Trend Watch 2026-09-22

Trend Watch: The Jevons Paradox Is Eating the AI Efficiency Story

Cheaper AI is supposed to mean less compute burned. In 2026 it means the opposite -- and that's the 160-year-old economic pattern everyone in AI infrastructure is now quoting.

Jevons Paradox is an 1865 observation about coal: making steam engines more fuel-efficient didn't reduce coal consumption, it increased it, because efficiency made coal-powered machinery cheap enough to deploy everywhere. In 2026, it has become the single most-quoted economic argument in AI infrastructure debates, and the numbers back it up. The price of a unit of intelligence fell by roughly two orders of magnitude over the past year -- yet the industry's total spend on inference rose about 75% in the same period. Cheaper tokens didn't shrink the bill. They exploded demand for tokens.

The token-mix data makes the mechanism visible: open-weight models handled 29% of all gateway token volume in June 2026, up from 11% in April, with DeepSeek alone accounting for 22.6% of that volume. Falling per-token cost didn't just make existing workloads cheaper -- it unlocked entirely new categories of workload (longer agent loops, more retries, more speculative tool calls) that weren't economical to run before. The rebound effect crossed the classic Jevons threshold within a single year: energy use per unit of AI output fell, while aggregate energy consumption climbed anyway.

That's showing up in the physical infrastructure numbers too. Global data-centre electricity demand is forecast to nearly double between 2025 and 2030, with the AI-specific slice of that demand expected to roughly triple over the same window. High-bandwidth memory shortages are projected to persist through the end of 2027. And there's a sharper edge to it: several inference providers are reportedly losing money on frontier-model serving even as total demand explodes, because each new unit of demand pays less than it costs to serve at the frontier -- efficiency gains are being competed away into lower prices faster than they're being banked as margin.

The part of this I keep coming back to: every "AI just got X% more efficient" headline this year has been read as good news for the power-grid and GPU-shortage story. The Jevons data says read it the opposite way -- efficiency is the accelerant, not the brake, on compute demand. If you're planning infrastructure, capacity, or even just a training budget around the assumption that efficiency gains buy you headroom, this is the pattern that says they won't; they'll get spent on doing more, not on doing the same thing for less.

Efficiency gains in AI are not reducing total compute demand -- they're the mechanism driving it higher, exactly as Jevons Paradox predicts. Plan infrastructure and budget around rising aggregate demand, not around efficiency buying you slack.

Views are my own and do not represent any employer, past or present.