The paradox of efficiency

Efficiency is a classic case of a doubled-edged sword. On one side efficiency is crucial for the practice of sustainability because it is about getting more from less. In particular it is about getting more products and services from less resources.

On the other hand efficiency is the darling of business management and strategy. Efficiency reduces costs which leads to higher profits. Higher profits, in turn, lead to further economic growth when they are invested as capital. Or the lower costs from being more efficient can be passed on to customers as lower prices for goods and services. This tends to lead to increased sales and higher consumption overall.

The paradox of efficiency is discovered

In 1865, the English economist William Stanley Jevons reported that technological improvements that increased the efficiency of coal-use led to the increased overall consumption of coal in a variety of industries. Jevons made the counter-intuitive argument that technological progress could not be relied upon to reduce fuel consumption. When efficiency gains increase the absolute amount of resource use is called Jevons paradox, or the rebound effect.

Some environmental economists believe the answer to the rebound effect would be to tax any cost savings from efficiency gains to keep the cost the same as before. However, this does not incentivise businesses to be efficient at all and therefore reduces the environmental benefits of efficiency.

The answer is to not make efficiency the primary goal. The primary goal should be an absolute reduction in resource use. In other words, the primary goal is to reduce consumption-production in absolute terms and then, secondly, make production as efficient and eco-friendly as possible. 

One idea would be to tax extracted, non-renewable resources and use that tax income to subsidise renewable and recycled resources so that renewables are cheaper.