Jevons' Paradox is a misnomer; it is really no paradox at all. The idea that it is a paradox assumes that the price-demand curve for product is flat. This is a notion that most students of economics would laugh at.
This is best illustrated with an example. Let's suppose that I'm in the widget business. The old widget-making process uses one hogshead of floo at $10 to make one widget; at $15/widget I can sell 1000 widgets a month and I make $5000. If I improve my process to use only 1/2 hogshead of floo per widget, I can sell for $10 and still make $5/widget. Here's the "paradox": suppose that people will buy 3000 widgets/month at $10 each so my floo consumption goes from 1000 hogsheads/month up to 1500. Floo could go to $15/hogshead and I'd still be making $7500/month compared to my original $5000/month. Everyone is better off: I make more money, the floo producers make more money, and the public enjoys 3 times as many widgets. Even Wikipedia has it right.
Jevons' Paradox only applies where supply is not limited by other factors. This does not apply to oil; all the money in the world cannot put more in the ground nor change the geological constraints on its rate of production. Price has some effect on the recovery methods used, but it mostly decides who gets what's produced. If we doubled our efficiency of using oil, either we could consume twice as much of its products while paying the same price, consume lots more and grab even more of the oil with the higher price we can pay, or hold our consumption to less than double and watch the price of oil go down.
At least it would go down temporarily; depletion will eventually bring the supply back down and cause the price to be bid up once more. But the ability to pay a greater price has a salutary effect: it makes other sources competitive. Suppose that the producer of $10/hogshead floo gets it by mining his raw material and pressing out the liquid; if there is a process for making floo from grape leaves and willow bark at $12.50/hogshead, the improved widget process opens up an entirely new source of supply. So long as the viniculturists and coppicers can supply the raw material for 1500 hogsheads a month, the price of floo will remain pegged at $12.50 even if the miners go out of business.
This bears a deliberate resemblance to our situation with petroleum and its substitutes. Biofuels and batteries are expensive, and their production costs have to come down before they're competitive; worse, the further off the prospect of price parity, the less likely people are to invest to make it happen. But every increase in the price of petroleum brings that point closer. The cost of alternatives will hit the breakeven point for one use, and then another, and another. The bigger the industry, the greater the yield from accumulated experience; the greater the cost of petroleum, the faster the investment in new technology will come. The more efficient the use of the alternatives, the more business they will take away from today's suppliers.
This will work so long as the alternatives do not run into resource constraints of their own. Corn ethanol is almost there already (it's likely that resource constraints and the consequent price boosts are the entire purpose of the ethanol program), but cellulose resources in garbage and crop and forestry wastes are very under-utilized. The wind capacity of the United States stands at about 10 GW out of an estimated 1.2 terawatts possible (and another 900 GW on the continental shelves), and solar is barely on the map.
We won't have to worry about competing uses for waste biomass until we're using a lot of the waste. It would take decades to build out the continental wind resources alone, and I can't see us worrying about competing uses for solar energy for a very long time.
To a first approximation, the likely product of Jevons' Paradox for alternative energy is to make it more attractive and more widely used. Efficiency is our friend, and as for the paradox, I say bring it on.
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