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The New Austerity and the EROI Squeeze

by Eric Zencey

The government of Minnesota has shut down thanks to a $5 billion budget gap. Wisconsin public employees have been de-unionized so their salaries and benefits can be cut to close a budget gap. New Jersey just missed shutting down as a Democratic legislature and a Republican governor agreed that austerity cuts are needed (though there’s still going to be some wrangling over how the pain will be distributed). Last week the Italian cabinet signed off on $68 billion in austerity cuts. Demonstrations in Britain and riots in Athens, prompted by government cuts in pensions and social security, suggest what may lie in Italy’s future. In the U.S., we’ve got gridlock-and-extortion in Congress over raising the federal debt limit, even as both sides are generally agreed that the era of ever-rising deficits is over.

Though not a single politician or mainstream economic analyst has ever made the connection, the new worldwide austerity in public spending traces to a physical cause, as measured by change in EROI — energy return on energy invested. This is the ratio between the energy that comes into the global economy and the energy it takes to produce that energy. Worldwide, the average EROI of oil is down to 20:1 from its original value of 100:1 eighty years ago. This means that our oil-fueled economy simply has less capacity to generate wealth than it did back then, because an increasing share of the energy that used to be dedicated to producing goods and services is being plowed back into securing energy.

Even more troubling than oil’s 20:1 global average is the figure for new oil, just 5 to 1. It takes a lot of energy to drill five miles under the ocean and pump crude back to a refinery, or to cook tar sands to extract a usable fuel. The energy wellspring at the heart of our economy no longer gushes a torrent of wealth; it’s a smaller, much-diminished stream.

Wind and other renewable energy sources offer returns in the seventeen-to-one range — still a nice income flow, but nothing like the flood we once got from oil. Everything our economy accomplishes, including health care, government, schools, roads, defense, repairing our aging infrastructure and re-engineering our built environment to handle the changed weather that oil use has given us, is going to have to be financed from a much-diminished EROI. And private largess, such as the oil-fueled philanthropy of Andrew Carnegie that built libraries and established foundations and grants for worthy public causes, will fare no better. (The conservative notion that private philanthropy will increase if government takes a smaller bite of the total economy is mostly wishful thinking; the rising overhead costs of energy — the increasing energy cost of energy — will shrink the economic pie as a whole, no matter where we make our slice between the public and private sectors).

Protestors of austerity measures in Athens

Conservatives in Washington and elsewhere insist that we can no longer afford the level of governmental services we’ve become accustomed to. Their call for austerity in public spending is partially right, but for reasons that are wholly wrong: they think that by busting public unions, by reneging on pension agreements for teachers and public employees, by privatizing the production of public goods (streets, schools, even national defense), by cutting regulations and in general shrinking the government, they’ll release the pent-up entrepreneurial energies of business, which will put things back the way they were a few decades ago, when oil was returning a respectable 40:1. That’s simply not going to happen.

Beyond the wrangling between the deficit reducers and the Keynesians, like Paul Krugman, who warn (correctly) that deficit reduction during a recession will only make the recession worse, there lies another deficit, one that no one is talking about: the deficit we’re currently running in our country’s environmental account. We’re drawing down natural capital to cash it out as wealth, which means we’re spending a capital stock — healthy ecosystems — as if it were income. Worse, we borrow money against the prospect of being able to do this forever. That, too, simply isn’t going to happen.

We’ve begun to recognize that we can’t borrow infinitely against our financial future. At some point we have to recognize that we can’t borrow infinitely against our environmental future, either. We’ve got to learn to budget ourselves to the level of economic activity that can be supported and maintained by current solar income instead of running that account in the red. We’ve got to stop counting on continued drawdown of finite stocks of fossil fuel and stop counting on paying our current expenses by borrowing against the continual expansion of our economy’s ecological footprint.

The partisans of Infinite Planet Theory who are managing our (supposedly) infinite growth economy don’t recognize this. They don’t see the shape of the emergent reality: the energy overhead of our economy is increasing at precisely the moment we need even greater investment to build a sustainable, renewable energy society and re-engineer our civil infrastructures to handle the world as we have made it. It’s a very difficult squeeze: needed expenses are rising as income flow declines.

There is some room for hope. It is possible to have a decent civilization founded on the rates of return that renewable energy offers — and unlike the EROI of oil, those rates can be expected to increase with time and technological development. Solving the EROI squeeze means committing ourselves to building the infrastructure we need to capture current solar income and run our economy on renewable, non-carbon-based energy. Every unit of fossil energy we use to do anything else commits the United States and the planet as a whole to a lower, more straitened standard of living in the future. If we want to see an America of crumbling concrete and weed-filled vacant lots, an America too poor to repair its buildings and bridges, too poor to educate its young to the highest standards, an America that has become a fallen, impoverished power, we need only continue as we are: burning fossil fuel, ignoring climate change, and refusing to invest in the renewable energy infrastructure we need for a sane, rational, steady state economy.

12 Responses to “The New Austerity and the EROI Squeeze”

  1. jim says:

    excellent presentation of the predicament we are in. small quibble: the first paragraph would be more persuasive if mention was made of the state government shutdown in minnesota. i did not know about michigan.

  2. [...] The New Austerity and the EROI Squeeze, by Eric Zencey, posted at the Center for the Advancement of the Steady State Economy: …Though not a single politician or mainstream economic analyst has ever made the connection, the new worldwide austerity in public spending traces to a physical cause, as measured by change in EROI — energy return on energy invested…Worldwide, the average EROI of oil is down to 20:1 from its original value of 100:1 eighty years ago… [...]

