The COP26, externalities and the Jevons Paradox

The 2021 UN Climate Change Conference (COP26) is taking place in Glasgow until Nov. 12. The conference is also the third meeting of the parties to the Paris Agreement.

The event was intended to take place last year, but was obviously postponed due to the pandemic. This is coincidental since the WHO has noted that, with many recent disease outbreaks originating in wildlife, there exists a correlation between human pressure upon the natural world and the prevalence of disease.   

Also important to note in light of this conference is the parallel history of ecological degradation that has existed since before the signing of the UN Framework Convention on Climate Change in 1992, the Paris Agreement in 2015, and the present. Average annual global land and ocean temperatures have now increased roughly 1 degree Celsius higher than they were in 1980 relative to the 20th century average.

There are empirical and theoretical reasons why COP26 appears poised to fall short of its Paris Agreement objectives. Australia, one of the world’s top producers of coal and gas, announced on Tuesday that it intends to target net-zero carbon emissions by 2050. 

However, like all but a handful of governments, it has no intention of codifying that aspiration with binding legislation. Australia will rely upon consumers and companies to drive emission reductions, though admittedly the government will invest roughly $15 billion to help fund greener technologies.

Further, Chinese leader Xi Jinping is unlikely to attend COP26 in spite of the reality that China is the world’s biggest producer of greenhouse gas, accounting for 28 percent of global emissions, compared with about 15 percent for the next highest producer, the US.

Only when real costs for these resources and ecological externalities are “internalized” will ecological reality reflect the “real” preferences of consumers.

John W. Salevurakis

While China has invested heavily in renewables — it notably has a third of the world’s photovoltaic capacity, almost three times that of its closest solar rival, again America — it is also sharply increasing domestic coal production to maintain its economic expansion. In 2020, as the rest of the world was contracting, China put more coal-fired power online than was taken offline in the rest of the world, thus generating 53 percent of the world’s coal-fired power. China has simultaneously promised to be “carbon neutral” by 2060.

In parallel, Russian President Vladimir Putin, whose country accounts for 5 percent of CO2 emissions, the fourth largest in the world, has also decided not to attend COP26.

The above is certainly not to imply that the West is immune from criticism. 2021 has seen an increase in coal production in America, at least partially due to the currently high price of natural gas. During the second quarter of 2021, US coal production was more than 22 percent higher than the second quarter of 2020, with over 91 percent of this going toward power generation.   

It is perhaps now important to consider exactly why these ecological costs are being incurred in spite of all of us essentially knowing better. The reality is that environmentally damaging sources of energy remain cheap (not accounting for externalities) due to technological innovation. 

In the US, gasoline has not increased meaningfully in real price terms over the last 50 years, even as the population has increased. Ignoring the recent spike and some wildly large oscillations in 2008, 2010, and 2018, coal prices have less than doubled between 1990 and January 2020. Even at current highs, natural gas as well is not meaningfully above its average price since the early 1990s. These realities exist in spite of global demand that one would expect to yield much larger price differences. What, then, is happening?

In economics, there exists a relatively simple concept known as the Jevons Paradox. William Stanley Jevons noted in 1865 that improvements in the efficiency of coal use increased its use contrary to initial expectations.  

One cannot, therefore, rely upon more efficient coal-fired power plants to reduce coal utilization … quite the opposite. Put simply, as real incomes rise as a result of decreased costs associated with achieving the same level of welfare (from electricity consumption in this case), it stands to reason that the demand for the resource in question will also rise over time. Therein lies the root of our current ecological problems. We are, to a substantial degree, victims of our own growth, technological innovations, material abundance, and generally advancing welfare since the time of Jevons.

Only when real costs for these resources and ecological externalities are “internalized” will ecological reality reflect the “real” preferences of consumers.  

• John W. Salevurakis is an associate professor of economics at the American University in Cairo, and an author.