Recently in Energy the nexus of everything Category

I just attended the conference Understanding, Measuring, and Managing Water Scarcity Risks and Footprints in the Supply Chain this past week. This conference was primarily attended by sustainability managers of corporations along with a few academics and non-governmental organizations. There was much discussion of how to measure water impacts of industry as well as how to act on measured or calculated information. Many of the speakers and attendees were familiar with several methods for measuring water "usage" such as the Water Footprint (www.waterfootprint.org) and the Global Water Tool of the World Business Council on Sustainable Development (www.wbcsd.org/web/watertool.htm). The former presents information on the green water (soil moisture for the most part provided by precipitation) and blue water (stored water in rivers, lakes, and aquifers) consumed in the supply chain of a product. The latter is a mapping program that allows businesses to understand if they have operations in regions of the globe that have water scarcity.

There was general agreement within the community that the Water Footprint is not properly used as Jason Morrison of the Pacific Institute summarized by saying "different interests use the term 'water' footprint' to mean different things" for their own purposes. Technically speaking, the water footprint is in units of water volume per time. By multiplying by the time per product manufactured, one can obtain the water footprint in units of water per product. This last term is the one most commonly presented in such examples as the quantity of water needed for a pair of jeans or a cup of coffee. This water volume per product is a handy unit of measure that consumers and business people can easily grasp. The problem is that it doesn't seem to be helping either water resource management practitioners or sustainability managers at companies.

The issue stems from culminating into one term the water consumed over a supply chain that occurs in time and in space. If your supply chain for a product occurs in more than one location and/or at more than one time, then by definition you cannot capture all of that information into a single number. Mathematically this is like taking the derivative of a number. Each time you take the derivative, you lose one degree of freedom or information. For example, the volume of a sphere is described as V = 4/3*pi*r^3 and is in units of cubic meters (m^3) to describes a three-dimensional space. Taking the derivative of volume with respect to its radius results in the surface area of the sphere at A = 4*pi*r^2 in units of square meters (m^2) to describe a two-dimensional space. Hence we went from three dimensions to two dimensions. If I show only the final value for the surface area of the sphere, say 1 m^3, I do not know that a sphere is being described. However, if tell you the equation for the sphere's surface area and tell you it is equal to 1 m^2, then you know how to calculate the volume (or radius) because I have just provided more information that told you about the third dimension.

What does this have to do with water footprinting? Well, similarly to needing to know more than one piece of information about the surface area being described (need two of either equation, radius, and surface area) to know it is for a sphere, you need more than a single value for the water footprint of a product to understand the environmental impact caused by its production. For example, if a shirt requires water during farming of cotton and dyeing of the fibers, then one could present the information in two numbers on a bar chart (among many other means for presenting information). Part of the bar chart would represent the cotton farming, and the other part would represent the dyeing step. By telling people where you source your cotton and where you perform your dyeing, you have now presented more information – information again that cannot be understood using a single value. I have just described four pieces of information: water for cotton, water for dyeing, location for cotton, and location for dyeing. A map with the water consumption value in each location the water is consumed could present all four pieces of this information. I could go on for temporal components. The World Water Tool exists to take the information described in this paragraph to relate to water scarcity around the globe. They of course use a map for this.

This thought exercise is meant to show that people understand that describing environmental impacts is somewhat complex. In describing water flows for human appropriated needs, from a basic standpoint we should focus on avoiding the word "use" to describe water flows. Instead, use "consumption" to describe water that enters the system as a liquid and exits as water vapor or in another chemical form. Use "withdrawal" to describe water entering and exiting the system in a liquid form, and note that consumption is a subset of withdrawal. The water footprint is a consumptive descriptor that for the most part includes evapotranspiration (green water) on top of what the term consumption (the blue water component) takes into account. If we stick to some of these basic rules, we can better understand how human and ecosystem services are subjected risks in water availability.

According to Japanese researcher Taikan Oki and Shinjiro Kanae, approximately 500,000 cubic km of water per yr are evaporated over the ocean (437,000 cubic km) and land (66,000 cubic km).¹ With water at a density of 1000 kg per cubic meter, this is 5x10^17 kg of water evaporated per year. Using a latent heat of vaporization for water of 2,270 kJ/kg, this means that a minimum approximately 1,135,000 exajoules per year (1 exajoule, or EJ, = 10^18 J) of solar energy are used to evaporate the world's water and drive the much of the hydrologic cycle of the planet.

