"[This] provides a simple way for people to understand the role of energy in the economy by using readily available data," King told environmentalresearchweb. "The major implication of the work is that energy quality matters for overall economic growth. People intuitively know this, but when politicians and pundits talk about improving the economy, they talk about tax policy instead of energy. They are putting the cart before the horse."

EROI is defined as the amount of energy output from an energy system divided by the energy input required to produce the energy. "All other aspects being equal, an energy supply with higher EROI is better," said King. Energy intensity ratio (EIR), on the other hand, is the energy intensity (in units of energy per dollar) of the energy resource relative to the energy intensity of the overall economy.

"I thought to myself: how well are prices reflecting the EROI that some researchers have calculated?" said King. "By scaling energy prices with the energy intensity of the overall economy, this essentially provided a manner in which to track technical progress, via energy prices, in the energy sectors versus overall technical progress for energy efficiency."

King found that EIR provides an easily calculated and effective proxy for EROI for US oil, gas, coal and electricity. Not only that, King writes in ERL that the measure provides additional information on energy resource quality within the supply chain. And he says the work supports the claim that prices do somewhat reflect the quality of energy, as measured by EROI.

"Higher EROI and EIR enable more parts of society to be engaged in jobs unrelated to basic needs like food and energy," he said. "When EROI and EIR are less than 10 for characterizing oil, this has corresponded with times of economic recession, and over the last decade the quality of US oil, natural gas and coal dropped quickly from peak levels."

According to King, these findings support the argument that the current economic downturn was significantly related to increasingly expensive energy. "Unlike the 1970s when the increase in oil price was politically motivated (e.g. OPEC oil embargos), the increase in the 2000s was more physically-based," he said.

The study also has implications for the introduction of a greater amount of renewable energy, which typically has lower EROI and EIR. "We should expect higher prices without significant increases in energy efficiency," said King. "This manner of thinking about using energy and energy quality as more of a cause of economic growth needs to be applied to system economic models employed by large energy organizations in the Department of Energy, International Energy Agency, International Monetary Fund, etc."

Now King plans to repeat the analysis for other countries, which could help to explain different levels of economic growth and technical change between nations. The work, which uses "top-down" analysis of energy systems, also provides a target set of values to replicate from "bottom-up" analyses of energy technologies. "For example, if we can match the EIR of electricity by summing the effects of different technologies (e.g. coal, solar, wind, natural gas, transmission lines), then we can more accurately project the energy transition to renewables," he said.

"Because there are no separately marketed prices for renewable energy, we need to understand how renewable-energy sources will be integrated," added King. "By basing the integration of renewables on energy principles, we should have a better chance at making more realistic energy projections/scenarios than by thinking about prices as if they just have their own paths."

King reported his work in ERL.