The main point about EROI, and I don’t think we disagree on this, is that the raw amount of produced energy that needs to be put in is only one factor. You also need to know how much human labor has to be put in, and how much physical stuff has to be put in.
I’d note a lot of the complaints here that in a bad EROI environment with needing to build more stuff, you are also running out of key metals is double counting. The reason that the EROI is 2 to 1 in that scenario, instead of 10 to 1 is because we’ve run out of the easy sources of those metals, so pointing out that the metals are also hard to acquire in that context doesn’t say anything new.
“Since there is a strong coupling between GDP and material use and resource use (at a global level), it would make sense that an increasing material and energetic cost translates to an increased financial cost. “
I don’t know if I really want to dig into this very deeply, since it involves a familiarity with economics that you clearly don’t have, but theings like this claim, and the ’99 percent correlation between energy use and gdp growth’ simply do not mean what you think they mean.
For example, you might get a correlation that is nearly as strong between gdp growth and fast food purchases, or clothes purchases, or home improvement purchases, or almost anything except for medical and government spending.
That is what a recession literally is: It is when people buy less of stuff that can be cut back on easily. And booms are when people buy more of that stuff. You are going to find extremely high correlations between gdp growth and any variable consumption good if you are looking for that, but it is meaningless in terms of saying what is causally important for allowing continued economic growth.
In a similar way that recessions usually follow very high energy prices (which is causal), does not actually mean that the economy cannot deal with energy taking up that big of a proportion of total resources without going into a permanent recession. It means that if in a given year everyone has to spend way more money on energy, they won’t have as much money left to spend on everything else they want, so they will buy less of it, so the economy will enter a recession.
But if the energy prices stayed high, this would be a one time thing, where improvements in productivity through out the economy would allow higher profits and wages again, and thus with the fixed high energy price, they would be able to purchase more non energy things in year two of high energy prices than in year one—ie the economy would be growing.
Having ten percent of the economy go to a sector simply doesn’t mean the other sectors can’t keep increasing total output per capita over time. For example, in most countries the health care sector has been becoming bigger and bigger relative to the total economy over time. In the US it is around 20 percent of the economy now, while it was 7 or 8 percent (I think) in the 80s. Despite this, the non health care sectors have consitently been getting bigger at the same time. Of course the giant allocation of resources to health care does cause bad things, and we are poorer than we would be if all health care happened by magic and didn’t cost anything, and it possibly has crowded out capital investments that would have led to growth elsewhere, and thus we are poorer in dynamic terms in addition to static terms due to health care costs. But it has not, and will not, cause a permanent recession (ie the rest of the economy makes fewer things per person each year until at the limit nothing is ever made) if it gets sufficiently big.
You also need to know how much human labor has to be put in, and how much physical stuff has to be put in.
Ok, I can agree with that.
It’s just that today, human muscles are such a small part of the labor produced (one barrel of oil = 4.5 years of manual labor, after conversion losses) that I didn’t though of including it.
For the metals, I understand that it’s extraction is already in the theoretical 2:1 figure. I just mentioned them to point out that we don’t really know how energy costly it is to get specialty metals of electronics in a “sustainable” way (from either extremely abundant ores or from common ground). My personal impression on the topic is that, except for iron and aluminium and maybe a few others (rare earths, ironically?), getting stuff like indium, tellurium or molybdenum from common ground (for electronics) would be so ridiculously expensive that we’d give up before that.
For example, you might get a correlation that is nearly as strong between gdp growth and fast food purchases, or clothes purchases, or home improvement purchases, or almost anything except for medical and government spending.
I agree here that just using the energy/GDP correlation is not enough. This is why I tried to make a section listing the scientific papers that study this correlation, and conclude that it is more serious than, say, the relationship between GDP and tomatoes.
Here is one account that you might find of interest:
“While the classical economists Adam Smith and David Ricardo generally thought that it was human labor that was the principal generator of wealth, natural resources, in particular land, still played a major role as a source of value and as a constraint to unlimited economic growth. Later Karl Marx, while still seeing human labor as the source of value, removed this constraint by referring to the evolution of the ‘means of production’ (that is, technology) that only depended on (principally unlimited) human ingenuity.”
“In the twentieth century, the explanation of wealth left natural resources behind and focused on capital and labor only (see production functions by Cobb and Douglas, 1928 and Solow, 1956). As in mathematical calculations there remained a large ‘residual’, this was attributed to technological innovation [the Solow residual] (that could not, however, be properly measured). Authors like Cleveland et al. (1984a), Cleveland (1991), Ayres and Warr (2005) and Hall and Klitgaard (2012), in contrast, attributed this residual to energy (or exergy) input into the economy and were able to provide convincing empirical evidence. Unexplained residuals disappeared.”
So we are not dealing with a random commodity here. We are dealing with a factor of production.
If we look at a biophysical standpoint, the economy is the production of goods and services. Energy is what allows to produce these goods and services (and the food/transport/housing of the workers). It seems unlikely that we can produce ever more and more goods and services using less and less energy. Maybe for a short period as we use the lowest-hanging appels, but not in a sustained way.