Given that humans consume approximately 500 EJ/yr in primary energy, this means that the Earth's water consumes at least 2,000 times more solar energy each year when evaporating water that we consume in primary energy resources. Eighty-seven percent of this water is desalinated by evaporating from the oceans. So when we talk about desalinating water, or recycling water, just remember that it means that we are inherently deciding that 2,000 times our direct consumption of primary energy resources for the creation of fresh water is not enough!

So when we think if using desalination, but matching it up with carbon-free sources or technologies that are more efficient than a couple of decades ago, what we are really saying is that our original use of solar energy for water desalination is no longer sufficient for our purposes. With that mindset, should we rearrange our priorities in terms of the uses of water and locating people to where the solar resource combines with precipitation patterns and the Earth's contours to deliver water to us renewably? Or should we continue to bet that energy will be cheap such that we become more dependent upon it for delivering fresh water? These kinds of questions are mainly for rich countries, as we can only be so lucky to have these options.

¹Oki, Taikan and Kanae, Shinjiro (2006). Global Hydrological Cycles and World Water Resources. Science, 25 August 2006, Vol. 313. no. 5790, pp1068–1072, DOI: 10.1126/science.1128845.

The economic struggles since mid-2008 are bringing out factions that highlight both the uncertainty of the future together with ignorance of how the past has led us to where we are today. In the US, we have the conservative "Tea Party" movement of the right that is complaining about excessive government spending and the liberal "anti-banking" faction on the left that is fed up with the fat cats on Wall Street skimming too much off the top. Both sides are correct in coming to grips with the fact that large organizations and bureaucracies (e.g. government and banks) are having a harder time coping with the current economic and social problems of today.

What has unfortunately been quite absent from most of the political discussions about how to get the economy "back on track" is the true role of energy resources and technologies. With all of the talk in the United States about the need to "connect the dots" for the "War on Terrorism", what we really need to do is accept the way the energy and economic dots are connected in our modern industrial society.

By taking the following factors into account and enhancing our knowledge of how we can and cannot affect these indicators, we will "connect the dots" on our future as well as possible:

• (1) Jevon's Paradox states that increased efficiency in the use of resources (in this case energy resources) through the use of technology and structural change increases total resource consumption.
• (a) Policy point: if we target increasing efficiency, we can expect to only delay environmental problems.
• (2) The energy return on energy invested (EROI) for the combination of energy resources, renewable and fossil, together with technology that converts those resources into services dictates the level of complexity attainable by society.
• (a) Policy point: society seems to have reached a level of complexity in the last 1–3 decades such that:
• (3) The EROI of energy services has been extremely high with the use of fossil fuels, and EROI will eventually come to a value such that it is equal for fossil and renewable resources. That time of EROI equality will mark a turning point in human civilization.
• (4) The human species has now grown in size that it is capable of affecting the environment on a global scale as opposed to only very localized impacts before the industrial revolution.

The connecting of the dots goes as follows:

• (1) Humans organized into agrarian societies, and this was beneficial because it raised the EROI from farming, where the energy produced in this case was that energy embodied in food, not primary energy for operating machinery. The invention of tools and use of beasts of burden (horses, oxen, etc.) also enhanced human EROI (i.e. the amount of human energy required to grow food for human consumption).
• (2) The discovery of fossil fuels and subsequent technological change to enable further exploitation of fossil fuels led to the industrial revolution and the capabilities of production and economy in our present industrialized society.
• (3) Resource constraints via any combination of technical, physical, economic, and political factors act as a driver to increase efficiency in the use of energy resources, but there are thermodynamic limits.
• (a) For example, the Arab oil embargoes of the 1970s drove up the price of oil which in turn drove the US and Europe to increase fuel efficiency of vehicles to get the same service (move passenger and cargo from point A to point B) with less fuel, or energy. Subsequently, energy efficiency increased since the 1970s but the rate of consumption of energy changed from exponential growth to linear growth, and economic growth also slowed compared to the previous post World War II rates for the US.
• (4) Today the rate of technological change in terms of increased energy efficiency and high EROI has not increased at the same rate as needed to enable economic growth equal to the pre-2000 years and subsequently the top of the economic food chain has decided to hoard recent profits at the expense of distributing those profits to the middle and lower classes. This is evidenced by the increased income gap between the top and the bottom.
• (5) The inherently lower EROI of renewable resources will not enable the same level of economic production and societal complexity as provided by higher EROI fossil fuels. This is because renewable technologies are based upon current flows of energy (e.g. sunlight, wind, waves), as compared to fossil fuels which are based upon stocks of energy stored over hundreds of millions of years.

