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Two philosophical worldviews as to how the future of energy will play out exist within the confines of economics and science. Each is reflected profusely and erratically in the blogosphere. The first is that of human determinism associated with human cleverness and technological cornucopianism, the second assumes that human determinism is largely underwritten by energy subsidies and will ultimately be constrained by larger forces of nature. These two world views are playing out now in two principal, and as yet unresolved, issues related to energy. The first is whether prices are all that is needed to make decisions about energy, and the second is whether, to decrease impacts of climate change or depletion, we can replace the carbon-intensive fossil fuels that dominate our energy use with something else, such as biomass, photovoltaics, and wind turbines. Presently, most of these decisions are based on economic analyses by corporations and government agencies except as influenced by the legislated terrain. But prices are hugely influenced by subsidies, and the presence or absence of externalities, and reflect far more the present than a possibly very different future.

Energy return on investment (EROI, sometimes EROEI) is a tool (or metric) that avoids some of the problems with financial analysis while generating additional insight into the factors that influence present prices and future availabilities. EROI is simply the energy delivered from a process divided by the energy required to get it. A lower EROI means that society must divert more of its total economic activity to get the energy to run the rest of the economy. EROI integrates the counteracting effects of depletion and technological improvements. An important issue is “the energy cliff.” Changes in EROI at relatively high values, above say 10:1, have much less impact than changes at lower values.

1 Hall C.A.S. Energy Return on Investment: A Unifying Principle for Biology, Economics and Sustainability. , 2 Masnadi M.S.

Brandt A.R. Energetic productivity dynamics of global super-giant oilfields. Historically, the view of economists has been that depletion is not an issue for the future of economic production because the higher prices that will result will encourage a reduction in use and the substitution of alternatives, including lower-grade resources. EROI provides a bullet-proof response to the economists' argument that ever lower grades can be used indefinitely. Curiously, it is based on economist David Ricardo's concept that humans use the best resources first. As higher grades are depleted, the energy required increases. At some point, the energy input is as great as the energy output, and the resource is no longer economic in any sense except where some cheaper fuel is used to get more expensive fuel. There are many important oil (and oil substitute) resources that are already at or near this point, including many of our legacy oil wells in the United States and China, oil shale (kerogen), corn-based ethanol, and tar sands

3 Barnett H.J.

Morse C. Scarcity and Growth: The Economics of Natural Resource Availability. The argument usually thought by economists to resolve this issue, in favor of technology, is that of Barnett and Morse,who examined the inflation-corrected cost of a series of raw materials during the mid-20th century. They found that over time, the prices of nearly all decreased or stayed the same even as depletion advanced, implying that depletion was countered by improved technology. These results cemented in the minds of most economists the argument that depletion was not an issue that they had to worry about. A second argument was based on the work of Denison who examined the increase in GDP of the US economy during much of the twentieth century and found that increases in capital and labor could explain only about half of the increase in GDP. Denison attributed the remaining increase (the “Solow residual”) to increases in “technology” or pure human ingenuity. The declining energy use per unit of GDP for some highly developed nations is also used to argue for the positive impact of technology.

4 Cleveland C. Scarcity and growth revisited. 5 Wiedmann T.O.

Schandl H.

Lenzen M.

Moranc D.

Suh S.

West J.

Kanemotoc K. The material footprint of nations. In fact all of these arguments used by economists collapse when examined in the context of energy. Clevelandfound that during the time period of Barnett and Morse's analysis, the price of energy declined, and this allowed an increase in the use of energy necessary to compensate for depletion without increasing production costs. Kummel added energy to labor and capital in Denison's analysis and found that not only did the “technological residual” disappear but that energy was more important than either capital or labor for explaining the increase in GDP. Weidman et al.found that, with the use of appropriate accounting for imports, increases in global economic production continues to be associated with a commensurate increase in the use of materials (including energy), i.e., there has been little increase in the efficiency by which all nations collectively turn materials from the Earth into wealth.

History of EROI 6 Cleveland C.J.

