Percent Change in Consumption

Period

Petroleum

All Energy

1949-1977

220%

144%

1978-2007

10%

27%

 Source: DOE/EIA
This reversal means the rates of efficiency improvements have been greater in the petroleum sector while overall energy consumption has increased at 2.7 times the rate of petroleum consumption.   This seems to show that the Jevons Paradox applies in the macro case in the sense that the income effects from the increased efficiency of petroleum consumption has expanded the consumer’s consumption space which increase in consumption has an energy content.  
As you say if to be effective a carbon tax must keep the consumer’s consumption space constant by keeping ahead of efficiency improvements.   If substitutes for carbon based fuels can allow for decreasing energy intensity then consumer welfare will not be harmed.  However, if the substitutes cause increasing energy intensity then a greater share of GDP will be accounted for by the energy sector and consumer welfare will be harmed.  I believe that these two scenarios revolve around relative energy densities of the different energy sources.
Turning now to petroleum consumption patterns in the US over the past 60 years we find a remarkable interplay between diffusion of innovations, regulation and price.   The storm of innovation that resulted between 1973 and 1984 unleashed a flood of efficiencies that resulted in a remarkable reduction in the rate of consumption growth allowing the fleet grow and miles driven to explode.   These were off the shelf technologies and were able to alter the path of consumption from a blistering pace between 1949 and 1977 of 220% growth to a rate from 1978 to 2007 that saw petroleum consumption rise by only 10%.  If simple relationships can produce such a remarkable result in 30 years what will the market, regulation and technology achieve in the next 30 years?  I think reduced petroleum consumption is the answer even in the face of increases in population and the size of the fleet.  You can see a flattening of petroleum consumption beginning in 2004 and a slight decline into 2007 even before the sharp rise in price this year.  Some of this decline is the ramping of ethanol production but it also seems to point to a possible turning point in the diffusion of new innovations like hybrids and even direct injection not to mention the use of new and lighter materials and better aerodynamics.  
Before implementing a carbon tax I think we need to see if we have a similar reduction in quantity demanded of petroleum in our current recession that we had between 1978 and 1983 when quantity demanded fell from 6.9 billion barrels in 1978 to 5.6 billion barrels in 1983.  If we do see a similar reduction consumption will fall to around 6 billion barrels per year by 2013, a reduction of 20%.  I think this is beyond the wildest dreams of most environmentalists.  If consumption patterns follow past recoveries as new innovations diffuse and as the fleet is turned over, after 2013 we should see a much flatter growth curve and we shouldn’t return to current rates of consumption for over 25 years.   A simple tweak of regulations and tax incentives could move the consumption curve to a flatter or even declining trajectory.  This is why I say yes to petroleum and no to carbon taxes. 
Remember that after this recession is over the decrease in quantity demanded of petroleum will fall disproportionately on OPEC and not on the US.  At $50 per barrel our current acount deficit would fall by about $75 billion per year.

Your points are important but overdone, in my view. The share of carbon tax dividends (or tax-shifted revenues) that will be spent on fossil fuels will be around the same as the current share — 7-8% of GDP. The remaining 92-93% will be spent elsewhere. Reflecting your "rebound effect" in the modeling is important, but it doesn’t appreciably change the extent to which taxing the carbon content of FF’s is likely to reduce their use.

Our (CTC’s) proposed carbon tax is indeed high, after the ramp-up, and our rate of phase-in is well in excess of the rate of technological improvement.

Your last point — "say no to carbon taxes and yes to petroleum" — is incomprehensible to me and is antithetical to environmental and political sustabinability, in my view.

Thanks for writing.