resignation. It focuses on the unforeseen consequences of energy efficiency, particularly in consumer products, such as appliances or cars. While the article does not dispute the more efficient use of energy by these products, it makes a compelling argument that the net energy consumption as a result of their use is often zero (i.e., unchanged) or even positive (i.e., an increase in overall energy use):

The problem is known as the energy rebound effect. While there's no doubt that fuel-efficient cars burn less gasoline per mile, the lower cost at the pump tends to encourage extra driving. There's also an indirect rebound effect as drivers use the money they save on gasoline to buy other things that produce greenhouse emissions, like new electronic gadgets or vacation trips on fuel-burning planes.

There is a term for these unforeseen consequences – the Jevons Paradox:

“… named after a 19th-century British economist who observed that while the steam engine extracted energy more efficiently from coal, it also stimulated so much economic growth that coal consumption increased.

While generally dismissed by environmentalists today, there are important policy implications from this work:

“… if your immediate goal is to reduce greenhouse emissions, then it seems risky to count on reaching it by improving energy efficiency. To economists worried about rebound effects, it makes more sense to look for new carbon-free sources of energy, or to impose a direct penalty for emissions, like a tax on energy generated from fossil fuels. Whereas people respond to more fuel-efficient cars by driving more and buying other products, they respond to a gasoline tax simply by driving less.

I think the issue of unintended consequences is one of the most important issues for the CSR community to face – particularly in relation to sustainability. I see it again and again; whether it is a government subsidy or tax break for a particular kind of alternative energy, or a new technological innovation that interacts with some other factor (or is applied inappropriately) to generate an unexpected result.

In short, good intentions that seek to subvert market forces and established market practices often result in net neutral or other counterproductive outcomes.

Take care