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The Social Implications of Energy Return

When last I wandered by a service station, I couldn’t help but notice the price of diesel. At $4.08 per gallon it was high enough to make truck drivers cringe, but low enough that the fuel is still a bargain considering its energy density. That gallon of fuel contains the energy equivalent of over 300 hours of human labor, enough energy to propel the 18 wheelers that deliver food to my local grocery cooperative several miles at speeds over 60 miles per hour, a feat no human could hope to replicate.

While diesel’s energy density is an undeniable asset, of even greater significance is its energy return. A fuel’s energy return on energy investment ratio, sometimes referred to by the acronyms EROEI or EROI, is a metric used to gauge its production efficiency. It turns out that a fuel’s energy return also has broad social and economic significance, and this essay explains that significance in a way that hopefully makes it accessible.

* * *

Fuels carry energy. Some, like gasoline, diesel, natural gas and wood, carry energy stored in their chemical bonds, and we release this energy as heat by burning these fuels. Uranium, on the other hand, carries energy in the attractive forces between its nuclear particles, and by breaking-up those nuclei we can harness that energy, again as heat. Fuels that generate heat can boil water, and the resulting steam can be sent through a turbine to generate electricity, a secondary fuel that carries energy as a flow of charged particles.

All of these fuels have one thing in common: it takes effort on our part to release their stored energy in a way that serves a useful purpose.  The reality that it takes energy to get energy underlies the concept of energy return. A fuel’s energy return is calculated as a ratio, with the energy it carries in the numerator and the direct and indirect energy inputs required to produce it in the denominator. Energy return can be thought of as an efficiency measure, a ratio that quantifies the relationship between the outputs of a fuel production process and its required inputs.

Fuels that carry more energy than is required for their production yield energy returns above one, delivering a positive energy return. Those that require more energy inputs than the energy they carry yield a negative energy return, and are energy sinks. Fuels only yield energy returns greater than one by virtue of an accounting convention that leaves out inputs associated with solar radiation and the geologic processes that trapped ancient biological materials deep enough beneath Earth’s surface to form crude oil, natural gas and coal. Were it not for these conventions, the laws of conservation of energy and of entropy would prohibit any fuel from yielding a positive energy return.

Energy inputs come in two flavors: direct and indirect. Direct energy includes fuels used to power the vehicles, machinery and other infrastructure that produces another fuel, such as the electricity that runs an oil refinery or the diesel that fuels a tanker truck. Indirect energy, sometimes called ‘embodied’ energy, includes fuels used to manufacture, deliver, maintain and repair the above infrastructure. Both direct and indirect energy are necessary for fuel production processes and supply chains, and if an analyst’s goal is to honestly account for the energy costs associated with fuel production then both must be accounted for.

As an illustrative example, let’s revisit a fuel I mentioned earlier: diesel. To produce 100 megajoules (MJ) of this energy dense fuel, it takes 6 MJ of energy to find and extract the crude oil from which it’s refined, just under 2 MJ to transport the oil to a refinery, and another 12 MJ to refine that crude oil into diesel that’s clean and pure enough that it can safely drive an engine. A bit under 1 MJ is then invested to transport the finished fuel to a service station, where consumers can purchase it. Dividing the diesel’s energy content of 100 MJ by the roughly 20 MJ of energy inputs needed throughout its production process and supply chain yields an energy return of 5. For every unit of energy we invest to produce diesel, we get 5 units back as finished fuel for a return on investment of 400 percent. You’ll be hard-pressed to duplicate a return like that on the stock market!

For those accustomed to reading technical literature on energy return, a return of 5 for diesel might seem shockingly low. This is because much of the technical literature focuses on energy returns of raw materials like crude oil at the point where it’s extracted from an oil well rather than following that crude through the convoluted process needed to turn it into a refined fuel that a consumer might use to fuel their car or truck. Most of the energy invested in the production of a fuel like diesel is invested after it leaves the oil well, so ignoring these latter stages gives a warped impression of the energy inputs required to turn it into something useful to society.