To contemplate the final point above, consider that Earth stored the renewable energy of the Sun (in the form of biomass) on the order of 100 million years, and now we are consuming this energy on the order of hundreds of years. What humans learn and choose to practice during this century will dictate the type of societies that are even possible after peak fossil-fuel production.

I've been working on some analysis lately tying energy return on energy investment (EROI) to financial parameters such as project internal rate of return and levelized cost of energy. An interesting question arrives when you think of the energy costs of financing a project. This is a particularly relevant question today given the level of scrutiny and discussion that is ongoing regarding financial and banking regulation.

The conventional economic wisdom is that financial speculation, mostly in real estate combined with a decade of overspending and a lack of savings in general, led to a bubble in economic growth (e.g. GDP) that then popped resulting in a recession. We are now told that the recovery from the recession caused from this overspending is close to ending due to massive government spending. This logic certainly sounds backwards: that is to say, the way the government claims we will get out of a financial downturn, caused by spending over the rate of economic growth, is in fact to spend more money than we are making. Of course this reverse logic has not convinced many people. I now look at this logic by contrasting energy and money from the view of debt financing.

I'll define debt financing as simply spending less money/energy at the beginning of a 'project' than is actually the total required cost of the project. Thus, if my solar panel is $2M and I use debt financing, I might give a bank $400,000 at the beginning of the project and pay the other $1.6M over 20 years. However, when manufacturing and installing the wind turbine, I can't consume only 20% of the energy inputs at the beginning of the project, and consume the other 80% of the required energy inputs over the next 20 years. This is because approximately three quarters of the energy inputs for a wind turbine are consumed before turbine actually starts to operate. The other 25% of the energy inputs are nearly uniformly consumed for operations and maintenance while the turbine is generating electricity.

We know that the energy for manufacturing and construction has to occur at the beginning of the project, and we know it takes 2-4 years to payback this energy (when considering the consumption of the energy by employees of the wind farm) in the form of electricity generated by the turbine. Note that most life cycle analyses analyzing energy payback time for wind turbines counting only the fuel inputs to the wind turbine life cycle such that the energy payback is calculated at less than one year for modern turbines. Either way, 75% of the energy inputs (analogous to monetary capital costs) are required at the beginning to even make the wind turbine function in the first place. Twenty percent of a wind turbine produces no energy. With this point of initial energy consumption in mind, then how do we build turbines in the first place without "energy financing"? The answer is that nature inherently provided the "energy financing" for us over the last 100 million years, and we call the energy savings over that time "fossil fuels".

Thus, the concept of financing is one lens by which to view the difference between energy and money. Because energy is a physical quantity that must obey physical laws, we cannot make up concepts, such as financing, and have them apply to energy. It is arguable that the level of debt financing allowed in a society has a strong correlation with EROI. That is to say, it takes energy consumption 'now' to make goods 'now', so all of the extra energy to make those goods is based upon the extra energy (EROI > 1) that is currently flowing from the energy sector to all others.

Because society's high EROI for the last 200 years has been based upon a stock, or 'storage', of energy in the form of fossil fuels, it is likely that a similar EROI from a flow of renewable energy (mostly solar derived resources) will not yield as society with as much energetic/economic productivity or societal complexity. This lower potential for a complex society based upon renewables is because to create a stock of energy from renewable energy flows, we must build energy storage systems to work with the renewable technologies. With fossil fuels, nature built the storage systems in the ground for us. And those stored energy resources needed 10s of millions of years of sunlight - the reverse of financing and the definition of saving.

