Does anyone consider more usage of energy a bad thing if the energy comes from renewable resources?

Expand full comment
Dec 7, 2020Liked by Noah Smith

Hey Noah. Just trying to wrap my head around this. You are talking specifically about the consumption of oil right? If batteries get cheaper, consumption of oil goes down. Period. In the context of Jevon's paradox, that makes total sense. But how do you think it'll impact the consumption of energy? If batteries are cheaper and we look at travel demand, the demand curve shifts outward due to income effects right? Of course, I assume energy consumption is only going to go up with time due to population growth and upward mobility, so it's still superior to use batteries due to fewer negative externalities.

Expand full comment

Hi Noah,

This is not quite precise, though the main point you make is exactly right. In your summary say "the cost of getting energy from oil stays exactly the same" and follow it up in the very next paragraph with "...so people will just leave the expensive oil in the ground" - which is contrary to your first point - the cost of oil is not staying the same, the expensive oil stays in the ground and the cheap oil continues to be extracted, so the average cost of each barrel of oil produced falls, along with the marginal cost of production.

The cost of producing the original amount of oil would remain the same, which is why the paradox isn't broken, but the cost per barrel of the oil that actually gets produced is lower.

As you pointed out, the price of oil will fall, and the price of energy as a whole will fall. If you assume people consume one or the other (oil or renewables) then as some people substitute away from oil to cheap renewables others will see a benefit to increasing their consumption of cheaper oil. The equilibrium can involve more oil consumption by the remaining oil consumers, but less total oil production/consumption (otherwise the price of oil would not be lower than when it started); the drop in oil prices is due to some portion of consumers shifting over to clean energy.

For example, assume 100 people initially consume 100 units of energy each, all in oil. Renewables become available at a lower price. 50 consumer switch to cheaper green energy and now consume 110 units of cheap green energy. The remaining 50 oil consumers stay on cheaper oil, and for a similar total cost now consume 110 units of cheaper oil energy.

Total oil energy consumed goes from 10,000 to 5,500, but it's up on a per-oil-consumer basis.

This doesn't mean your analysis that the paradox is broken is wrong - you're right that it won't hold.

I'm sure I'm not telling you anything you don't already know, it's just the ending explanation played a bit fast & loose with the terminology for me.

Expand full comment

Seems right that less oil is extracted from places where it has high marginal cost. But aren't there also big reserves with low marginal costs that owners (e.g., Saudis) have been only slowly extracting while they wait for the oil price to rise overtime. If solar is going to kill oil prices in the future, don't these reserves get used up faster than they would have absent the future threat of solar. In the short to medium term, is it possible that lower expected future solar energy costs cause greater oil use now?

Expand full comment

What if you use oil to charge the batteries?

Expand full comment

Great article!

Pedantic point: Suppose the price of solar power goes down but electric car technology remains the same. Oil producers switch to solar power reducing the price of gasoline. As a result people increase the use of their gas cars. Would this be case of Jevon's paradox where a reduction in the cost of green energy caused an increase in the efficiency of production (and an increase in the use of) a carbon-based energy source ?

Expand full comment