Gail the Actuary almost gets it right.

 Gail the Actuary almost gets it right.

In the entry of July 11^th, I commented on Gail Tverberg’s list of monetary problems that arise in connection with energy technologies.  The EROI that was already too low was computed using the methodology employed by Charles Hall.  (In his recent collaboration with Pedro Prieto, Hall added many (but not all) of the items to the energy investments necessary to determine sustainability, quasi-sustainability, or feasibility as defined in my post of August 14^th.)  I include part of Gail’s article and my comments below.  

In my earlier comment, I neglected to mention that, if the monetary deficits are known, there is no reason not to convert money to energy according to the methodology mentioned in the comment and get a better estimate of ERoEI.  In case, Pedro’s methods were employed, one must be careful not to double count the energy consumed by employees to maintain their standards of living.


Now, Pedro said that he accounted for the employees; but, he did not promise that he counted the total increase in the world energy budget due to the employees being paid at all.  The energy invested term should be increased not only by the entire energy budgets of the employees but also by the increase in the energy budgets of everyone who receives any of that money when it is spent.  There are multiplication factors to aid the analyst in doing this. 
  

Indeed, the list items are of different types.  If the project is never built because funds of one type or another are not available, we can treat the item either as a hypothetical energy investment expense or a barrier.  It is not fair to charge different rents for necessary plots of ground to different instances of the same technology; therefore, land should be given a separate account and charged at the rate of insolation or wind area number or merely counted toward Maximum Renewables as I did in http://dematerialism.net/CwC.html . 

Private profit is an energy expense.   The analyst must compute the difference in the world energy budget as he did for wages.   If sustainability is under investigation, the energy costs of pollution must be reckoned as in the post of December 8^th, 2012.  Otherwise, the best one can do is to determine feasibility. 

In any and every case, Gail’s conclusion is probably still correct, namely, that ERoEI is less than 1.0 and more research in energy technology must be supported.  This represents an energy burden that must be borne by the entire energy sector.

 Gail Tverberg’s List 

 Primary problems

 1.   Funds are not available to pay for fossil-fuel subsidies for renewable energy projects.
 2.   Wages consistent with financial solvency and private profit are too low.
 3.   Energy production companies, especially heavily front-loaded renewable energy production such as photovoltaic solar energy installations, need to borrow money that the credit system can no longer supply.
 4.   There are insufficient financial returns to pay taxes desperately needed by governments.

 Secondary problems 

1.  Private profit from energy production is seen as inadequate by corporations.2.  Rent cannot be paid for land used in energy production. This cost might be highest in bio-fuel operations, but it belongs to every process that harvests sunlight in real time.
3.  Insufficient funds are available to prevent pollution and mitigate its effects.  These costs are never paid unless mandated by law - if then.
4.  Energy production companies do not pay to prevent mineral depletion and degradation of soil or even try to nor do they pay fines for failure.
5.  Energy producers do not account for limitations in so-called free energy.  For example, there ought to be a cost premium charged to the process for using limited coastal or off-shore wind power sites.

Gail Tverberg, the actuary, in the article posted by Jay
Hanson, wrote, "Commenters frequently remark that such-and-such an energy source has an
Energy Return on Energy Invested <http://en.wikipedia
<http://en.wikipedia.org/wiki/Energy_returned_on_energy_invested>
.org/wiki/Energy_returned_on_energy_invested> (EROI) ratio of greater than
5:1, so must be a helpful addition to our current energy supply. My finding
that the overall energy return is already too low seems to run counter to
this belief. In this post, I will try to explain why this difference occurs.
Part of the difference is that I am looking at what our current economy
requires, not some theoretical low-level economy. Also, I don't think that
it is really feasible to create a new economic system, based on lower EROI
resources, because today's renewables are fossil-fuel based, and initially
tend to add to fossil fuel use."