Thus, we are currently spending the energy savings that nature provided us a million times faster than that it took to build that fossil fuel 'nest egg.' What we do and learn while spending this nest egg will determine how complex of a society we can have without it. Time has an arrow, and if we consume the same amount of energy 200 years from now as we did 200 years ago, we will not necessarily have the same level of lifestyle. We can only speculate about how different 2200 will be from 1800, but our actions today will certainly dictate the outcome. I'm betting that by learning how to live without fossil fuels while we have them today, will give those in 2200 a better chance of living better than those in 1800.

I agree with some prognosticators that attribute all global warming to natural processes. From normal cycles of the atmosphere to the regular Earth orbit and wobble about its axis. From sunspots to wildfires, natural processes dominate the flux of carbon dioxide and other greenhouse gases into and out of the atmosphere. But there is one natural process that is usually categorized incorrectly: the actions of that species that is Homo sapiens.

H. sapiens, or we humans, follow the same trend as many other animal species in discovering food and energy resources and using them to proliferate and maintain numbers. However, we have a seemingly innate ability to acquire knowledge and pass it on to younger generations such that the subsequent H. sapiens don't have to "reinvent the wheel" every generation. This accumulation of knowledge began with the first writing, continued with the teaching of agriculture for stable food supplies, and is now culminating in the transfer of information (and much of it simply data or low-value information) across the internet as is occurring when you are reading these words.

The process of accumulating knowledge, using that knowledge to create even further new knowledge of how to make new tools and extract and use natural resources has been occurring for approximately 10,000 years. Over this time, we have discovered laws of physics, incredibly advanced the science of medicine, and established societal laws and governmental structures. All the while we H. sapiens expand in population (with a few bumps in the road due to disease) and extract more renewable and fossil resources from the Earth each year. H. sapiens is a part of this Earth just as much as are Oncorhynchus mykiss (rainbow trout), Gorilla gorilla (Western Gorilla), and Sequoiadendron giganteum (Giant Sequoia). Granted, the trees have a hard time extracting resources beyond their roots, and the trout don't have opposable thumbs that allow them to grasp rocks in the stream bed to make houses or fish pens. G. gorilla have thumbs but don't seem able to venture out far from their original habitat. Most plant and animal species simply expand when resources (prey, nutrients, sun, rain, etc) are abundant and contract when they are scarce – simply a response to immediate stimuli. But those darn H. sapiens make clothing and shelter that allows them to stay in climates and conditions for durations that would otherwise kill them. This learned planning ability to plan ahead for the future seasons and years has been used to further the natural expansion and reach of humans across all continents of the globe.

With these thoughts in mind, why call anything done by us humans to date anything other than "natural"? We don't make steel, we find iron ore and carbon-containing substances to combine them when heated to form a substance with new properties we call steel. Using steel and other transformed materials we assemble objects, composed of many of these refined and purified substances, that would otherwise not exist on Earth. But oysters do the same thing in constructing their shells. We just do it a lot more, a lot faster, and into more materials.

If we consider the terms "man-made" and anthropogenic as describing actions that go against the continued expansion of Homo sapiens, then what past decisions can fall into that category? Two candidates come to mind: (i) the Chinese one-child policy and (ii) the OPEC/Arab Oil embargoes of the 1970s. it In restricting the spreading of a sixth of the world population, the one-child policy is meant more to preserve the Chinese state more than the humans in general. But don't short-change the one child policy as being a possible climate policy – as was suggested by some at the recent Copenhagen talks.

And the oil embargos, in hindsight, could be considered the first greenhouse gas policy and/or energy conservation policy. By restricting the flow of resources to a large part of H. sapiens, the leaders of a few resource-rich countries triggered a drastic change in the growth of energy consumption of the world, and hence greenhouse-gas emissions. Annual growth in world energy consumption was increasing close to exponentially until the 1970s, and after that it has been growing only linearly (i.e. at a slower rate). We could possibly attribute 100s of exajoules (or quads) of annual energy conservation to OPEC.

Perhaps embargoes and tariffs in general are a truly man-made construction. The one-child policy and oil embargoes were targeted with the intention of preserving the wealth/power of certain political entities – one with some intent to punish other political entities. Political states being the result of increasing complexity in society, they are inherently man-made. Thus, organization by treaty and by writing is man-made. And perhaps that is why negotiating a limit on greenhouse gas emissions was not successful in Copenhagen this December – because such a limit is a man-made restriction of a natural tendency, not a natural restriction of an anthropogenic tendency.

