Jevon's Paradox, Exponential Growth and Reallocation

Jeff Vail is one of the smartest people out there writing about peak oil. His focus is designing a sustainable future. I don't agree with everything he says, of course, but even when I disagree, I learn from him. He's got a fascinating article on the limits of conservation over at The Oil Drum here: http://www.theoildrum.com/node/2499#more. Some good comments and discussion there as well. You can read more of his material over at www.jeffvail.net. I particularly recommend his material on EROEI - he's the person I go to if I have questions on this subject.

I was particularly engaged by this post, because I've argued in the past that Jevons' Paradox (explained over at Jeff's article) is, in fact, not inevitable, but to a large degree culturally constructed. Or rather, I think that Jevon's Paradox will always limit to some degree the return you get from conservation and culture change, but you can minimize its effect.

For example, Juliet Schor in her book, _The Overspent American_ documents that the better educated you are, the more you spend, the more indebted you are, and the less you save. Got a Ph.d? You probably are carrying significant credit card debt (over and above any student loans), have a whopping mortgage, a couple of car payments, etc... Now you also probably make (even if your Ph.d was in something comparatively useless like mine) more than the average bear. But you are spending even more than you make trying to gain status and establish yourself as authentically different from other people who are trying to gain status. Not that you call it that, of course - but that's how it operates.

Now the poorer you are, interestingly, the more likely you are to spend your money on necessities, of course, and the less likely you are to status buy. The most likely people to drop out of cultural status competitions, according to Schor, are poor African-Americans. They also have a higher savings rate for their income than average (important, since our national savings rate is now negative.) So a strategy, for example, that passed the benefits of conservation along to poorer, urban, African American people would see us return greater net benefits from conservation as a whole.

The poorer you are, the less energy you use. That is, you are more likely to take the bus, live in a densely populated neighborhood and walk places, and you buy less stuff, and more of it used. Thus, you might estimate that a dollar that comes back to a poor person in gas savings lose only 10% of its value in Jevon's Paradox, while one that came back to much richer person would lose up to 30%. These aren't exact figures, of course, but I think they are important, because they point up that a. the scope of Jevon's paradox is something that can be regulated by a number of things, including *who* gets the benefits of demand destruction and the cultural context they come from. If Jevon's Paradox isn't an absolute truth (or perhaps it is, but an extremely contingent absolute truth), than we can focus our energies in part on limiting its impact.

In fact, this reallocation could *reduce* some of the places where poorer people do consume more energy than richer ones - in food, for example, if people were enabled to work less and offered classes in cooking and its energy impact. Health care would almost certainly be a reduction - that is, more money in the hands of the poor would enable them to use doctors instead of emergency rooms, and to treat treatable illnesses before they became acute.

All of which is why I think that simple carbon taxation, with the proceeds in the hands of the government (which has no real incentives to curb its spending), even allocated, as Jeff suggests, to design and adaptation strategies, might be less useful than a system that engaged in wide scale reallocation of wealth - that is, a tradable rationing system. That is, everyone gets a flat amount of energy for the year (it could start at 2% less than our present usage, for example - this is what Richard Heinberg and Colin Campbell's Oil Depletion Protocol does), and those who are already below consumption levels make money. Now they will spend some of that money, of course, but if they like having more money (and people often do) they will also wish to retain their source of income - that is, they'd be forced to find lower impact ways of using their wealth.

And this would result in a large-scale net transfer of wealth to poorer people in the US. This is a growing class - 1 out of every 5 people in the US now lives on less than $7 per day, which in buying power is about equivalent to the third world's famous $2 per day income. Wealth inequality has grown steadily over the last decades, and now is as acute as it was right before the stock market crash of 1929. Economic disparity is part of the fuel for our consumption - the richer rich gets, the harder we run to try and keep up with whoever our Joneses are. Poorer people are accustomed mostly to keeping up with poorer people - and that makes a big difference in our sum ambitions, and the energy we use for them. Getting more cash to people whose dream is to drive to Waukeegan to visit the grandparents is more useful than getting more cash to people whose dream is to fly to the Carribean.

So we'd be transferring money to people who are a. most likely not have their basic needs met (and away from the people who most likely *do* have those needs met), b. who are likely to use it in the most energy efficient way possible and c. to the people most inclined to save. Because it turns out that while the poorest of the poor are unlikely to save, America's remaining savers are mostly concentrated in the lower middle class. And this is true all over the world - dirt poor farmers in rural China who live on less than $2 per day are likely to save up to 1/4 of their income - while Chinese urbanites save less than 1/10.

Part of this is the urgency of saving for the poor - poor people know there's no safety net under them. They know that if they don't have a reserve, any crisis can be a disaster. Moreover, they are more likely to have poor family members who need help in hard times because *they* don't have safety nets. A recent study showed that the poorer you are, the more willing you are to lend money to your family.

On the other hand. wealthy people a. often don't realize how urgent savings is, because no disaster has ever befallen them, b. they often get more credit extended to them, and thus are more indebted, and can't save because they have to service debt, and c. they often use credit as a fall back position - that is, if they lose a job, they plan to rely on credit, with the assumption that someday they will be rich again. Because credit is an enormous part of the whole growth problem, giving money back to rich people is not only problematic because they'll just spend it, but because they will spend *more* than what they get back, feeding their debt cycle. As a 2004 Harvard study showed, after receiving George Bush's stupid tax rebate, most Americans spent it. But the richer you are, the more likely you were to spend not just your rebate, but more than that, based on feeling richer. And the wealthier you were, the more extra you spent.

Now a wealth transfer would almost certainly encourage poorer people to spend more money. But because that wealth transfer would create strong incentives to have it continue (that is, if you make 5K a year by not using energy, you'd prefer to keep that money coming in), and thus to find the lowest possible energy intensive uses for wealth. And it would do that not only for the poor, but for everyone - that is, every single person would experience a strong incentive to decorrellate wealth from energy use. This would be the deepest benefit of a tradable rationing system - right now, money correllates pretty strongly with energy. Can we decouple them? I think we can - if people have more wealth when they use their money to buy, say, sustainably farmed food, handwoven clothing and other things - costly, but not to our energy budgets, those professions become economically feasible for a larger portion of the population.

I'm hesitant to overstate the case for tradable rationing, but I am wondering if such a model, something like the ODP, couldn't become the generative source of a new, more sustainable, non-growth based economy. And the backbone of that economy (more or less coincidentally) would be a vastly smaller disparity between rich and poor.

Minimizing the energy consequences of Jevon's paradox then, is in part a project of getting the economic returns into the right hands. That is, ensuring that the people who profit from whatever system we use are the people who both need the money the most, and who are least likely to waste it. We might find that efficiency matters more in a more equitable society - and that the interests of creating an low energy society mandates a greater degree of equality and fairer distribution of wealth. And redistribution itself might be the origin of something different - maybe even better.

Now the issue of political feasibility is a real one in the short term, which is why I think that raised energy taxes may be a shorter term necessity. Ultimately, who would want to see the power to ration resources held in the hands of the present government (or in many of the candidates currently vying to replace it - Hillary is saying she may want to invade Iran too - are you surprised)? That said, everyone raise their hand who thinks that a tax dividend on gas would go into redesigning a better future under the present government. And that is the real problem of top-down solutions.

I've got another post in the line about Eichmann in our living rooms, because I think it deserves some more analysis. After that, I've been mulling over our options if top down solutions remain unfeasible. I wonder - could we institute rationing without them? Surprisingly, the answer might be yes - but it would be hard. More on this soon.

Sharon