It is true that alternative energy installations that employ photovoltaic
cells, for example, incur heavy energy investment expense before any energy
at all is returned. In a US-type market economy, the fossil-fuel debt that
must be incurred early in the life cycle of such an installation might never
be repaid. That is because, in a market economy, significant energy
investment expense is required just to operate the market [1]. This expense
is never recorded in conventional approaches to ERoEI analysis such as
Charlie Hall's methodology which has received widespread attention.
Moreover, the energy costs of private profit, borrowing money, paying taxes,
paying adequate wages to employees and other economic actors who make
part-time contributions to producing energy such as the energy employee's
health-care providers, auto mechanics, tax accountants, and other indirect
energy expenses at all levels, including, for instance, the appropriate
pro-rata share of the energy executive's insurance company's actuary, are
not counted. Thus, Gail - or anyone else - has no idea if EROI = 5 is
adequate or not.

In ERoEI* (pronounced "E R o E I star") as described at
http://dematerialism.net/eroeistar.htm and on my blog at
http://eroei.blogspot.com/ all of these and every other facet of energy
technology that influences sustainability and whether or not the technology
will actually be employed is considered; so, when the analysis is complete,
the analyst knows that an ERoEI* greater than 1.0 is adequate with as much
certainty as went into the collection of his raw data.


In "Energy in a Mark II <http://dematerialism.net/Mark-II-Economy.html>
Economy" I analyzed the meaning of the ratio of Total Energy Budget over
Gross Domestic Product for an entire economy, some form of which the DOE
records for every nation and every year. It might be interesting to obtain
similar ratios for each individual sector including the government and
finance sector to aid in converting Gail's monetary expenses into
appropriate energy expenses. If nothing else, we could then determine if
Gail's threshold figure of 5.0 make any sense at all.


[1] In "Energy in a Mark II
<http://dematerialism.net/Mark-II-Economy.html> Economy" I employed the
figure of 22% of the total energy budget that the US Department of Energy
(DOE) charges directly to commerce. Of course, some portion of the energy
consumed by transportation and manufacturing should be charged to commerce
and finance as well. Moreover, if an entrepreneur extracts a large profit
from his - usually subsidized - renewable energy business and builds an
overly large house, additional energy costs should be charged to the energy
installation. This amounts to some fraction of the energy charged by the
DOE to the residential sector. In "Energy in a Natural Economy
<http://dematerialism.net/ne.htm> " I found a rough estimate of the energy
overhead of the US market economy by looking at Bureau of Labor Statistics
data.



Tom Wayburn, Houston, Texas


P.S. In the entry of July 11th of http://eroei.blogspot.com/ I wrote the
following paragraph in connection with establishing a reasonably sane
monetary system partly in response to Gail Tverberg's list (see below):



Special Characteristics [of a monetary system] Needed to Avoid Economic
Collapse

Our crisis has a physical component and an imaginary component. The physical
component comes from limitations in the quantities of land, water,
consumable energy, and the environment itself. The ecological footprint of
the human race exceeds the carrying capacity of Earth. The imaginary
component is instability in the monetary system caused by excessive debt and
excessive monetary inequality. To ameliorate the physical crisis we must
eliminate the imaginary one. I do not mean that indebtedness, poverty, and
wealth are imaginary; but, rather, that we can eliminate all three with the
application of our imaginations without affecting the physical universe.
Stabilizing our population and reducing our ecological footprint will
ultimately have a desirable effect upon the universe.

Regardless of what the people want, the owners of the country want to retain
their positions of power, privilege, and wealth. Naturally, they despise the
idea of government control of the economy and the means of production;
however, when a crisis arises that they cannot handle, they readily accede
to crisis socialism to save them. During World War II, without adopting
socialism completely, they allowed rationing, wage and price control, and
management of vital industries by government employees even if they were
paid only one dollar per year.

To respond appropriately to resource and environmental limits, we need to
establish crisis socialism. However, to eliminate debt, we need to repudiate
the US dollar; and, to eliminate inequality, we need to pay everyone the
same even if no work can be found for them to replace the inessential work
from which they were furloughed to reduce our consumption of fossil fuels
and our ecological footprint. After all, the requirement that every citizen
does useful work to get paid and the requirement that the pay should be
commensurate with the value of the work are completely imaginary. The idea
that everyone should be allowed to get as much money as he can is completely
wrong. (One of the reasons Dematerialism is right and everything else is
wrong is that any society in which it is possible for one person to acquire
more wealth than another is doomed.)