In the continuing discussion of what will facilitate an economic economy in the United States, people are generally not connecting the dots that point to what kind of economic growth is even possible in the future. The very large dot that most politicians and economists are not connecting is the role of energy, and more specifically the services that technologies provide when consuming energy resources. Sometimes green energy or the production of energy resources is mentioned as a sound bite, but little to no substantial insight exists.

Economic growth models (i.e. production functions) are commonly written assuming that growth results from investments in three areas: labour (hours worked), capital (intellectual knowledge and physical infrastructure), and energy (consumption or services from consuming energy). Research from the last several years, with particularly keen contributions by Robert Ayres of INSEAD, shows that for developed economies to grow in modern times, investments in labor are relatively insignificant. However, investments in capital and energy enable almost all economic growth with each category contributing roughly the same impact. Therefore, with the current economic discussions focusing on how to decrease the unemployment rate, we shouldn't expect robust economic growth if employment increases soon, and vice versa. This is exactly what is behind the "jobless recovery" that economist and politicians spoke of earlier this decade and that we are discovering may be happening again. The recovery is jobless in the United States and other developed economies, but not in developing economies where labour is cheaper. See the video from Meet the Press at www.msnbc.msn.com/id/34386643/ns/meet_the_press/

So how do we envision what will happen with a transition to a "green economy"? Some of the US stimulus money is meant to facilitate this transition. During Meet the Press this Sunday, Jennifer Granholm, the governor of Michigan (home of the US auto industry) held up an article from the Detroit Free Press (www.freep.com/article/20091213/SPECIAL04/312130004/1318/Auto-supplier-turns-trouble-to-triumph-by-venturing-into-turbines from minute 7:30) indicating that at least one automotive supply company has changed focus to adjust to a changing economy. Instead of waiting for a rebirth of the auto industry, the company changed to manufacturing parts for wind turbines using the same basic set of tools and skills from the existing workforce.

The question we can ask ourselves is: "Does making wind turbines instead of automobiles facilitate more jobs and/or more economic growth?" I certainly do not know that answer, but it seems the path to understanding should focus upon what service is being provided. The auto industry provides transportation and facilitates trade of goods via shipping. The wind turbines provide electricity as a service to homes, businesses, and factories. If electric vehicles become prominent, then electricity will begin to provide transportation services as well.

Businesses and governments are striving to create new ways to provide the same services, and it is not clear if these are fundamentally transformational or if they simply represent a diminishing return of investment of time, labour, money, and energy. Increasing efficiency in energy usage induced from the Arab oil embargoes of the 1970s showed that there was much to gain from using less energy to provide and expand the same services. Certainly there is less room for improvement now, but many claim that there is still so much room for efficiency improvements that economic growth can reoccur easily. However, to me it is not clear if investments in using more information in a smart utility grid will be sufficiently offset by increased energy efficiency. Putting insulation in your home is simple and straightforward and easily measureable. Installing a smart meter that communicates with your mobile phone so you can communicate with household and commercial appliances, heaters, and air-conditioners is significantly more investment in complexity. Measuring if that investment produces returns that outweigh that complexity will be more difficult to determine, but that is now on the agenda of many companies after the recent awards of US stimulus money for smart grid projects throughout the US.

After most of the talk of major bank failures and bailouts had taken a hiatus since the last half of 2008 and early part of 2009, some writers are beginning to reflect back upon certain investments of the last decade or two. A couple of nice articles are listed here:

"How Dubai's burst bubble has left behind the last days of Rome"

"An Empire at Risk" by Niall Ferguson

Additionally the highly notable writer and multidisciplinary scientist Vaclav Smil will soon have a new book on "Why America is Not a New Rome" that aims not to take the traditional view that the US is an analog to Rome, but rather a sufficiently different animal with less dominant characteristics.

