Decline of EROI Directly Impacts on Economic Prosperity
* Article: How Does Energy Resource Depletion Affect Prosperity? Mathematics of a Minimum Energy Return on Investment (EROI). By Adam R. Brandt. BioPhysical Economics and Resource Quality, March 2017, 2:2
URL = https://link.springer.com/article/10.1007%2Fs41247-017-0019-y
Abstract
"It has been proposed that energy resource depletion and declining energy return on investment (EROI) can disrupt modern, prosperous lifestyles. This is because such lifestyles are dependent on abundant, low-cost energy supplies, to date supplied by fossil energy. We illustrate a mathematical structure by which to analyze the impacts of energy depletion as it affects all sectors of the economy. This framework is based on the reduced availability of discretionary outputs as inter-industry operations become less efficient. We illustrate this mathematical framework, and explore a simple template economy with four sectors. The inputs for each sector are defined at an order-of-magnitude level using data for the US, and the matrix is modified to explore the impacts of resource depletion and uncertainty. We show that the “net energy cliff” concept used in prior studies emerges from the structure of this template economy and appears at similar levels of energy productivity hypothesized in prior work. At levels of net energy return ≤≤ 5 J/J, the fraction of productive outputs free to use in discretionary purposes declines rapidly, resulting in the emergence of an effective “minimum EROI” below which prosperity is burdened by excessive direct and indirect requirements of the energy sector. We explore how uncertainty in the matrix specification impacts the level at which the minimum EROI becomes binding. We also show how changes in other sectors (e.g., efficiency of materials production) can affect the rate at which energy depletion affects prosperity."
Discussion
Nafeez Ahmed::
"Adam Brandt, a leading EROI expert at Stanford University’s Department of Energy Resources Engineering, in the March edition of BioPhysical Economics and Resource Quality proves that the decline of EROI directly impacts on economic prosperity.
Earlier studies on this issue, Brandt points out, have highlighted the risk of a “net energy cliff”, which refers to how “declining EROI results in rapid increases in the fraction of energy dedicated to simply supporting the energy system.”
Axiom: So the more EROI declines, a greater proportion of the energy being produced must be used simply to extract more energy. This means that EROI decline leads to less real-world economic growth.
It also creates a complicated situation for oil prices. While at first, declining EROI can be expected to lead to higher prices reflecting higher production costs, the relationship between EROI and prices begins to breakdown as EROI becomes smaller.
This could be because, under a significantly reduced EROI, consumers in a less prosperous economy can no longer afford, energetically or economically, the cost of producing more energy — thus triggering a dramatic drop in market prices, despite higher costs of production. At this point, in the new era of shrinking EROI, swinging oil prices become less and less indicative of ‘scarcity’ in supply and demand.
Brandt’s new economic model looks at how EROI impacts four key sectors — food, energy, materials and labor.
Exploring what a decline in net energy would therefore mean for these sectors, he concludes:
- “The reduction in the fraction of a resource free and the energy system productivity extends from the energy system to all aspects of the economy, which gives an indication of the mechanisms by which energy productivity declines would affect general prosperity.
A clear implication of this work is that decreases in energy resource productivity, modeled here as the requirement for more materials, labor, and energy, can have a significant effect on the flows required to support all sectors of the economy. Such declines can reduce the effective discretionary output from the economy by consuming a larger and larger fraction of gross output for the meeting of inter-industry requirements.”
Brandt’s model is theoretical, but it has direct implications for the real world.
Insight: Given that the EROI of global fossil fuels has declined steadily since the 1960s, Brandt’s work suggests that a major underlying driver of the long-term process of economic stagnation we’re experiencing is resource depletion."
What about Net Energy though ?
when measured properly, Renewables already seem to have a higher EROI than fossil fuels
Nafeez Ahmed:
"The concept of energy return on investment (EROI) has become an important metric to understand the efficiency of an energy system. It comes in the form of a simple ratio that reflects how much energy is used to extract a single unit of energy from any given resource. The challenge with producing accurate assessments of the EROI of any resource is in ensuring correct assumptions about that resource, including exactly how and where the energy inputs and outputs are measured to derive the most accurate figures.