*Adequate Return for All Elements Required for Energy Investment*

In order to extract oil or create biofuels, or to make any other type of
energy investment, at least four distinct elements described in Figure
1: (1) adequate payback on energy invested, (2) sufficient wages for
humans, (3) sufficient credit availability and (4) sufficient funds for
government services. If any of these is lacking, the whole system has a
tendency to seize up.

EROI analyses tend to look primarily at the first item on the list,
comparing "energy available to society" as the result of a given process
to "energy required for extraction" (all in units of energy). While this
comparison can be helpful for some purposes, it seems to me that we
should also be looking at whether the*dollars collected*at the
end-product level are sufficient to provide*an adequate financial return
to meet the financial needs of all four areas*simultaneously.

My list of the four distinct elements necessary to enable energy
extraction and to keep the economy functioning is really an abbreviated
list. Clearly one needs other items, such as profits for businesses. In
a sense, the whole world economy is an energy delivery system. This is
why it is important to understand what the system needs to function
properly.

More here

http://www.theoildr <http://www.theoildrum.com/node/10052> um.com/node/10052

http://www.theoildr <http://www.theoildrum.com/node/10052> um.com/node/10052

Sustainability, Quasi-Sustainability, and Feasibility

An energy technology is sustainable if and only if ERoEI* (E-R-O-E-I star) is no less than 1.0.  An entire society is sustainable if and only if the compound ERoEI* of its entire mix of energy technologies is no less than 1.0.   Early on, recognizing that a community can persist for quite a long time if most of the characteristics of ERoEI* are satisfied, we considered quasi-sustainability; that is, during a transition period between fossil fuels and renewable energy, we must tolerate some slight environmental destruction and diminution of our storehouses of essential natural resources because of the large proportion of the energy investment for most renewable energy technologies that must be paid before any energy is returned.

I think it might be useful to define "feasibility" as something different from sustainability.  For example, we might say that a renewable energy is feasible if no more characteristics of ERoEI* are relaxed than are consistent with the community standards and laws of the land currently.

A Question about Sustainable Products Was Posed at ResearchGate (RG)

(In the post of July 13th, I wrote 2N where I should have written 6N.  When I tried to correct it, I found a bug in Blogger that prevented me from eliminating the original post with the mistake.  Today, I decide to replace that confusing double post with a new (corrected) post.)

My first comment on the question of "sustainable products" was as follows:

This is a not so much a difficult question as a question the answer to which is difficult to state clearly and believably. Let us begin by assuming that the whatever technology is employed to manufacture a product is coupled with or matched to an energy technology and the sustainability - or more likely quasi-sustainability - of the couple or pair is evaluated as a single process.

The second part of my response:

At eroei.blogspot.com, I have been discussing sustainability of energy technologies and, in a natural extension, of all other products consumed by the stakeholders in the energy technologies, which, in a certain sense, is everybody. Early on, it has been necessary to consider quasi-sustainability; that is, during a transition period between fossil fuels and renewable energy, we must tolerate some slight environmental destruction and diminution of our storehouses of essential natural resources because of the large proportion of the energy investment for most renewable energy technologies that must be paid before any energy is returned. When all is sustainable, the phase-space trajectory* of the environment will be required to be periodic and close to the expected natural trajectory, that is, the trajectory we might expect without human influence. Moreover, the steady state of our population and our economy must be matched by the steady state of our storehouses of natural resources.  In all of this, I assume that the Matching Problem has been solved nearly optimally, that is, consumers of energy are matched to appropriate energy technologies to minimize our total ecological footprint.  Please read the various pieces on the blog that go to defining ERoEI*.  In the meantime, I will try to gather them in one article to be posted on the blog and on Dematerialism and Energy. 

Finally, if production of a product and reasonable expectations for its use meet the same requirements they would meet in a globally sustainable economy, we might begrudgingly accord it the term "sustainable".  I say begrudgingly, because nothing short of global sustainability including the necessary political changes is satisfactory in the long run.  Clearly, economic inequality is anathema to sustainability at every level.