Nonetheless, because humanity has effectively used fossil fuels to link the globe in trade, we have clearly seen how one country can facilitate unwarranted investments in another country. Sometimes these investments are intended for purely economic gain with foreign banks lending money to Dubai for creating some of the world's most extravagant buildings and land forms in a country that is one of the least endowed with natural resources. In fact, the only reason that the Arabian Peninsula even has the relatively recent capability of fostering a large population is that fossil fuels power desalination plants to quench the thirst of the inhabitants. It is clearly not energetically-wise to air-condition a beach in the desert (as in one beach in Dubai). As noted in the articles above, because of the different rules about debt obligations, the lives of some expatriates from the EU that have invested in Dubai's real estate bubble are being completely transformed. Pay debt on time, or go to jail. This is a little different than going through bankruptcy and simply raises the risk-reward ratio when investing in countries and societies not based upon the EU and US Anglo-Saxon model of politics and economics.

In speaking of investments in countries with a different political model, the US investment in Afghanistan and Iraq since 2001 is a case study in the type of marginal return on investment that can slowly characterize the collapse of a society. This topic of course could be debated until you run out of breath, but think about it from the following perspective. The US is investing money (as well as energy to fly around other countries!) to maintain the status quo of security. The events of September 11, 2001 started a chain of events in the US that have:

(1) spurred the creation of a new cabinet-level government agency – the Dept. of Homeland Security;
(2) induced a soon-to-be deployment of 100,000 troops in a country (Afghanistan) whose inhabitants the US already trained to fight insurgent/guerilla warfare;
(3) changed the US focus into that of nation-building a country that has never acted as a unified nation to begin with; and
(4) increased the amount of heroin flowing throughout the world as Afghanistan is now the major world supplier of poppy.

On the last point, we are now making investments and decisions for the "War on Terror" in Afghanistan that clearly, albeit indirectly, go against the US "War on Drugs" that has been on-going for almost four decades now. This is pretty much the definition of marginal return on investment when you attempt to solve one problem and it makes an equally ravenous problem become more untenable. All together, because of the minimal efforts by other countries of the world in Iraq and Afghanistan, the US is attempting to almost single-handedly maintain some order of world stability that is requisite for the continuation of globalization and international trade. All other countries have essentially been convinced that their investments can't possibly make a difference, and they are likely correct.

Any investment in global stability has to start with the largest economic and military power. Of course, this is the same argument for the need of the US to lead in global climate treaty negotiations starting this week. So far, the US leadership chooses to act under uncertainty with the global military option more readily than under the uncertainty of the global climate/energy policy option.

There is much discussion today in the US regarding how much the government should spend, and go further into debt, to help get the economy growing and increase employment such that we can later pay back this debt when economic growth is good (i.e. positive) again. For those who do not believe in the general capitalism arrangement that assumes economic growth (as we define it today) can and must continue indefinitely, the logic of spending more so we can pay it back later can seem like putting off the inevitable final economic bust.

Persons such as Robert Reich, former Labor Secretary under the President Bill Clinton, are calling for more stimulus spending (see http://robertreich.blogspot.com, and for an entry on his normal calling for more stimulus spending, visit http://robertreich.blogspot.com/2009/11/great-disconnect-between-stocks-and.html). Reich correctly says that the latest increase in US GDP growth, of a reported 3.6% in the 3rd quarter of this year, is mostly related to a shift in capital assets at the expense of labor. This is supported by research by Robert Ayres and Benjamin Warr indicating that investments in providing "useful work" and capital are responsible for roughly 50% of US economic growth whereas additional labor investments are only responsible for some amount of less than a few percent. Useful work is roughly equivalent to primary energy consumption divided by efficiency of conversion into mechanical motion – but think of essentially as how energy impacts our economy. In 1900 their research shows that investments in labor were the most influential factor (55%) in US economic growth with useful work responsible for nearly 40%.

What all of this means is that over the last 100 years our industrialized economy has replaced physical labor (working in factories and farms) with machinery run on fossil fuels. Therefore as long as cheap energy is available to operate this machinery and make more of it, human labor is simply not necessary. We pay people to think of ways to not need as may people to make a product, and then we act surprised when we succeed. We now pay people to think, not use their muscles, and we translate this to a need for better education. We also translate this to other areas of life, such as health care, where investments in capital (knowledge and machinery) have enabled incredible tools and techniques to cure disease and injuries.

