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Real wealth: Howard T. Odum’s energy economics

Money and market values cannot be used to evaluate real wealth from the environment.
- Howard T. Odum

In the 1970s, Howard T. Odum explained human economics using ecology and energy fundamentals. His work remains essential for ecologists, who imagine achieving “sustainability.” His 1974 “Energy, Ecology, & Economics” provides a good summary of his concerns for our future, and helps explain why consumption and expanding technologies have limits. A Prosperous Way Down, (2001, with his wife Elisabeth), provides realistic solutions.

Odum consulted on the Limits to Growth project and respected Herman Daly (Steady State Economics, 1977) as a rare economist, who saw reality in its complex whole. The closing pages of Odum’s 1971 Environment, Power and Society, warned of coming peak energy and rising debt: “There may be a long period of leveling energy budgets,” he wrote; “the expanding economy may be gone. The citizen will sense this process as inflation.” As Odum predicted, humanity hit that “level energy budget” in 2005 and now faces the end of an expanding global economy.  

Odum’s daughter – Mary Odum Logan, Ph.D., adjunct professor at the University of Alaska Anchorage – recalls, “In the 1960s, I heard dinner table lectures regarding the energy and ecology problems we witness today. My Father would be shocked that governments today trot out tar sands and shale gas as rescue strategies, a delusion he dismissed in the 1970s. Exploiting profit-positive but negative net-energy deposits, burns energy, destroys the boreal ecosystems, drains aquifers, and increases global heating. My father never believed that we would be so stupid.”
Energy quality and economics
Odum’s energy economics begins with an understanding that energy provides the foundation for all life processes, but that all energy is not equal. As energy is transformed through an ecosystem, quantity decreases as concentration increases. Odum coined “Emergy” to account for the variations of energy quality. In Environmental Accounting: Emergy and Environmental Decision Making (1996), he explains how energy provides for “real work” and “real wealth” in any biophysical system including a human economy:  

Understanding the economy requires that both money circulation and the pathways of real wealth be represented together but separately. Money is only paid to people and never to the environment for its work… Therefore, money and market values cannot be used to evaluate the real wealth from the environment. When the resources from the environment are abundant, little work is required from the economy. (1996, p. 55)

Real wealth has no money flow until humans impose one. All non-human societies and human societies for most of human history consumed Nature’s real wealth without money. Modern human societies, for example, pay loggers and fishermen to harvest Nature’s embodied energy. Inside the human system, money can expand exponentially, but “real wealth” remains limited by energy, materials, and biophysical processes.
Free services from the environment – trees, fish, fresh water, nutrient recycling, and so forth – require a higher energy-cost once we commercialize them, such as bottled water and processed food. Most North American and European food is “negative net energy.” We invest more calories (hydrocarbons, fertilizers, labour, transport) than the calories in the food we consume. In a natural system, this is not remotely sustainable. Odum explains:

The great conceit of Industrial man imagined that his progress in agricultural yields was due to new know-how... A whole generation … thought that the carrying capacity of the earth was proportional to the amount of land under cultivation and that higher efficiencies in using the energy of the sun had arrived. This is a sad hoax, for industrial man no longer eats potatoes made from solar energy; now he eats potatoes partly made of oil (1971, p. 115)

When the resources are scarce, obtaining costs are higher… and the market puts a high value on the product. … Market values are inverse to real wealth … and cannot be used to evaluate environmental contributions or environmental impact (1996, p. 60).”

Fossil fuel represents stored solar energy, concentrated over a billion years, which is why we can eat negative-net-energy food, for a while. Any plan to replace that hydrocarbon flow with, say, solar panels and windmills, should examine Odum’s “emergy” analysis.

Energy is measured by calories, BTUs, kilowatt-hours ... but energy has a scale of quality which is not indicated by these measures. The ability to do work ... depends on the energy quality … measurable by the amount of energy of a lower quality grade required to develop the higher grade. [Odum, 1973, Energy, ecology and economics].

Leaves transform disperse (low grade) sunlight into high grade wood; time and pressure transform that into coal or oil. Energy is lost at every stage. We use hydrocarbon subsidies – mining, manufacture, transport – for solar panels or nuclear plants. Solar cells and windmills require iron and copper, but try mining copper with solar power and you’d soon get the idea.

Odum redefined certain economic concepts based on these energy fundamentals:
Energy economics: “The science of economics may profit by restating more of its theorems to include power principles. Studies of money alone are just as incomplete as studies of mineral cycles alone. (1971, p. 182).”

Recycling: “Any compatible combinations of plants and animals are self-rewarding... [If] there is no loopback of minerals from wastes to the plants, a necessary function for both animals and plants is interrupted and these species drop out (1971, p. 175).”

Odum is being diplomatic here, but issuing a grave warning to humans. His energy economics principles are not just metaphors. Society itself represents embodied energy.
Energy and social justice: “As fossil fuels are injected, the role of machines increases, outcompeting man in simple, mechanical work. The increased total work done increases the standard of living but only to those who can plug into the economy with a service that has an amplification value greater than the machines. (1971, p. 185).”
Only a privileged few have access to the education, capital, and plundered resources that “amplify” their value enough to accrue monetary wealth in a world of limited energy and resources. Everyone else, most of humanity – and all of nature – is degraded in this energy hierarchy that lacks the necessary feedback loops.
Unemployment “Circuits of a system that have to be maintained but are not being used for system work can be described as unemployment. A certain part of any population needs to … provide reserve capacity to perform full-time maintenance functions and information-increasing actions such as sleep, education, and relaxation. However, too much unemployment means a system with too much maintenance cost. (1971, p. 188).”
Unemployment is a system dysfunction, not just a personal failure of the unemployed. This principle is the inverse of the previous one regarding individual social value. The fossil energy subsidy in human society becomes concentrated among the wealthy as billions of people starve or remain under employed. Social injustice is directly linked to ecologically unsustainable consumption among the wealthy.