Costanza R.

Hall C.A.S.

Kaufmann R. Energy and the United States economy: a biophysical perspective. 1 Hall C.A.S. Energy Return on Investment: A Unifying Principle for Biology, Economics and Sustainability. The concept of EROI has been around as net energy (energy delivered minus energy cost to get that energy) for at least 100 years, associated especially with sociologists Leslie White and Frederick Cottrell and ecologist Howard Odum in the middle of the last century. The term EROI was derived in my own studies of fish migration and first used explicitly for fossil fuels by myself and colleagues in a series of papers and books in the late 1970s and 1980s (e.g., Cleveland et al.; reviewed in Hall). There has been a resurgence of interest in the last decade, including studies under the aegis of Energy Payback Time. These studies show that the EROI of most major fossil fuels were traditionally high (>20:1) but are declining, most new “renewable” fuels have a relatively low EROI except perhaps for photovoltaics (PV) and wind (see below), compensating for intermittency is important and largely unknown, and that while EROI is not a precision science, increasingly we find that when similar boundaries and assumptions are used the values tend to converge. Given that here has been essentially no government funding for this critical research area, the applications are impressively diverse and results consistent. Economic Implications of Changing EROI 7 King C.W. Comparing world economic and net energy metrics, part 3: macroeconomic historical and future perspectives. It is clear that our increasing wealth in the last several centuries is closely associated with the use of more and higher EROI fossil fuels. Subsidizing labor with fossil fuels has given each worker much higher productivity. Long-term historical analysis indicates that for the period 1300 to 1750 in England on the order of one-third to one-half of all economic activity was required to get the energy required (in this case food, firewood, fodder) to run all economic activity, implying an EROI of 2–3:1.With the advent of fossil fuels, the EROI increased to 20:1 or more and only 5%–10% of all economic activity was necessary to get fuel. Society became much richer and was transformed from stability to one in which year to year economic growth occurred and was considered “normal” (until recently). Current Issues and Criticisms Pertaining to EROI 1 Hall C.A.S. Energy Return on Investment: A Unifying Principle for Biology, Economics and Sustainability. There have been a number of debates and criticisms of the concepts and the specifics of EROI in both the reviewed literature and the general blogosphere. These include whether corn-based ethanol generates a net energy profit, whether PV generates a sufficiently high EROI to be financially feasible, and more general criticisms examined in Hall. The first important controversy pertaining to EROI was the issue of whether corn-based ethanol was an energy source or sink. Several authors, including Kim and Dale, found that corn-based ethanol would return at least 1.7 J of energy for every joule invested in its production, i.e., in making the required fertilizer, operating tractors for planting, cultivating, and harvesting, while other analysts (e.g., Pimentel and Patzek) found that the return was less than 1:1. Hall, Dale, and Pimentel examined these differing studies and found that the main reason for the differences was whether credit was given to the residual from distilling the alcohol, which could be used for animal feeds, and some relatively small differences in the energy costs of, e.g., fertilizers. 8 Prieto P.A.

Hall C.A.S. Spain's Photovoltaic Revolution: The Energy Return on Investment. 9 Raugei M.

Fullana-i-Palmer P.

Fthenakis V. The energy return on energy investment (EROI) of photovoltaics: methodology and comparisons with fossil fuel life cycles. Presently, the main controversy pertains to differences in estimates of EROI for PV (e.g., Prieto and Hallestimate an EROI of 3:1 or less for PV systems in Spain, whereas Raugei et al.give estimates of at least 10:1). The main reason for this large difference is whether or not the output of the PVs, which is high-quality electricity, is or is not weighted for the fossil fuel avoided. A second reason is the boundaries used: Prieto and Hall attempted to account for all of the energy used to operationalize actual projects. If these issues are accounted for, the numbers tend to be much closer. The energy cost of dealing with intermittency remains unresolved. The EROI issue appears critical in determining the degree possible, and the economic consequences, of replacing fossil fuels with renewables to attempt to protect the climate.