What all of these advancements depend upon is excess energy such that people CAN be paid to spend time and think of new inventions. This excess energy is a function of the resource (renewable or fossil) and our ability to exploit it. This ability can be measured as energy return on investment (EROI). If US oil had an approximate EROI of 100 in the first decade of the century and today has an EROI of 10–20, then each barrel of oil in 1900 had approximately six times more capability of growing the economy than today. This estimate is calculated as follows:

˜ ((EROI-1)*"useful work" productivity factor in 1900) / ((EROI-1)*"useful work" productivity factor in 2000)
˜ ((100-1)*40%) / ((15-1)*50%)
˜ 40/7 = 5.6

So when we look to the past and assume we can invest in various economic stimulus packages with the thought that we have always had the ability to repay the debt in the future, I believe understanding this tie energy (EROI, useful work) and economic growth is important. So we can say:

1. The US has a large national debt load (the highest ever) and now the annual budget deficit is reaching the highest levels ever reached. Thus, we seem not to be paying back the debt over time, except interestingly the US did that during the time Robert Reich was serving in the 1990s under the Clinton administration; and

2. The total system-wide conversion of energy resources into useful work is becoming less productive over time yet more influential on the economy.

The conclusion is that we are increasing our debt load at the same time we are having less ability to pay it back. This basic conundrum will define this current century.

A recent article titled "Government impose 'carbon capture levy' to fund coal-fired power plants", discusses the UK government imposing a tax on electricity to potentially fund carbon capture and storage (CCS) development on up to four coal plants over the course of 10–15 years. A quote from the article sums up the discussion:

"The Department for Energy and Climate Change said yesterday that uncertainty over the commercial viability of CCS meant that public support might have to continue beyond 2030."

Of course CCS is not commercially viable. The only way to make it commercially viable is to internalize the cost of CO₂ emissions to such a degree that the cost of investing in the infrastructure for capturing the CO₂ justifies the investment. The price of CO₂ is not there yet for the UK, and is nonexistent within the United States. So the commerical viability question is not even applicable except for potentially using captured CO₂ to extract more oil out of mature reservoirs. Still, given that there are natural sources of CO₂ that only require major investments in pipelines while avoiding interacting with the electricity indudstry, a sufficient CO₂ price may not exist for a couple of decades that induces investment in CO₂ capture on coal plants.

But the real "commercial viability" conundrum rests on the fact that a large portion of society believes that we (well, the industrialized world) should place a value on reducing CO₂ emissions. Capturing CO₂ from coal plants will lower their net electricity output by 20–35%. In terms of the normal venacular of economics, this is going to something less efficient. In this case, the efficiency is less electricity output per unit of fuel input. This is a fundamentally different concept than has occured since the dawn of the industrial revolution.

Sure, we have imposed certain types of pollution mitigation technologies on power plants before (e.g. SO₂ and NOx scrubbing, mercury capture), but these have for the most part not prevented coal plants, and the power plant industry in general, to increase their efficiency over time by increasing the pressure and temperature of operation. But everyone knows that the thermodynamics of the power plant with CO₂ capture will be less efficient. This goes directly against the purpose of investments and technological advancement since the founding of modern civiliazations.

People have historically invested in ways to extract more productivity and wealth from the Earth per unit of effort (human effort) until some ecological feedback prevents that from being a desireable option any longer. These feedbacks to date have mostly been associated with direct air-, soil- and water-quality problems. And the past mitigation methods have been of a small order of cost such that the human population has continued to grow since the Industrial Revolution. But this feedback fo global warming appears to cost several orders of magnitude more to deal with. The question is: "Is coal power so valuable to us that we will continue to use it even at lower efficiency?" In other words: "Are other viable technologies so inferior that coal power must continue to exist by providing less direct services than it has since we first put it in a steam cycle connected to a dynamo?"

So far, the answer seems "yes" to these two questions. Widespread use of CCS will mean that we value environmental/ecosystem services more than energy services on a larger scale than any time before in history of human civilization.

The discussion continues in the US about economic recovery (it was somehow reported this past week at 3.5% for the last quarter). People keep asking typical and often meaningless questions. "Is this growth sustainable?" "But employment is still rising, when will unemployment go down?" To many in the research community that study society from a "whole systems" mentality, the answers to these questions are obvious in the long run even if few short term solutions exist to alleviate any real or perceived economic pain or loss of lifestyle. Oh, and the answers to the two questions are "no", and "when we (the US) accept lower lifestyles".

