A test of Jevons paradox in energy use: Falling gas prices

Strictly speaking, Jevons was not talking about consumer choices. The Khazzoom-Brookes Postulate does directly address efficiency and consumer fuel demand. Per wikipedia, "energy efficiency improvements that, on the broadest considerations, are economically justified at the microlevel, lead to higher levels of energy consumption at the macrolevel."
But, are falling prices of oil equivalent to energy efficiency improvements?
The Chinese government began scaling back their spending on infrastructure early in 2014, and oil prices started dropping just as the Fed began ending Qualitative Easing 3 in October 2014. We're not making fuel more efficiently, we as a global population have less money to buy it.

Well, here in Canada car makers are predicting a great year! Sales are going to be through the roof, because Canadians have been "underbuying" dontchaknow.

I put this in the same category as recent soundbites like "don't panic!", "it's all supply and demand", and "oil prices will rebound by the end of this quarter" (seriously, I heard a financial whatchamacallit say that on the radio yesterday).

All of which is just to point out that we and our media don't seem able to come up with any realistic reasoning about a) the cause of the oil price drop (even the most prominent theory about Saudi Arabia isn't being discussed in any detail, and maybe that's hogwash too), b) some useful predictions about how things will shake out over the next two or three years.

tl;dr: It's too soon to be worrying about Jevons and his paradoxical apostrophe.

Or is it his apostrophical paradox?

Of course that 1% is the instantaneous incremental increase in consumption. The real concern is that new car buyers may choose more gas hogs, and that could lead to a decade or more of higher demand.

I don't think we have had time to see the full effects of lower gas prices, because two of the biggest factors in determining aggregate fuel consumption involve major capital equipment: houses and motor vehicles.

If your commute to work was 15 miles each way when gas was $4/gallon, and you haven't changed jobs, it's probably still 15 miles each way with gas costing $2/gallon. Maybe you are more inclined, because of lower gas prices, to buy an exurban house that's 30 miles from work (not necessarily you personally, but most people our age and older have had such a tendency), but you aren't going to go right out and buy that exurban house--instead, if you're happy where you are, you probably won't. Likewise, you (again, in the general sense, not you personally) may be more willing to trade your Toyota Prius for a Ford Explorer when gas prices are low, but most people who don't need to replace a vehicle aren't going to go right out and get that Explorer. Rather, you will probably wait until the next time you feel you need/want a new vehicle, and make the trade then.

Check back in a couple of years, if gas prices stay at or near these levels. Then we might see a noticeable increase in gas consumption, rather than something plausibly explained by a modest increase in economic activity (e.g., people who had no commute before because they didn't have jobs are now driving 15 miles each way to work).

"Strictly speaking, Jevons was not talking about consumer choices" I'm not sure this 1% is consumer choices.

You are right that a more applicable idea might be Khazzoom-Brookes Postulate but that is actually a form of Jevons paradox, and Jevons is the key work I've seen tossed around as people talk about this (vis-a-vis energy efficiency). But Khazzoom-Brookes is fun to say, so that's good too!

" The real concern is that new car buyers may choose more gas hogs"

Yes. People would have to be complete idiots to actually not buy fuel efficient cars because of a short term drop in gas prices. So, yes, we expect that!

Eric, right. But also, increasingly and I think rather quickly, fuel economy has become cool, not something you do because you have to.

@Greg Laden #8: Unfortunately, that coolness has a very strong regional variation. Chad Orzel, who lives and works Back East (as we on the Left Coast say :-), wrote a piece a few months ago about the implicit harrassment he receives for owning a Prius, and about the idjits who deliberately modify their cars/pickups to run on coal, as a political statement.

Those of us living in more enlightened civilizations certainly see the cool-factor in play, and the increased number of fuel efficient vehicles. But the more backward civilizations still luv them thar Hummers.

@ Greg: A better generic term would be, 'the rebound effect'. But again, I don't see where lower prices are coming from greater efficiency.
@ Omega: Though Black Friday wasn't so black, there was a small surge in auto sales, and a lot of them were light trucks.

Lower prices = greater efficiency for systems that use gas.

So if the local factory closes and prices fall at every store, that is greater efficiency for the few people that still have money to spend?

That would be an inappropriate analogy.

If I have a delivery business that uses a few bikes and a few cars, dropping gas prices would change the linear dynamics betwen the two strategies and the car would get more use.

If I commute sometimes on light rail and sometimes with a car, dropping gas prices would make my household economy relatively more efficient to use the car a bit more often.

But consumer demand for gasoline is highly inelastic. Prices go up, people still have to drive to work, they just have less disposable income when they get home. Prices go down... people are not going to start driving to work more often.

In your first analogy, it may well be that far fewer people are calling for deliveries so you have to lay off half of the delivery staff. In your second, it may well be that you no longer have a job to commute to and have to sell the car. That is why demand is falling.

I suspect that the effect noted has to do with the fact that the biggest purchaser of gasoline are the lower and lower-middle classes. These people have been systematically screwed over economically. The upper end of the economic spectrum gained a trillion dollars and the lower end gave up a trillion dollars. The lower end is scraping the bottom, living off credit, and delaying any expense they can. A break of several hundred dollar a month doesn't go into buying more gas simply because there are other desperate needs.

That 1% increase is an expression of relief but lower gas prices are a small, but substantial, consolation for a much larger and deeper insult.

