Let's say based on my level of activity I "burn" 3500 calories worth of energy each day.
Let's say I only eat 1750 calories of low-carb paleo chow.
Does that mean I'm "burning" 1/2 pound of body fat to make up the difference?
Now consider what would happen if I ate 1750 calories of high carb chow: I would not be in ketosis. I would have elevated insulin levels (a storage hormone).
Would my high carb food choices prevent me from burning stored body fat, even though I only ate about half my energy requirements?
From reading the Taubes book, I have the impression that the first priority be to sweep the 1750 of carbs into my fat cells? What happens next confuses me: if I still had energy demands (above and beyond what I ate), would I be burning stored body fat, despite the elevated insulin?
Or, would my metabolism slow down so my new daily energy needs is about 1750 calories?
Any thoughts would be appreciated.
You're on the right track. The short answer is: insulin moves energy into fat; lack of insulin allows energy to move out of fat.
In a healthy individual, this isn't a problem, like kenckar says, between meals, your insulin will come down and you'll burn that fat you stored. What Taubes is most concerned with is in the metabolically deranged / insulin resistant person. In these people their insulin is chronically elevated so basically they never get that energy back out of their fat cells and just keep putting on weight. That's also why someone who's insulin resistant can be ravenously hungry and feel like they're starving even if they have the fat; they can't use it, so their brain is panicking and telling them to eat more.
This is why Taubes has come to the conclusion that insulin is the one hormone to rule them all (for fat loss). If you can control the insulin, you can control your available energy. That's a hot topic on PH, so I'm not going to argue either way.
On to your example, If you need 3500 cals to be as active as you are and you ate 1750 as low carb: you're right, you'd just pull the extra out of your fat for the day, losing about 1/2 a pound.
But if you ate 1750 of carbs, some of gets used for fuel right away, the other part gets shunted to your fat cells because your insulin goes up. What happens next is the question. If you're a healthy individual, your insulin will come back down and you'll pull what you need out of fat and essentially lose another 1/2 pound or so. If you're insulin resistant, then you're out of luck. You can't pull that energy out, so now you get crazy hungry. If you don't ever get around to eating, then your body has no other choice but to slow its metabolism because there's no energy around to use. This is where Taubes says "you're not fat because you're lazy, you're lazy because you're fat". I.e., you just can't move because the energy isn't available for you to use.
You'll also notice something in that example above with the insulin resistant person:
That means, they took in what they thought was 1/2 of their caloric need, hoping to lose 1/2 of a pound, but they ended up storing 1/4 of a pound worth of energy and only getting 1/4 of their need for the day actually used. That's the kind of thing you see when insulin resistant people try to diet (by cutting calories but keeping the carbs up). In this case, they effectively only got 1/4 of their daily need for energy from their food, they gained some weight, and they had to slow (sometimes irreversibly) their metabolism down. I think that's why the food quality matters more than food quantity when losing weight (of course, you do have to know the difference between your mouth and vacuum cleaner).
In between meals your insulin would go down and you could release the fat. Also, your metabolism would drop, but probably not so much that 1750 would be maintenance.
Even if you had a slow steady 24 hour drip of carbs going into your system, presumably your insulin would not raise so much beause you would be in a continual caloric deficit with the calories going to fuel your body.
You have to think through what happens through the cycles, not simply taking a day as a unit.
Before you go buying into Taubes' theories, consider this. There's nothing like exercise to lower insulin levels, yet Taubes is adamant that exercise is useless for weight loss because it will only make you hungry.
I've not read WWGF in its entirety, but I'm aware that it contains a scenario whereby insulin makes you hungry and causes overeating (oh I know, that's inane!) starting on p. 122 (Google books). You think about carbs, secrete insulin, eat carbs, secrete more insulin that locks the fat away making you hungrier so you eat more and more. Yet insulin lowering exercise makes you hungry.
If you are eating a low-calorie high-carb diet, you will be in deficit and your will eventually burn some body fat, although probably not as much as if you consumed the same amount of calories from a lower carb diet. Your insulin levels won't be as high if your calories are restricted.
The real question though is whether this is a sustainable approach in the long-term! Many studies have shown that a calorie-restricted diet rich in carbs (and therefore low in fat) is not satiating at all compared to a lower-carb higher-fat diet.
Unless you are eating ultra-high levels of protein, fat will not be the only thing you are burning. That much of a deficit over more than a few days will put you into a muscle consuming state which consumes your muscles for the necessary amino acids your body requires. So looking at such a deficit as only fat-burning will ignore the effect of muscle loss, regardless of the effect of insulin. Personally, I think if you were that active and your metabolism was not deranged, none of those 1750 calories would be stored, since they would be used for your body's energy needs.
miked linked this skeleton from the cave. It was interesting so I'll add my N=1 response.
The answer to your question is YES.
I was insulin resistant (A1C=8 fasting) and had no trouble losing 2-3 lbs/week for 3 months in this condition. I did not run % body fat, but the loss of visceral fat was obvious in my waistline, and in my thinning round face and thighs. I ate carbs during this period, but less in both dietary % and absolute level than I did before I started losing weight. Certainly nowhere near VLC level - at least 150 grams per day.