Brian McConnell is a software developer, author and technology entrepreneur based in San Francisco. You can learn more about this project at www.joulestandard.com
We have automated nearly every aspect of the economy. Pick any industry, product or service. You’ll find that the amount of work done by humans is dwarfed by the labor of machines.
The modern agricultural supply chain spends roughly ten times as much energy to deliver one unit of edible energy to you. That energy is expended by machines, ranging from farm equipment, to manufacturing chemical pesticides, to fueling refrigerated trucks. In other industries, the ratio of machine effort to human effort is even greater, 100 to 1 or more. We have surrounded ourselves with a vast mechanized economy. Indeed, we are dependent on it for our survival.
This quiet transition to a robotic economy raises an interesting question about the nature of money. The machines we’re so dependent on are paid in energy. They have no understanding of human money, and they do not work for IOUs. We may direct them, like a man riding an elephant, but the amount of work they can do is limited by physics. When 99% of the real work is done by machines, would it make more sense to define currency in terms of energy? If so, how might we make that transition, and what can we learn from the technology industry as we do so?
A central law of physics states that in any system, energy can neither be created or destroyed, only converted from one form to another. A ball resting at the top of a ramp converts its potential energy (the effort required to lift it against the force of gravity) to kinetic energy (motion) as it rolls down. The amount of energy available within any system, whether it is a bacterial cell or an economy, is finite. Unlike money, energy cannot be printed or counterfeited.
What exactly is energy?
Energy is the capacity to do a certain amount of work. It can be stored and transported in many forms. The international unit of measure for energy is the Joule. The table below describes what this equates to in real world terms.
Plot of energy densities for variety of materials (source Wikimedia Commons)
It is interesting to note that, pound for pound, hydrocarbon fuels store vastly more energy in a smaller space than man-made materials such as batteries. Only liquid hydrogen and nuclear fuels, which are very difficult to handle, can store energy more compactly.
Energy storage is only one part of the equation. Every square meter of the earth’s surface receives about 700 Watts in sunlight (700 Joules every second). The actual amount varies by location, time of year and weather conditions, so this is a year-round average figure. This energy drives the growth of green (photosynthetic) plants and the planet’s weather, both of which are natural reservoirs we can tap into. This is precisely what biological systems do.
The Wrong Frame of Reference
The problem with our current system is that we are measuring the wrong things, and do not measure significant parts of the economy at all. For example, do you know how much energy was consumed to produce the shirt you are wearing? Measuring this involves metering energy use at every step of the supply chain from the cotton farm to the transport system that brings the finished product to your local store.
The basic issue is that we don’t measure energy use in a systematic and easy to comprehend way, at home, at work or in many industries. Each industry has its own units of measure. Natural gas is measured in cubic feet, therms or BTUs. Electricity is measured in kilowatt-hours. Oil is measured by the barrel. Automotive fuels are measured in gallons or liters. Food energy is measured in calories. Another way of explaining this is that we typically measure everything in terms of money, which has no inherent physical value, and later translate this into energy. We are using the wrong frame of reference for our measurements, like measuring the speed of a passing train from a car traveling nearby.
One industry that pays exquisitely close attention to energy use is the aviation business. Airplanes are uniquely sensitive to energy use. The heavier an airplane is, the more fuel it requires to remain aloft, fuel which adds more weight, which leads to a vicious cycle. On the other hand, a small decrease in weight or small increase in engine efficiency can have dramatic effects on fuel efficiency, reduce the amount of fuel required, which in turn leads to a virtuous cycle.
The aviation industry is also an example of a process called dematerialization, where the goal is to continually reduce the amount of material and energy required to manufacture the finished product. This has been applied to every aircraft component from wings to seat cushions and has driven the long-term productivity gains in the industry since its beginnings. It should be applied everywhere, and with the development of technologies like additive manufacturing, will have a significant impact over the next 10 to 20 years.
We expect most food products to be consistently labeled with their ingredients and nutritional content. We should do the same thing with most products and services, so that people throughout the supply chain can see how much energy was used to produce something and transport it to market. As a general rule, the more energy is used to produce something, the more that item will cost relative to less energy intensive products. Consistently tracking energy consumption at every step of production will enable people throughout the supply chain to find the most energy efficient and low carbon alternatives. This alone should drive significant efficiency gains, as well as promote energy literacy.
There is a widespread misunderstanding that conservation means sacrifice, but that’s not true. If you’ve had a basic business education, you’re no doubt familiar with the concept of compounding interest. This effect applies equally to conservation, as the example below illustrates.
