By: Jim MacInnes, P.E. Re-Imagining our Economic SystemMSU CCED Institute March 26, 2013

Biophysical Economics: The Science Behind Economic Growth

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WHAT IS REAL ECONOMIC WEALTH?

• Money can be printed, and created with the stroke of a pen… or with a keystroke.

• Money and even gold has little or no intrinsic value. So, while money is a ‘marker’ for economic wealth, it is not real economic wealth.

• In 1926 Nobel Laureate, Fredrick Soddy, wrote the book Wealth, Virtual Wealth and Debt, and argued that true economic wealth is:

1. the ability to control the flows of useful energy 2. embodied energy

The Biophysical Economy – Reprinted with the permission of SUNY ESF Systems Ecologist, Charles A. S. Hall

The Biophysical Economy – Reprinted with the permission of SUNY ESF Systems Ecologist, Charles A. S. Hall

Energy Conservation and the First Law of Thermodynamics• Thermodynamics is a natural law that deals with the relationship

between heat, work and energy

• The First Law of Thermodynamics is about conservation of energy. Energy can be changed from one form to another, however, it cannot be created or destroyed.

• Total Energy of a System = Work done + Waste Heat

• In its simplest form: Work = Force x Distance

• If we want to make something, or transport people and/or freight we must consume useful (concentrated) energy.

Entropy and the Second Law of Thermodynamics

• Not only must we consume energy to make things, but we must also consume energy to keep them in good repair.

• The second law of thermodynamics is often called Entropy, and is an important law of nature that says everything changes over time to a higher state of disorder.

• Absent energy inputs, nature’s equilibrium is disorder.

• In business, Entropy is accounted for as “depreciation expense” and we must invest “CAPEX” to keep things maintained.

• Global Warming represents the entropy bill for our fossil fuel powered industrial revolution.

“Weather-related Events on the rise” Reprinted from Traverse City Record Eagle November 18, 2012

Disasters with at least $1 billion in damage for the period 1980 – 2011

Energy return on energy invested (EROI)

Energy returned to society (100 barrels of oil) EROI = ------------------------------------------------------------------------- = 100 Energy required to (1 barrel of oil) get that Energy

EROI and Net Energy diagram for building, operating and decommissioning a power-generating project.

Reprinted with the permission of Ida Kubiszewski and Cutler J. Cleveland, The Encyclopedia of

Earth.

EROI of various electric power generators. Reprinted with the permission of Ida Kubiszewski and

Cutler J. Cleveland, The Encyclopedia of Earth.- EROI for other energy sources: oil and gas at 11–18 to 1; corn-

based ethanol at 0.8 –1.6 to 1; and, biodiesel at 1-3 to 1.

Reprinted with the permission of Charles A. S. Hall

Reprinted with the permission of Charles A. S. Hall

Reprinted with the permission of David Murphy and Charles A. S. Hall

Energy consumption used to do “Work” causes economic growth, not the converse

Energy is a limiting factor for economic growth.

“Best First” principle (low hanging fruit) and history of diminishing EROI

Where could we get more energy to power economic growth?

Increase the energy available from fossil fuels, nuclear, wind, solar, etc.

Conserve energy by not doing something and redirect the energy savings to other more productive uses.

Invest in Energy Efficiency where we can do the same job using less which releases energy for other more productive uses

Emerging, non-OECD, economies can afford to pay morefor an incremental barrel of oil (wealth) because it offers more incremental benefit (utility)

VW’s aero car for China:Gas tank: 1.7 gallonsSpeed: 75 mphMileage: 258 mpgSelling price: US $600

1850 1859 1868 1877 1886 1895 1904 1913 1922 1931 1940 1949 1958 1967 1976 1985 1994 2003

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Annual Rate of Change (all petroleum liquids)

Rate of Change (all liquids) Linear (Rate of Change (all liquids))

Rate of Change in Global Petroleum production

The Evidence: Declining Growth Rate of US GDP

1935

1938

1941

1944

1947

1950

1953

1956

1959

1962

1965

1968

1971

1974

1977

1980

1983

1986

1989

1992

1995

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2001

2004

2007

2010

-15%

-10%

-5%

0%

5%

10%

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25%

Gross domestic product Linear (Gross domestic product)

Ann

ual p

erce

nt c

hang

e

• The market will demand a new energy infrastructure based on non-fossil fuel solutions.

• The construction of that new infrastructure requires not just money, but…energy. And that’s the very commodity in short supply.

• Are we willing, in the short term, to sacrifice additional FF energy consumption to build a new renewable energy infrastructure – effectively steepening the decline – in order to invest in a long-term energy plan?

Reprinted with permission of UCSD Physics Prof. Tom Murphy

The Energy Trap