Other fuels refined from conventional crude oil yield similar returns to those of diesel, and conventionally extracted natural gas yields returns that are somewhat higher. Coal and natural gas yield slightly lower returns when used to generate electric power provided efficiency losses aren’t counted against the electricity, although if these losses are counted the energy return is well below one.

* * *

Societies, and their economies, run on energy. The more energy a society has access to, the more economic transactions it can support. Just as gross energy supply constrains an economy’s overall size, the amount of energy surplus its fuels deliver constrains its diversity. When a society has access to fuels that yield high energy returns, only a small fraction of its fuel must be diverted into its energy sector to make tomorrow’s fuel, freeing the remaining energy to support the production, distribution and use of a diverse array of non-energy goods and services that, collectively, build a healthy, robust economy. When a society is forced to use fuels that yield a lower energy return, it can support less activity outside of its energy sector and its economy will be less diverse and less robust.

EROI Economic Implications

Herein lies the predicament faced by many modern societies. The energy resources that historically yielded high return fuels are being exhausted, forcing energy companies to exploit lower return fuels to meet demand. An example of this phenomenon in North America is the extraction of Canada’s bitumen sands, which yield refined fuels with energy returns less than 3. A fuel that yields an energy return of 3 requires 33 percent of its energy to be diverted back into the energy sector to produce tomorrow’s fuel, assuming a stable year-on-year fuel demand, leaving only 67 percent of its energy to support economic activity outside the energy sector. Compare this to the diesel fuel refined from conventional sources of crude oil noted above, which yields an energy return of 5 and delivers 80 percent of its energy as surplus to support economic activity outside the energy sector. As lower return fuels become more important in an economy, the energy available to fuel transactions outside the energy sector declines.

Not only does the surplus energy a fuel yields decline as its energy return falls, it declines disproportionately fast once energy returns fall below about 10. This phenomenon is referred to as the Net Energy Cliff, where the term ‘net energy’ is used synonymously with surplus energy. If a society adopts lower return fuels as substitutes for higher return fuels, the economic restructuring needed to adjust to the declining energy surplus may be quite jarring. Given that most fuels in use today yield energy returns well below 10 at their point-of-sale, small changes in their energy return can have meaningful impacts on an economy’s structure as energy producers strive to gain access to the energy needed to provide tomorrow’s fuel. The result of this striving is, of course, rising and more volatile energy prices as producers and consumers bid against one another in energy markets.

These tensions are particularly acute in North America right now. Political figures recognize the need to produce more energy domestically, but they advocate for the development of marginal energy resources despite their negative social and environmental impacts, which can be substantial. The development of Canada’s bitumen sands, mentioned earlier, is one example, but one that hits closer to home is the expansive use of hydraulic fracturing throughout the United States that allows energy companies to access crude oil and natural gas resources trapped in impermeable shale deposits. Reports I’ve read suggest hydraulic fracturing is an incredibly energy intensive extraction method, and my gut feeling is that its finished fuels yield energy returns that are barely positive, if at all.

Advocates of these marginal resources fail to grasp that the energy returns offered by fuels derived from them are too low to support the diverse economies of yesteryear. Increasing energy supplies might lead to economic growth, but most of that growth will occur in the energy sector, leaving other sectors starving for the energy, capital and resources needed to remain viable. What happens if these fuels don’t yield a positive energy return at all? Their continued production will siphon energy out of the economy, and force it to contract.

* * *

If society reduces its energy demand, energy producers can stop producing marginal fuels and focus on those that yield higher energy returns. Energy conservation is by far the least expensive means of reducing energy use. Conservation is an exercise in managing expectations, and reduces energy use by reducing demand for the services that energy delivers. Examples include turning thermostats down to reduce heating fuel use, taking shorter and cooler showers to reduce the burden on a household’s hot water heater, or carpooling to work with a coworker to reduce automobile use. Those who manage their expectations well can create superbly fulfilling lives that afford them a level of comfort and resilience far beyond the reach of those whose energy demands are higher.