This weekend, Timothy Geithner, the US Treasury Secretary appeared on the popular Sunday talk show Meet the Press. Geithner was asked when employment (unemployment is US is measured at 9.8%) would start to rise, and when the budget deficit and national debt would stop growing. His answer was the mainstream view. This view is essentially that the economic stimulus funds are providing the base investments for growth in the future, and they will "take a while." Another way of looking at this statement is, that because private businesses spent years, if not the past couple of decades, making the wrong types of investments and/or expecting the wrongly high returns, the government is now making the right kind of investments that will make those same high returns. Oh, and create jobs.

Unfortunately, the research on energy and economics is showing us that the trends are not indicating that these future expectations will come to fruition. I present two areas of research to think about together.

(1) Work on economic production functions by Robert Ayres of INSEAD indicates that investments in increased labor no longer produce economic gains for the US. Work by Ayres and his colleagues (often Ben Warr) on how energy, or rather "energy services" (which they term more precisely "exergy services" or "useful work") relate to economic growth shows that investments in energy services and capital are practically the only drivers of economic growth at this stage of development in the US. If we consider, as many economic production functions do, that the "factors of production" are of three main categories, (i) capital, (ii) labor, and (iii) energy (or energy services), then Ayres' work shows that every dollar invested in capital or energy is each responsible for half of economic growth, and investments in labor are responsible for well less than 5% of economic growth.

See: an interview and/or journal paper from Ayres and Warr Interview: http://tv.insead.edu/video/EconomicsPolitics/2/7544 Journal paper: Ayres, RU, Sustainability economics: Where do we stand? Ecological Economics 2008 67(2) 281–310.

(2) Research on the trends in energy return on energy invested (EROI) for fossil fuels undergoing the inevitable decline. This does not necessarily have anything to do with whether or not there are large fossil resources, but can have something to do with describing fossil reserves (those that are economically recoverable). What this declining EROI means is that even though we have continually produced and consumed more energy (worldwide) and have large coal and natural gas resources, they will still not provide for the economic growth of the past.

One example of conceptualizing pionts (1) and (2) above is natural gas. The natural gas (NG) inudstry is now on a public relations campaign to explain the resource base increased by technologies to extract natural gas from shale rocks. So yes, we now have a greatly (2–3X) expanded resource base of NG, but at what EROI? These resources cannot be economically produced at the $2/MMBtu of the year 2000, and need closer to $6/MMBtu for a price. Thus, the EROI of unconventional NG could be 3X less than conventional NG. So the conculsion is, we may have 100 years of domestic NG in the US based upon current consumption, and these resources are valueable, just not as valuable as past resources.

What all this means is that economic growth, as defined since the industrial revolution, cannot happen as fast as the past. The conversion of energy resources, including both renewables (dependent upon current solar income) and fossils (benefitting from hundreds of millions of years of solar income) for productive uses simply requires more energy and resources than in the past. Thus, there is less excess available for other economic sectors, and most economists, businesses, and governments have not accepted this position. There is little incentive for them to do so, except for energy companies themselves since their livelihood is dependent upon making proper judgments of how EROI relates to their monetary return.

Furthermore, investments in energy technologies, capital, and resources that increase labor in the energy sector relative to past investments, inherently go against the trends of the last 100 years. This is not a result of bad public policy, bad tax incentives, overtaxation or even bad business practices. This is a result of increasing complexity of our society such that investments just no longer provide the larger marginal return as they used to, and perhaps they are no longer providing a marginal return at all anymore (think bank bailouts, two wars: Afghanistan and Iraq, health care reform).

We think more energy equals more capabilities, but that equation is incorrect. EROI is a necessary and important factor to understand. When EROI is high, there is a large margin for error and a high degree of discretion when making investment decisions. As EROI decreases, there is less margin for error, and each error can become more influential for a system that has been built upon higher EROI and still expects it. The pay of investment bankers and automaker executives together with health care technologies are results enabled by high EROI that enabled their existence to begin with. They are only causes of budget deficits and debt when we refuse to adjust. This point of adjustment, or lack thereof, is where we reside today.