Energy and the U.S. Economy: A Biophysical Perspective

Abstract

A series of hypotheses is presented about the relation of national energy use to national economic activity (both time series and cross-sectional) which offer a different perspective from standard economics for the assessment of historical and current economic events. The analysis incorporates nearly 100 years of time series data and 3 years of cross-sectional data on 87 sectors of the United States economy. Gross national product, labor productivity, and price levels are all correlated closely with various aspects of energy use, and these correlations are improved when corrections are made for energy quality. A large portion of the apparent increase in U.S. energy efficiency has been due to our ability to expand the relative use of high-quality fuels such as petroleum and electricity, and also to relative shifts in fuel use between sectors of the economy. The concept of energy return on investment is introduced as a major driving force in our economy, and data are provided which show a marked decline in energy return on investment for all our principal fuels in recent decades. Future economic growth will depend largely on the net energy yield of alternative fuel sources, and some standard economic models may need to be modified to account for the biophysical constraints on human economic activity.

A Review of the Past and Current State of EROI Data

“…These data imply that EROI is declining over time except during periods of relaxed drilling effort, that quality corrections decrease EROI, and that the EROI for global oil and gas is higher than for the U.S. (a) The triangle is a crude estimate for the EROI of U.S. oil and gas discoveries in 1930 [6]; (b) Crosses are Cleveland et al's estimates for the EROI for production in the U.S. This paper also gives values for discoveries that are mostly about half those of production, implying a very large decline since 1930 [6]; (c) The dashed line is Cleveland's assessment of U.S. EROI for production including a correction for quality (i.e., for the production of higher quality electricity used in production) [16]; and (d) Global oil and gas EROI [17].…”

“…One important idea is that as this ratio approaches 1:1 the fuel is no longer useful to society (except for the presumably rare case where a low quality fuel is used to produce a higher quality fuel). The original papers on EROI (e.g., Hall and Cleveland [5], Cleveland et al [6], Hall et al [7]), were mostly received with interest, but that interest waned in the late 1980s and 1990s as fuel prices declined. More recently as energy prices have again been increasing the interest in EROI has again increased (e.g., Heinberg [8], many web sites).…”

“…Most such efforts have been to refine the EROI for certain fuels, mostly petroleum based fuels, and to examine the utility of corn-based ethanol-which are discussed below-but there is very little information available in terms of a large body of work providing data on a range of inputs important to our economies. The first attempted synthesis was in a table in Cleveland et al [6] and more comprehensively in a book by essentially the same authors [7]. In an effort to update the data in this book, a study was conducted by students of Hall at SUNY ESF in 2007 under a grant from the Santa Barbara Family Foundation (available on the oildrum.com), summarized by Heinberg [8].…”

Rethinking Economic Growth Theory From a Biophysical Perspective

“…As expected, the two series are tightly coupled, lending support to Hypothesis 2. Correlation between energy consumption and productivity has also been found by Cleveland et al (1984) and by Hall et al (1986). and hence, dissipative.…”

“…Ayres and Warr note that "including a fossil energy flow proxy in the neoclassical production function, without any constraint on factor share, seems to account for economic growth quite accurately, at least for limited time periods, without any exogenous time-dependent term" (2005, p. 182). Examples of this 'reformed' production function approach include Hannon and Joyce (1981), Kümmel (1982;1989), Cleveland et al (1984), Kümmel et al (1985;, Kaufman (1992), andBeaudreau (1998).…”