*      Suppose I have a system composed of one particle. If I plot the position and momentum of my particle on a piece of paper, it can be represented by one point. Its behavior in time can be represented as a one-dimensional curve in a six-dimensional space. This is its trajectory. But, the earth including its atmosphere is composed of very many particles. Nevertheless, the positions in three dimensional space and the three coordinates of momenta of all N of them - where N is a very large number - can be represented by a single point in a 6N-dimensional space and the trajectory of Earth and its atmosphere is a one-dimensional curve in a 6N-dimensional space - the phase space of Earth and its atmosphere.

Time Dependency in Net Energy Analysis

I need to add a comment here about time dependencies.  Since the prices of energy products and, perforce, the Energy over GDP ratios vary from moment to moment, ERoEI* is time dependent as well.  This is not a defect since what will work at one time may not work at another and any analysis worth doing must reflect this.  One hopes only that things change relatively slowly and that the margin of feasibility (if it is ever achieved) is sufficiently wide to accommodate reasonably slow change.  In most cases, time averages over ordinary fiscal periods are good enough for policy makers.  The most encouraging fact of all is NOT that the economic system cannot be changed – clearly it can as it is mostly incorporeal – but that, by replacing the market with efficient and honest economic planning, two-thirds or more of the energy budget can be eliminated without any diminution whatever in the standard of living per capita, which, of course, ought to be the same for every person who does not violate the fundamental principles of sustainability, e.g., to reproduce himself only or not to reproduce.  On what basis could any other distribution be justified?

Computer Simulations in Economics

On August 7^th, Jay Hanson posted the hyperlinked paper “Blame the Economists” at http://www.ritholtz.com/blog/2013/08/blame-the-economists/?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29

This is a very useful piece for those of us who wish to organize our objections to theoretical economic thinking.  I say “theoretical economic” not because I think that economists have discovered a useful theory such as relativity or evolution but because I don’t wish to discourage the type of thought that answers questions like “What resources do I need to live?”, “How can I reduce my ecological footprint without diminishing the quality of my life?”, etc.  In particular, it sheds some light on questions that have been bothering me. For example, “Why do economists employ fancier math than the physical mathematics I learned at Courant Institute, which is pretty much typified by the math in Courant and Hilbert, *Methods of Mathematical Physics, Vols. 1 and 2*?” 

I think the principal reason the simulations done by economists don’t work is that they try to model the entire economy which is much too complex for them.  It wasn’t necessary for me to use anything I could not have learned in high-school to do simple enough simulations that I can be certain that what I learned from them is absolutely true.  That is not to say that what I did in “Energy in a Mark II Economy” is simple.  I am not sure that I am looking forward to figuring it out once again if I want to use the Mark II spreadsheets to investigate a slightly more complex Mark III economy as per the post of July 26^th at http://eroei.blogspot.com/ .  In any case, though, if you do figure it out, you, too, can be reasonably certain that what you learned is absolutely true.  It all depends on whether or not the rules of arithmetic are correct and whether or not I have made a mistake.  How about some genuine peer review (as opposed to cronyism)?

Must every "renewable" energy technology incur a fossil-fuel debt that will never be repaid?

Gail Tverberg, the actuary, wrote the following in the article posted by Jay Hanson:

”Commenters frequently remark that such-and-such an energy source has an Energy Return on Energy Invested <http://en.wikipedia.org/wiki/Energy_returned_on_energy_invested> (EROI) ratio of greater than 5:1, so must be a helpful addition to our current energy supply. My finding that the overall energy return is already too low seems to run counter to this belief. In this post, I will try to explain why this difference occurs. Part of the difference is that I am looking at what our current economy requires, not some theoretical low-level economy. Also, I don’t think that it is really feasible to create a new economic system, based on lower EROI resources, because today’s renewables are fossil-fuel based, and initially tend to add to fossil fuel use.”