Just as compound interest causes your credit card bill to balloon, small year over year improvements in efficiency produce similarly striking results, especially over long time periods. This trend is currently well underway in the solar power industry, where the cost of solar photovoltaic equipment has been dropping an average of 7% per year for the past 30 years, leading to a nearly ten-fold decrease in unit costs during that period. Or put another way, it has lead to a nearly ten-fold increase in watts (energy output) per dollar, the same sort of exponential curve we see in computing power, albeit over a longer doubling time frame.
The important point is that even small improvements in efficiency can produce large results over the long term. It doesn’t matter if the growth in units of product produced are due to growing the inputs (growth paradigm), or due to shrinking the amount of materials and energy consumed to produce them (steady state economy). The net result to the end customer in terms of utility or value delivered is identical.
Coming from the technology industry, I’ve learned that breakthrough technologies are rare, and often take decades to make their way into products. Nearly all of the progress in the technology industry is the product of many small innovations that are gradually incorporated into products and their manufacturing processes. Progress may seem slow when viewed up close, but over long time frames, compounding effects take over. This is why a computer that would have occupied an entire building in the 1980s now fits in your pocket.
There are two things we can do today that will accelerate this process. One is to define a standard unit of measure for energy across industries. The Joule has been the standard unit of measure for scientific measurement since the 1800s. It makes sense to make it the standard for commercial measurement. A simple way to start is to display the prices for energy commodities and futures contracts in terms of dollars or euros per gigajoule (one billion Joules), a trivial software modification to programs that track energy commodity and futures prices.
A second step is to phase in requirements for companies to measure the amount of energy consumed in each step of the supply chain and to report this information in a standard format. This requirement is not especially onerous because any well run company already tracks its resource and energy usage. Companies are simply measuring energy use inconsistently. Some measure energy use in terms of money. Others in terms of industry specific measures, such as therms or gallons of diesel. Firms will save money and resources by tracking their energy use more consistently, so this will be a good business practice as well as good policy.
Let’s consider your monthly utility bill as an example. A typical utility bill displays your usage in a hodge podge of measures, kilowatt hours for electricity, therms or BTUs for natural gas, and so on. If your bill instead graphed your energy usage in Joules, you would be able to see and compare, for example, how much energy you consume in any form. Electricity usage figures are also misleading because they omit the energy that was burned in fossil fuel powerplants to generate that electricity, typically at relatively low efficiency. Utility companies already have all of the data they need to generate easy to understand reports like this (and could also show transmission losses, how they are phasing in low carbon energy sources in their portfolio, etc). Companies like OPower, which generate usage reports for major utility companies’ customers could easily do so as well.
This system could also lead to new financial instruments that would augment or eventually replace today’s fiat currencies, a new gold standard of sorts. Fiat currencies have value only in respect to other currencies and commodities. Metabolic currency, money denominated in or pegged to energy reserves, may make more sense in a highly mechanized economy because it’s rooted in the same physics that governs the machines. The inventor Buckminster Fuller first proposed the idea of a currency based on electricity, the Global Energy Grid, in 1969. More recently, Chris Cook proposed an international currency linked to energy reserves.
Sounds like science fiction, right? Except, we’re already on the Joule Standard without realizing it. We may keep our personal and government treasuries banked in Dollars, Euros or Renminbi, but in order for that money to do anything useful it has to be converted into energy to power the machines needed to build and deliver products and services. We can print as much money as we like, but economic output in a highly mechanized economy is ultimately determined by only two things: the energy supply and energy efficiency (energy consumed per unit of output).
During its early stages, this could be developed as an entirely private system, for example as the basis for an international payments network or as an alternate currency like Bitcoin. The conversion factors to translate Joules to and from various energy commodities are well known and can be independently verified. Private firms would issue notes denominated in Joules that are backed by corresponding amounts of energy commodities. These will be energy futures contracts, only denominated in metric units. Energy companies, commodities markets and technology entrepreneurs will be natural operators in this system. Most importantly, as projects like Bitcoin have demonstrated, this can be done by very small entrepreneurial companies in the early stages, allowing for rapid product development and innovation. There’s nothing stopping the person working on the next Paypal from doing this tomorrow.
Because these instruments can be developed and tested privately prior to larger scale uses, we can avoid the social engineering problems associated with experiments like the Euro. I am not suggesting that large countries will abandon their national currencies. What seems more likely is that the Joule could become an attractive way to store value for both public and private entities. Some countries, especially those that are energy independent, might eventually peg their currencies to their energy supplies if this proves successful. Meanwhile market based tests of private currencies will uncover best practices to be used in larger scale applications, as well as hazards to be avoided.
It is interesting to think about what would happen when a country’s money supply and energy supply are effectively merged, and how energy policy would drive a country’s fiscal policy and investment strategy. This would provide countries with a new toolbox with which to manage the economy, and would make it clear to policymakers that investing in energy technology and infrastructure is an investment in future economic progress.
Learn more about the Joule Standard and metabolic currency at www.joulestandard.com.