In economics, the Jevons paradox (; sometimes Jevons effect) occurs when technological progress or government policy increases the efficiency with which a resource is used (reducing the amount necessary for any one use), but the falling cost of use increases its demand, increasing, rather than reducing, resource use. The Jevons' effect is perhaps the most widely known paradox in environmental economics. However, governments and environmentalists generally assume that efficiency gains will lower resource consumption, ignoring the possibility of the effect arising.
In 1865, the English economist William Stanley Jevons observed that technological improvements that increased the efficiency of coal use led to the increased consumption of coal in a wide range of industries. He argued that, contrary to common intuition, technological progress could not be relied upon to reduce fuel consumption.
The issue has been re-examined by modern economists studying consumption rebound effects from improved energy efficiency. In addition to reducing the amount needed for a given use, improved efficiency also lowers the relative cost of using a resource, which increases the quantity demanded. This counteracts (to some extent) the reduction in use from improved efficiency. Additionally, improved efficiency increases real incomes and accelerates economic growth, further increasing the demand for resources. The Jevons' effect occurs when the effect from increased demand predominates, and the improved efficiency results in a faster rate of resource utilization.
Considerable debate exists about the size of the rebound in energy efficiency and the relevance of the Jevons' effect to energy conservation. Some dismiss the effect, while others worry that it may be self-defeating to pursue sustainability by increasing energy efficiency. Some environmental economists have proposed that efficiency gains be coupled with conservation policies that keep the cost of use the same (or higher) to avoid the Jevons' effect. Conservation policies that increase cost of use (such as cap and trade or green taxes) can be used to control the rebound effect.