  3. Carole Marner says:

    Good article. But what is wrong with the word “rationing”? It seems to have vanished from our vocabulary. If we do not begin an energy rationing program immediately it seems to me that the descending rate of eroi is going to precipitate at a rate that will make 80% in 80 years seem leisurely indeed.

  4. denis says:

    The EROI approach to analysing our energy future, is one that I have been trying to get my friends interested in for some time now. However I believe that the EROI of renewables is much less than 17 to 1—-more like 4 to 1 probably—-and maybe less, although I agree that there is more chance of this increasing with advances in technology.
    The main drawback of renewables though, still remains with the necessity of backup power, which has to be fossil fuel based, and in the case of wind has to provide power over 75% of the time.
    Not really a substitute for fossil fuel after all, is it ?

  5. Bob Waldrop says:

    Thanks for a great contribution to the on-going job of adapting our way through to the future. However, one set of important calculations we need going forward is some idea of the EROEI of natural gas and oil produced by fracking. It’s not clear from your article whether it takes info account the recent developments vis a vis the natural gas “fracking rush” going on.

  6. Harquebus says:

    If only we could find that mythical renewable energy.

  7. Andrew Jaremko says:

    Thank you for this article; it’s good to have the historical and current EROEI figures, though I’d appreciate citations of your sources for the numbers. EROEI is something I am very concerned about. The post The Link Between Peak Oil and Peak Debt – Part 2 on The Oil Drum is germane, and presents good illustrations of the cheese slicer model from Professor Charles Hall.

    I do feel surprise that you don’t consider nuclear energy in your discussion. Professor Barry Brook at Brave New Climate published a study TCASE 8: Estimating EROEI from LCA in which he attempted to tease out EROEI values from more readily available published data.

    His estimate is that current solid fuel reactors that fission only 0.7 % of natural uranium still have an EROEI of from 11 to 180. This implies that more advanced reactors like the Integral Fast Reactor would have EROEIs of 1100 to 18,000 or more. Reactors that fission the more common element thorium could improve on these values; thorium is a by-product of mining the rare earth elements so necessary for wind and solar power installations.

    Even current solid fuel reactors can directly provide the 350 degree Celsius heat needed for some of the oil sands extraction processes. This would boost the oil sands “hydrocarbon return on hydrocarbon invested” substantially by almost eliminating the use of hydrocarbons to make process heat; reducing the denominator improves the ratio. Advanced reactors operate at temperatures high enough to directly replace coal and gas burning in boilers and eliminate CO2 emissions from existing facilities. The site Coal2Nuclar identifies 1,200 supersized boilers that together emit 30% of all the CO2 emitted from coal.

    I think you do your readers a disservice by presenting an incomplete picture. I tried posting this comment with links to all the items I reference, but was told the comment was “spammy”. Anyone wanting to know more will have to do some work themselves, I’m afraid.

  8. The establishment isn’t ever going to talk about energy b/c humans are always the stars of their own movies, not some goo that is pumped out of the ground.

    History/destiny is always the dialog and has been since the Greeks: think Homer.

    As always, the incentive for change must come from the bottom, it must emerge from an ‘establishment’ built with hardest labor a brick at a time, one that will probably be as hated as the current industrial model. Then … someone will jump up and take credit for it.

    Meanwhile, events will carry on imposing their own taxes and …

    that ‘and’ part is scary …

  9. [...] probably because he hasn’t read The New Austerity and the EROI Squeeze. This article connects the decline of the “energy returned on the energy invested” in [...]

  10. Barry Brook says:

    Renewables are a joke. They are hopelessly intermittent and geographically limited. The EROEI for PV solar is 3:1 at best– and NEGATIVE if you store it using lead-acid batteries. The EROEI for hydrogen and ethanol is also negative. Wind has an EROEI of around 15:1, but is expensive, intermittent, and geographically limited. In contrast, the Integral Fast Reactor has an EROEI of a thousand to one! That’s right! 1000:1! We have enough DU barreled up as fuel to last 500 years– no mining needed. A piece of DU the size of a golf ball could provide you with all of your energy over your entire lifetime!

  11. Mark R says:

    Several of the posts so far show a serious lack of familiarity with the state of renewable energy. Having earned my master´s deepening my knowledge of the field, here are some tidbits.
    The variability of wind and solar can begin to complement each during the day, with a powerful socioeconomic basis in a decentralized infrastructure. Building residences with wind turbine and solar panels is the most effective way to begin to use this powerful combination of clean energy, and create jobs in the process. Amsterdam has begun to investigate this infrastructure as reported in Businessweek. Various regional, cities, villages, and neighborhood groups have already made strides in laying these foundations. Germany offers a great example. Small hydro and geothermal also fit in here.
    As for the ultimate backup, biomass-biogas is the key. Biogas is generated everywhere there is life, from excreted wastes to municipal landfills.
    Several countries in Europe have already made significant advances in these areas, and several initiatives in the US have already been made.
    Plenty of material on these efforts are available on the web. See for example Paul Gipe´s website on wind energy.
    EROI may make some sense of some numbers, but the case of wind power shows the importance of practical effort. Modern wind was started by practical people in Denmark, not by the high tech scientists in Germany and the US. They took Danish technology and built on that.

  12. [...] The New Austerity and the EROI Squeeze « Center for the Advancement of the Steady State Econo… Though not a single politician or mainstream economic analyst has ever made the connection, the new worldwide austerity in public spending traces to a physical cause, as measured by change in EROI — energy return on energy invested. Source: [...]