After conservation, efficiency measures can further reduce energy demand. Efficiency involves providing the same energy services with alternative technologies that require less energy. Examples include weatherizing a house to reduce the amount of heating fuel use, replacing an old refrigerator with a more efficient model, or purchasing a more efficient car when it comes time to replace a vehicle. Efficiency investments can reduce energy demand, but potential energy savings must be balanced against the cost of the new technology, both in monetary terms and in energy terms. There’s no value in choosing a technology that reduces direct energy use slightly while creating more energy demand indirectly during its manufacture, delivery, installation, maintenance and eventual disposal. Efficiency investments also sometimes suffer from the ‘rebound effect’, wherein consumers note that the technology they’re using is more efficient than a previous technology and decide to use it more frequently. The additional use overall eats up all of the efficiency gains the new technology might have offered if it had been used similarly to the previous.

Once cost-effective efficiency options are exhausted, which can happen quickly as some are quite expensive, renewable energy sources can be used to substitute for marginal, nonrenewable fuels. There are many renewable options with the potential to yield positive energy returns, including hydroelectricity, photovoltaics, biomass, biodiesel, and wind turbines, among others. Each has drawbacks that might show up as higher monetary costs, limited geographic suitability, or intermittency. All of these renewable technologies can be useful if they’re applied thoughtfully, so the challenge faced by consumers and energy planners is using energy accounting methods to discern whether these technologies are useful in their own geographic and economic context.

A big question underlying renewables today is to what degree they can substitute for fossil fuels. There’s a strong likelihood that building a society based on renewable energy will require radical reductions in per capita energy use, hence my suggestion to exhaust conservation and efficiency strategies first before investing in renewable energy projects. Investments in large-scale renewable energy projects should be approached with particular caution, as they require huge up-front monetary and energy inputs, and while some can yield positive energy returns there’s no guarantee that all will. Recent research on large-scale solar installations in Spain, for instance, found their energy return to be substantially lower than industry predictions.

* * *

The falling energy returns of nonrenewable fuels will change the face of industrial economies. People the world over must adapt to these changes, many without understanding their root cause. Political figures will openly lament their changing economic landscapes, and citizens will beg their leaders for solutions, however far fetched, that can bring back the diverse, growing economies of decades past. Some citizens, perhaps even many, might be so desperate to reclaim their old economic reality that they’ll vote anyone into office who pledges to deliver it. Political figures of lesser ethical standing may use emerging economic turmoil to their advantage, concentrating their power or enriching themselves monetarily by selling false promises. Hopefully by offering this essay I’m making a contribution, however small, to preventing this. Time will tell.

I can’t help but wonder how future generations will judge the decisions we make. The falling energy returns of key nonrenewable fuels are a predicament we’ve created for ourselves by becoming dependent on exhaustible resources. Are we destined to react blindly to this predicament, developing all energy resources we can no matter the cost in hopes of sustaining the unsustainable? Or will we gracefully power-down our societies to live within emerging constraints? Again, time will tell. Either way, the choices we make in the coming decades will define us as human beings into the 21st century, and beyond.

Notes

  • One megajoule (MJ) is 1,000,000 joules. One MJ = 948 British Thermal Units (BTUs).
  • Data on the energy return of diesel are from the USDA/USDOE report An Overview of Biodiesel and Petroleum Diesel Life Cycles (Sheehan et al, 1988).
  • Data on the energy return of electricity are from the USDOE reports Life Cycle Assessment of Coal-fired Power Production (Spath et al, 1999) and Life Cycle Assessment of a Natural Gas Combined-Cycle Power Generation System (Spath & Mann, 2000).
  • For data on the role of energy in economic growth, see the article ‘Accounting for growth: the role of physical work’ (Ayres & Warr, 2005, Structural Change and Economic Dynamics, Vol. 16, Pages 181-209).
  • Data on the energy return of bitumen sands are from the USDOE fact sheet Energy Efficiency of Strategic Unconventional Resources (2006), and from the article ‘The energy efficiency of oil sands extraction: energy return ratios from 1970 to 2010’ (Brandt et al, 2013, Energy, Vol. 55, Pages 693-702).
  • For reviews of the drawbacks of renewable energy sources, see the books Renewable Energy Cannot Sustain a Consumer Society (Trainer, 2007), Green Illusions (Zehner, 2012), and Spain’s Photovoltaic Revolution: The Energy Return on Investment (Prieto & Hall, 2013).

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