Debt: “Credit is the flow of work for which the money loopback is delayed... ecological systems operate mainly on credit... plants in spring produce for the animals from their reserves of mineral currency, whereas the payment by animals and microbes of minerals loops back to the plants... long after the harvest but in time to start a new cycle (1971, p. 188).”
In human economics, rising debt is fake energy. In Nature, all debts are paid and no one is “too big to fail.”
Inflation: “Inflation is an acceleration of the rate of money circulated in relation to the energy flow.” (1971, p. 195).

In the 1930s, a badly functioning economic system and a transition from a rural solar economy to an urban fossil-fuel economy created lower productivity… Adding money will stimulate the flow of energy only when supplies of energy are large. Adding money when sources of energy are limited merely creates inflation.
(Odum & Odum, 1976, p. 55, 58).

Real wealth – fresh water, arable soil, wildlife – is not created by money, nor destroyed when money is gone. If money is produced faster than real wealth, the system collapses. Witness the economic crash of 2008: World energy flow peaked in 2005 and remained flat, but the economy (money) continued to grow. With flat energy and growing economy, oil prices soared from $30 to $147. The world’s annual energy bill quintupled, and the economy collapsed, exposing the toxic bank assets (fake energy).
Limits: Odum’s “Maximum Power Principle” helps explain why consumption has limits and why complex societies hit the wall even as technologies and efficiencies improve. Self-organizing systems and the species within them maximize energy harvesting and use it to create feedback loops to bring in more energy. However, there is a tradeoff between efficiency and power. A more efficient system may go slower, delivering less productivity. A system arranged to go faster may waste energy.

Enduring natural systems typically alternate energy storage with consumption. This pulsation uses more energy, but produces stability by allowing flexibility and creativity within the system. Resilient systems allow change. Thus, system control itself is limited. Witness the social cost of political systems that seek to control change and punish the very self-organization principles that furnish resiliency.

Odum describes how Energy flows anywhere in the universe are organized in an “energy transformation hierarchy.” Many joules of sunlight, for example, are required to make one joule of organic matter. Energy is lost at each transition, but the embodied energy is more concentrated.

A tree provides an example of energy hierarchy. The leaves and tiny roots collect and concentrate dilute sunlight and disperse resources. Larger branches and roots chemically transform the energy in higher concentrations – spending energy to do so. Finally, the tree trunk represents high quality energy, useful as fuel, building, and so forth. A human society – even at the level of burning wood – represents extremely concentrated energy, at considerable cost to the organic system.
However – and here is the catch that humanity needs to understand – each hierarchical level of concentrated energy has to lend support to the energy collection structure as a whole, or it cannot endure!

The tree trunk cannot just be an energy and material consumer; it has to help leaves (from which it grew) do a better job of collecting energy. This is a living system. The tree cannot “waste” its photosynthesis on wood investment that does not serve the system to maximize system energy processing.
Ecological food webs are complex examples of energy hierarchies. Predators “pay” for the energy captured from prey by providing services to the ecosystem – concentrating nutrients back to soil and limiting prey – otherwise, as Odum explains, predators would be a net energy drain and would perish. These energy accounts remain perfect in Nature, debts are paid, imbalance is resolved, and wastes are recycled.

Real Sustainability
Thus, we glimpse humanity’s challenge. We are an energy drain on the ecosystem and we have compounded that problem by becoming a material drain (depleted forests, collapsed fisheries, eroded soils) and an unprocessed waste producer (garbage, toxins, CO2, etc.). Natural systems will support a complex level of energy concentration (such as human society) if that complexity returns to the system a net energy gain. Humanity is not doing that.

Fossil fuel consumption has funded our complex civilization that has overshot its habitat’s capacity. Fossil fuel agriculture feels like increased productivity, but really represents system degradation. Computers appear “efficient” because we do not account for their hydrocarbon subsidy. We haven’t yet figured out how to pay the larger system back. Earth doesn’t take dollars, bank drafts, or collateralized debt obligations.

“Neo-classical economic theory only worked on the way up,” Mary Odum Logan warns, “and won’t work on the way down. The self-amplifying growth agenda falls apart the minute you reduce the energy inputs. Those autocatalytic feedback loops cause a Wile E. Coyote, beep-beep moment as our economy finds itself suspended in thin air over the chasm.

“Add money, and it’s like pushing on a string if there is no real wealth to move the economy. The money piles up in the hands of the wealthy, creates haves and have-nots, and skews incentives towards wasteful growth, luxury, mansions, and mega yachts rather than real economic work. Borrow to buy stuff, especially when the stuff is geared towards the old paradigm, and you just end up with piles of houses and SUVs, stacked up in a concrete cul-de-sac with nowhere to go.”

Howard Odum’s insights reveal that advocating more modest lifestyles is not pessimism, but realism.

The Links:

Energy, Ecology, & Economics:

A Prosperous Way Down:

Environment, Power, and Society:

Rex Weyler was a director of the original Greenpeace Foundation, the editor of the organisation's first newsletter, and a co-founder of Greenpeace International in 1979.

He was a photographer and reporter on the early Greenpeace whale and seal campaigns, and has written one of the best and most comprehensive histories of the organisation, Greenpeace (Raincoast, 2004). His book, Blood of the Land, a history of the American Indian Movement, was nominated for a Pulitzer Prize.

Deep Green is Rex's monthly column, reflecting on the roots of activism, environmentalism, and Greenpeace's past, present, and future. The opinions here are his own.

You can respond to "Deep Green" columns at Rex's Ecolog, where he posts portions of his column and dialogues with readers.

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