EROI is an important measure to the extent that it can provide useful insights into the amount of net energy available to society beyond the energy used to extract energy in the first place. The higher the ratio, the more surplus net energy available to support other social and economic activities. But the lower the ratio, the less surplus net energy. A decline in EROI, then, implies economic decline.
There is now a compelling body of scientific literature showing that the EROI of the global fossil fuel energy system has been in decline for several decades and, as a result, is experiencing a vicious cycle of diminishing returns from which there is no prospect of recovery.
Yet it’s often argued that while EROI decline is inevitable with fossil fuels, renewable energy represents a further decline in EROI which means they cannot accomplish the same levels of societal and economic complexity.
But this view was significantly challenged in a recent study led by Professor Paul Brockway at the University of Leeds, published in Nature Energy. It found that as fossil fuels are becoming 'harder to reach', they 'require more energy to extract and, hence, are coming at an increasing "energy cost."' The study noted that fossil fuel EROI is typically vastly overestimated because it is measured right at the wellhead, and not at the most relevant point when energy enters the economy as electricity or petrol. EROI for fossil fuels, they conclude, is 'very low… around 6:1 and declining.' It has already declined by at least 10% over the last 25 years.
The second crucial conclusion of the paper is that when measured properly, renewables already seem to have a higher EROI than fossil fuels. As most fossil fuel EROI studies are undertaken at the wrong stage, they are not directly comparable with wind and solar generation which immediately produce electricity. And while fossil fuels exhibit a declining EROI trend with escalating costs and diminishing returns, wind and solar are experiencing the opposite: an increasing EROI trend with increasing returns and declining costs. Therefore, Brockway et. al conclude that 'the renewables transition may actually halt – or even reverse – the decline in global EROI at the final energy stage.'
The Nature Energy findings are corroborated by a more recent RethinkX study of the levelized cost of electricity (LCOE), which measures the average cost of generating electricity across the entire lifetime of a power plant, including its building and operating costs. That study found that conventional LCOE estimates by the International Energy Agency and Energy Information Administration underestimate the per-kilowatt hour cost of coal, gas and large-scale hydropower by up to 400%. This would suggest that their EROI is significantly lower than usually believed.
Meanwhile, as even conventional LCOE figures show that solar, wind and batteries (SWB) have already reached parity with fossil fuels, these RethinkX findings indicate that SWB is already much cheaper, consistent with higher EROI.
Despite the findings of the Brockway paper, the idea that renewables represent a significant decline in EROI relative to fossil fuels is a persistent misconception that has plagued numerous other studies which tend to repeat the same mistakes largely due to a failure to understand these technologies.
These mistakes can be found in many places, not least in the famous feature documentary by Michael Moore, Planet of the Humans. More recently, the Geological Survey of Finland has published a paper repeating such errors, as has the journal Energies.
Yet there are significant problems with these approaches. One of the most egregious is the statement that solar panels have a life span of around 20 to 30 years. Conventional conservative EROI calculations for solar therefore put EROI calculations at around 10:1 for somewhere like Switzerland. This is already higher than the 6:1 of fossil fuels demonstrated by Brockway et. al.
But the assumptions here are completely false. Solar panels do not spontaneously combust after two or three decades. Rather their efficiency declines over time by a very small amount every year. This means that after 20 years, most solar panels will still operate at 90% capacity. This suggests that their life span is likely to extend many decades beyond 30 years–as much as 40-50 years if not more–with a gradual decline in efficiency, suggesting that even the 10:1 estimate is far too low, and closer to something like 20:1 at least.
Similarly, research by Imperial College London confirms that the life span of wind turbines will extend to at least 25 years, most likely lasting beyond that for newer turbines. Today, some of the most important design components for wind power such as transformers, copper ground cables and the towers they are positioned on, among others, last for 50 years or more. Once again, the trajectory is for a higher EROI value, particularly as these technologies continue to improve in performance.
The energy payback from solar and wind is also phenomenal, and comes at a fraction of the carbon footprint of fossil fuels, even if the latter included carbon capture and storage. A study in Nature Energy in 2017 found that the lifetime carbon footprints of solar and wind are about 1/20th of coal and gas, including manufacturing and construction. Solar and wind installations also produce respectively 26 and 44 times more energy than the energy used to build them."