"Lower prices = greater efficiency for systems that use gas."

That's strange, because my car gets the same gas mileage regardless of the price of gasoline. And yes, Jevons paradox is about precisely that kind of efficiency. You're mistaking it for a simple shift in the supply curve.

GregH

once again us Canucks are getting ripped off by the oil companies - at least here in rural BC (West Kootenays). Last year when gas was at it's highest price - around $1.38/l here a barrel of oil was over $100 USD. Today a barrel of oil is just under $50 USD and the price at the pump has not dropped under a $1/l here.

Young: "But consumer demand for gasoline is highly inelastic. Prices go up, people still have to drive to work, they just have less disposable income when they get home. Prices go down… people are not going to start driving to work more often."

Mostly, yes. But this is also true of most energy use. So this should generally apply.

Donal: "In your first analogy, it may well be that far fewer people are calling for deliveries so you have to lay off half of the delivery staff. In your second, it may well be that you no longer have a job to commute to and have to sell the car. That is why demand is falling."

If any of that was true demand would be rising given the current economy, I would think.

I think this is more likely:

Gas prices down, people either save the money, or use it to pay down their debts. The unpleasant memories of the recent de'pre'ssion (that's a contraction of "deep recession") are still too vivid for the lesson to be forgotten entirely.

Also, even those who are at a point where they truly need to replace a vehicle, are probably thinking of the current price drop as a booby-trap or, at best, a temporary thing. To use some unpleasant language for it, the thought would be "those A-Rabs are just trying to jerk our chain," and that wouldn't be too far from reality.

Re. Michael @ 9: "Coal Rollers." As far as I know, they aren't actually operating their vehicles on coal. Instead they're modifying the engines and exhaust systems to make the cars run as dirty (dirtily?) as possible, or they're adding some kind of theatrical device that produces clouds of soot. Along the way they're also damaging their engines, so those vehicles will drop dead long before their expiration dates. The early demise of the vehicles will tick off the people who are doing this, and be a lesson to their friends & neighbors, for which reason I think this fad will be quickly self-extinguished.

@G: Agree. Your second paragraph hits home, actually. My wife's vehicle, an aged but reliable Accord, was just rear-ended and totaled by a pickup truck. It has a low book value, so even if we buy a used car we can't replace it without borrowing. I am loath to go into debt just to see the next financial bubble burst. I already ride my bike whenever weather allows, so I am planning to give her my aged car and rely on Zipcar when I need wheels.

Half?? Clearly i need to move. Here it went from around $3.80 to $2.40 ish. A noticeable and welcome reduction, but not nearly half.

Coincidentally, right when the prices started falling, my commute tripled in distance, so i for one am grateful. The fact that i now have tolls and didn't before completely negates any cost savings, however.

Complex systems are complex ;)

Depends on where you are. The highest in places was 3.70, lowest now just under 1.70, but those maxima may not be in the same places. It is way under 2.00 across much of the country right now I think.

Doug @18: The oil companies may be ripping you off, but taxes are also a big factor. I don't know about BC specifically, but the last few times I have been to Montreal (about a five hour drive from where I live) I have noticed that gas prices tend to be about 30% lower, net of currency and units conversions, in northern Vermont compared to the Eastern Townships. Which is why I fill my tank in either Swanton or Derby (depending which route I am taking), before crossing into Canada.

Michael @9: G is correct about "coal rollers". I'll also note that Chad is in upstate New York (specifically the Albany-Schenectady-Troy region), which tends to be quite a bit less liberal than New York City. While you would still find a few would-be coal rollers in the NYC metro area, big city drivers (either potential victims of coal rollers, or others who witness) are probably more likely to report coal rolling, which happens to be illegal (both making the modification in the first place and for intentionally creating a hazard to other drivers).

Eric Lund #25,
There are some who run their vehicles based on the pyrolytic gassification of coal or cellulose; But those who engage in *rolling coal* are not doing that.

*Rolling coal* is performed by temporarily running the engine 'rich' under load. It probably started as a protest in that doing so does not violate EPA standards for CO2 emission and several other 'pollutants' (I suspect the particle size of the carbon is greater than what is considered dangerous and regulated-- unlike that from the deadly wood stove).
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As others above have noted, supply and demand has no bearing on a market based on artificial scarcity and addiction/(vital necessities). It is illusionary to pretend the 'market' dictates end-user expense, here.

The geopolitical 'petro-dollar' is a diplomatic *stick* to the *carrot* of not getting Freedom-Bombed like so many other nations who have tried to avail themselves of it. In the US, it is refining capacity and the requirement for many different blends (by region) that would otherwise probably still keep prices at the pump much above what we currently see. As such, I suspect this global collapse in oil/pump prices is a ploy to starve out Russia.

@Tim, The idea that the US and KSA are driving down prices to hurt Putin is pervasive. I'm sure they would if they could, but from what I see it isn't hurting the Russians as much as it is US oil rig firms, who are laying off thousands of workers. At Econbrowser, James Hamilton notes, "... at the same time that oil price has been declining, we’ve also observed big drops in the price of other commodities like copper, the yield on 10-year U.S. Treasuries, and the value of other currencies relative to the dollar. "
http://econbrowser.com/archives/2015/01/whats-driving-the-price-of-oil-…