Britain has a serious problem with its energy supply. After examining this issue for a few years now I perceive that the greatest difficulty we face is not that we lack energy resources (arguably we do), or that we are becoming precariously dependent upon imported energy (which we are), or that our large demand for energy makes reforming our economy extremely difficult (as evidently it does); the most significant problem is that the political and business community cannot accept that natural systems impose physical limits upon human society.

We may be told that our present problems can be solved through measures such as 'green growth', 'low carbon energy' or 'carbon markets', but such a view ignores the growing body of evidence concerning the relationship between the way the economic system operates and the physical nature of energy and material resources that the economy relies upon.

Cheap energy = cheap growth

If we look at how Britain's energy economy has changed over the last two centuries we can see an interesting trend emerging - one that demonstrates the evidence for a link between energy sources and the well-being of the general economy. Throughout its history, up to the Second World War, Britain was largely self-sufficient in energy. Then from the 1950s, on the back of the post-war consumer boom, this historic trend ended as imported oil gained a wider role in the economy and indigenous coal production declined. By the 1970s, when we imported about 50 per cent of our energy needs, the imbalances in the national economy caused a whole range of economic problems, essentially because Britain was trying to spend more than it could create through its national income.

What resolved this crisis, from around 1979/1980, was increasing energy production from the North Sea. Once again Britain became a net energy exporter, and once again the strength of the national economy improved. With the peak of North Sea oil and gas production, and with our demand for coal now largely met by imports, energy demand is once again becoming a drag upon the national economy.

The operation of the modern economy is predicated upon cheap and plentiful energy supplies, and so the role of energy sources within economic well-being is critical. For example, recent research on the causes of the credit crunch argues that it was high energy prices that initiated the crash, not sub-prime mortgages. The Government's own forecasts predict that we could be importing up to 60 per cent of our energy needs by 2020. As a result our dependence upon imported energy is not just an issue of 'energy security', these trends are redefining the basis on which the economy operates; and unless we act to change it the economic difficulties of the 1970s are likely to return over the course of this decade.

Recognising limits

What can be done to avoid this outcome? This again raises questions about how mainstream economists value different strategies, and only attach positive values to those strategies that can produce economic growth. Research suggests that up to half the value of economic growth is the direct result of adding additional energy to the economy, and a further fifth is the result of improving energy efficiency. For this reason changing the dynamics of our energy supply, through falling production and/or higher prices, invalidates many of the economic norms of the past few decades.

In biophysical terms, energy sources such as fossil fuels or renewable energy (and even food) have a value which they create through their production, and thus a financial and energetic return that can be recycled back into the economy. To complicate matters this value is based upon the factors intrinsic to their production, and so the only way to compare one resource with another is to use a value that represents its life-cycle operation, not simply its capacity for production or profit. For example, in general renewable energy does not perform in the same way as fossil fuels because its returns are lower, primarily because the thermodynamic quality of the energy sources involved are lower, and so fossil fuels have traditionally had an advantage over renewables.

The limits to efficiency

The other principle option to manage resources more wisely, improving the efficiency of use, is limited by the fact that it is not an open ended process; each improvement represents a one-time saving, and improving efficiency levels further requires that we invest in new technologies once more. This is because thermodynamics of efficiency dictate that each new generation of technology must, on average, save less than the previous generation, and so ultimately efficiency measures represent a diminishing return - eventually you will have to put more into the system to reduce consumption (e.g. by making new gadgets) than it will save overall.

In any case, if we look at the trends of the last century or so, the value of economic growth has in most years exceeded the value of improving efficiency. That's because efficiency improvements create a confounding economic feedback - cost reductions in one part of the economy will spur consumption elsewhere. As a result most efficiency measures will usually only dampen, rather than reduce, the overall level of consumption.

If the emission of greenhouse gases were the only problem with our energy system today then we might be able to do something to address the problem. The unfortunate reality is that there are an inter-related group of difficulties (principally food production, water resources, energy/mineral depletion, population and climate change) that are systemically linked to the accelerating growth in human activity within a finite ecological system.

The past bites back

Whether it is the ability of the environment to mop up carbon, or of the Earth's crust to provide the energy and material resources required to continue the industrialisation of human society, human development over this coming century is going to be constrained by these ecological limitations. This is not a new concern; it was highlighted back in 1972 by the Club of Rome's Limits to Growth study, and by the Ecologist in its Blueprint for Survival. The difference today is that the limitations on our future development are even more stark, and thus the outcome of present patterns of economic activity are seemingly more intractable.

In Britain we will have to reduce our economic activity - or 'have less' - to solve our present economic difficulties; Britain is in ecological and economic 'overshoot', and we're going to have to take action to resolve the problem before we just run out of energy, money, or both. The realistic way to reduce our impact on the environment, and manage the decline in resources, is to reduce economic growth - also called 'de-growth'; perhaps not directly, but because those strategies which make a significant difference to the level of energy and resource use will often lead to a reduction in economic activity.

For example, the best way to reduce consumption is not to make things 'more efficient' in their operation, it is to make them last many times longer by manufacturing them to higher standard - consequently less are sold, and as a result the standard index of growth, GDP, will fall; likewise, as most of the energy and resources used by modern gadgets is expended in their production, the best way to cut energy and resource use is not to simply recycle the waste products but to adopt measures that mandate the repair and reuse of goods - the result over time being lower economic activity and negative growth.

Britain was one of the first nations to industrialise - we 'made' the Industrial Revolution. Now, if we can abandon the delusional notion that human society is not subject to ecological limits, we have the potential to resolve the crises that will arise over the next few years by spurring a new 'Ecological Revolution' – one that addresses these past excesses through redefining markets and economic theory within ecological and biophysical limits.

Paul Mobbs is an environmental researcher and author of Energy Beyond Oil. This article is an edited version of a fully-referenced report available on Paul's website. Paul's blog, ecolonomics, is available here.