It is true that alternative energy installations that employ photovoltaic cells, for example, incur heavy energy investment expense before any energy at all is returned.  In a US-type market economy, the fossil-fuel debt that must be incurred early in the life cycle of such an installation might never be repaid.  That is because, in a market economy, significant energy investment expense is required just to operate the market ^[1].  This expense is never recorded in conventional approaches to ERoEI analysis such as Charlie Hall’s methodology which has received widespread attention.  Moreover, the energy costs of private profit, borrowing money, paying taxes, paying adequate wages to employees and other economic actors who make part-time contributions to producing energy such as the energy employee’s health-care providers, auto mechanics, tax accountants, and other indirect energy expenses at all levels, including, for instance, the appropriate pro-rata share of the energy executive’s insurance company’s actuary, are not counted.  Thus, Gail – or anyone else – has no idea if EROI = 5 is adequate or not. 

In ERoEI* (pronounced “E R o E I star”) as described at http://dematerialism.net/eroeistar.htm and on my blog at http://eroei.blogspot.com/ all of these and every other facet of energy technology that influences sustainability and whether or not the technology will actually be employed is considered; so, when the analysis is complete, the analyst knows that an ERoEI* greater than 1.0 is adequate with as much certainty as went into the collection of his raw data.

In “Energy in a Mark II Economy” I analyzed the meaning of the ratio of Total Energy Budget over Gross Domestic Product for an entire economy, some form of which the DOE records for every nation and every year.  It might be interesting to obtain similar ratios for each individual sector including the government and finance sector to aid in converting Gail’s monetary expenses into appropriate energy expenses.  If nothing else, we could then determine if Gail’s threshold figure of 5.0 make any sense at all.

[1]   In “Energy in a Mark II Economy” I employed the figure of 22% of the total energy budget that the US Department of Energy (DOE) charges directly to commerce.   Of course, some portion of the energy consumed by transportation and manufacturing should be charged to commerce and finance as well.  Moreover, if an entrepreneur extracts a large profit from his – usually subsidized - renewable energy business and builds an overly large house, additional energy costs should be charged to the energy installation.  This amounts to some fraction of the energy charged by the DOE to the residential sector.  In “Energy in a Natural Economy” I found a rough estimate of the energy overhead of the US market economy by looking at Bureau of Labor Statistics data.

In the entry of July 11^th of http://eroei.blogspot.com/ I wrote the following paragraph in connection with establishing a reasonably sane monetary system partly in response to Gail Tverberg’s list, which I now repeat.

Special Characteristics [of a monetary system] Needed to Avoid Economic Collapse

Our crisis has a physical component and an imaginary component. The physical component comes from limitations in the quantities of land, water, consumable energy, and the environment itself. The ecological footprint of the human race exceeds the carrying capacity of Earth. The imaginary component is instability in the monetary system caused by excessive debt and excessive monetary inequality. To ameliorate the physical crisis we must eliminate the imaginary one. I do not mean that indebtedness, poverty, and wealth are imaginary; but, rather, that we can eliminate all three with the application of our imaginations without affecting the physical universe. Stabilizing our population and reducing our ecological footprint will ultimately have a desirable effect upon the universe.

Regardless of what the people want, the owners of the country want to retain their positions of power, privilege, and wealth. Naturally, they despise the idea of government control of the economy and the means of production; however, when a crisis arises that they cannot handle, they readily accede to crisis socialism to save them. During World War II, without adopting socialism completely, they allowed rationing, wage and price control, and management of vital industries by government employees even if they were paid only one dollar per year.

To respond appropriately to resource and environmental limits, we need to establish crisis socialism. However, to eliminate debt, we need to repudiate the US dollar; and, to eliminate inequality, we need to pay everyone the same even if no work can be found for them to replace the inessential work from which they were furloughed to reduce our consumption of fossil fuels and our ecological footprint. After all, the requirement that every citizen does useful work to get paid and the requirement that the pay should be commensurate with the value of the work are completely imaginary. The idea that everyone should be allowed to get as much money as he can is completely wrong.  (One of the reasons Dematerialism is right and everything else is wrong is that any society in which it is possible for one person to acquire more wealth than another is doomed.)