The historical record seems to indicate that less energy and more GDP at a global level is a very strong departing of the current trend, and unlikely to happen. Maybe not impossible (for how long?), but we shouldn’t assume this as he default scenario.
Of course, it’s possible to decouple GDP from producing goods and services. This may be what the finance sector is doing, generating money (8% of US GDP) while not contributing much to the well-being of society. I’d be tempted to see something similar with healthcare in the US—it has quite a reputation for being extremely expensive compared to what you get for the same price in Europe. I’m tempted to ask, is growing GDP any use if it doesn’t contribute to society ?
The main point about EROI, and I don’t think we disagree on this, is that the raw amount of produced energy that needs to be put in is only one factor. You also need to know how much human labor has to be put in, and how much physical stuff has to be put in.
I’d note a lot of the complaints here that in a bad EROI environment with needing to build more stuff, you are also running out of key metals is double counting. The reason that the EROI is 2 to 1 in that scenario, instead of 10 to 1 is because we’ve run out of the easy sources of those metals, so pointing out that the metals are also hard to acquire in that context doesn’t say anything new.
“Since there is a strong coupling between GDP and material use and resource use (at a global level), it would make sense that an increasing material and energetic cost translates to an increased financial cost. “
I don’t know if I really want to dig into this very deeply, since it involves a familiarity with economics that you clearly don’t have, but theings like this claim, and the ’99 percent correlation between energy use and gdp growth’ simply do not mean what you think they mean.
For example, you might get a correlation that is nearly as strong between gdp growth and fast food purchases, or clothes purchases, or home improvement purchases, or almost anything except for medical and government spending.
That is what a recession literally is: It is when people buy less of stuff that can be cut back on easily. And booms are when people buy more of that stuff. You are going to find extremely high correlations between gdp growth and any variable consumption good if you are looking for that, but it is meaningless in terms of saying what is causally important for allowing continued economic growth.
In a similar way that recessions usually follow very high energy prices (which is causal), does not actually mean that the economy cannot deal with energy taking up that big of a proportion of total resources without going into a permanent recession. It means that if in a given year everyone has to spend way more money on energy, they won’t have as much money left to spend on everything else they want, so they will buy less of it, so the economy will enter a recession.
But if the energy prices stayed high, this would be a one time thing, where improvements in productivity through out the economy would allow higher profits and wages again, and thus with the fixed high energy price, they would be able to purchase more non energy things in year two of high energy prices than in year one—ie the economy would be growing.
Having ten percent of the economy go to a sector simply doesn’t mean the other sectors can’t keep increasing total output per capita over time. For example, in most countries the health care sector has been becoming bigger and bigger relative to the total economy over time. In the US it is around 20 percent of the economy now, while it was 7 or 8 percent (I think) in the 80s. Despite this, the non health care sectors have consitently been getting bigger at the same time. Of course the giant allocation of resources to health care does cause bad things, and we are poorer than we would be if all health care happened by magic and didn’t cost anything, and it possibly has crowded out capital investments that would have led to growth elsewhere, and thus we are poorer in dynamic terms in addition to static terms due to health care costs. But it has not, and will not, cause a permanent recession (ie the rest of the economy makes fewer things per person each year until at the limit nothing is ever made) if it gets sufficiently big.
Ok, I can agree with that.
It’s just that today, human muscles are such a small part of the labor produced (one barrel of oil = 4.5 years of manual labor, after conversion losses) that I didn’t though of including it.
For the metals, I understand that it’s extraction is already in the theoretical 2:1 figure. I just mentioned them to point out that we don’t really know how energy costly it is to get specialty metals of electronics in a “sustainable” way (from either extremely abundant ores or from common ground). My personal impression on the topic is that, except for iron and aluminium and maybe a few others (rare earths, ironically?), getting stuff like indium, tellurium or molybdenum from common ground (for electronics) would be so ridiculously expensive that we’d give up before that.
I agree here that just using the energy/GDP correlation is not enough. This is why I tried to make a section listing the scientific papers that study this correlation, and conclude that it is more serious than, say, the relationship between GDP and tomatoes.
Here is one account that you might find of interest:
So we are not dealing with a random commodity here. We are dealing with a factor of production.
If we look at a biophysical standpoint, the economy is the production of goods and services. Energy is what allows to produce these goods and services (and the food/transport/housing of the workers). It seems unlikely that we can produce ever more and more goods and services using less and less energy. Maybe for a short period as we use the lowest-hanging appels, but not in a sustained way.
The historical record seems to indicate that less energy and more GDP at a global level is a very strong departing of the current trend, and unlikely to happen. Maybe not impossible (for how long?), but we shouldn’t assume this as he default scenario.
Of course, it’s possible to decouple GDP from producing goods and services. This may be what the finance sector is doing, generating money (8% of US GDP) while not contributing much to the well-being of society. I’d be tempted to see something similar with healthcare in the US—it has quite a reputation for being extremely expensive compared to what you get for the same price in Europe. I’m tempted to ask, is growing GDP any use if it doesn’t contribute to society ?