The Macro-Macro View – Fundamental Principles

• Energy flow in systems• Work and products• Energy laws and consequences• The economy as a system

raw energy

raw material

system work

waste heat

product (low entropy material)

waste materialhigh potential/concentrationsource(s)

low potential sink

diffuse/degraded

boundary and geometry

A More Refined View

• The Economy: Energy, work, and goods/services

usersentropic decayconsumption

equipment, maintenance, & improvements

raw energywaste heat

energy capture & conversion

tools

physical assets

work processes

value added

stocks

usable energy

services

raw material

A Biological Analog

• Cell metabolism and structural component synthesis

food

digestion

metabolites

oxidation

mitochondria

ribosome – protein synthesis

all other synthesis

enzymes

complex organelles, membranes, etc.

raw components

ATP

heat losses

investment!

replacement of above structures from stocks of complex structures not shown

Information Flows

Exchange

message

message

Proc. A Proc. B

material sources

energy source

waste material sinks

waste heat

Information is transmitted between ‘entities’ to coordinate flows of matter and energy

Information is encoded in ‘messages’ using very little energy and matter

Processes contain mechanisms, ‘receivers’ that can amplify the information into work responses

Agriculture as an Economic System

solar energy

waste heat

food plants

farming equipment,

maintenance, & improvements

tools

physical assets

Humanpopulation

Laborfood

services

raw material

An agricultural society

discretionary goods

waste matter

labor

labor

hand tools, houses, etc.

Principles of Agriculture• Clear land area for single crop (monoculture)

– maximize the area of sunlight capture– plant crops close together, leave room to work

(cultivation)– when necessary, bring water to the field

• Choose plants that grow best in given climate• Choose seeds from best yielding plants

(horticulture)• Focus on grains and legumes for long-term

storage

Types of Agricultural Practices• Haphazard – throw the seed out there and

hope• Slash & burn – move on• Cultivate and renew soils – a systems

approach– crop rotation with legumes to renew nitrogen– tilling residues back into the soils after harvest– adding manures to revitalize organic content

• Permaculture (new) – whole systems/intensive cultivation

Solar Input to AgricultureAverage insolation ~ 250 W/m2 in sunny locations

Photosynthesis efficiency ~ 0.5 - 3%

Roughly requires about 0.75 – 1 hectare per person (vegetarian)

Trophic Levels

Microbial life

Humans

Photosynthesis

Warming

Plant Life – Primary Producers

nutrient release

Domestic Animals

Warming

& some PS

person

agriculture

shel

terclothing

transportation

ente

rtainm

ent

Labor support

Sun fossil fuels

wind energy

Our Energy CocoonOur Energy Cocoon

hydr

o en

ergy

infrastructure

health care

governmental

servicespr

otec

tion

utili

ties

serv

ices

work

orga

niza

tion

serv

ices

Petroleum

• Whale oil for lighting to kerosene (Gesner, 1853) a distillate of oil

• Drake, 1859, went looking for and found oil• Otto, 1876, first four-stroke internal

combustion engine• Diesel engines, turbines – burn fuels in the

cylinder for maximum power transfer• The prime movers using oil and natural gas

Transportation• Liquid fuels (stable and themselves

transportable) served best• Kerosene, gasoline (petrol), and even diesel

fuels are relatively light (compared with water)

• Modes of use of ICEs– Land: automobiles, trucks, and buses (trains

remained coal-fired until the early 20th century)– Water: large ships of all kinds– Air: airplanes of all kinds

Petroleum Composition• Oil types

– Kerogen (shale oil) to bitumen (oil sands)– Extra heavy (sour)– Heavy – Light, sweet or regular

• Components– Long chain molecules – oils– Medium chains – lighter liquid fuels– Short chains – gasses such from methane to

butane

Electricity

• Electro-magnetic force– Dynamos – producing electricity– Lighting and heating – using electricity– Motors – using electricity

• Conduction of current over long distances• Flexibility• Production from

– Heat engines (coal-fired boilers and steam turbines– Hydroelectric plants

Energy and the Economy

Energy Return on Energy Energy Return on Energy InvestedInvested

• The energy content of the fuel varies by grade, so simple barrel counts are insufficient.

• Energy must be expended to invest in energy extraction and conversion infrastructure, e.g. derricks, platforms, ships, pipelines, refineries, tanker trucks, etc.

• Energy must be expended to search for new oil deposits

• Energy must be expended to drill and pump the oil• EROI (also called EROEI) is the ratio of energy

returned for the energy invested – energy returned is the net energy available

Bursting All Kinds of BubblesBursting All Kinds of Bubbles

Why is our economic reality one of many bubbles bursting?

The housing bubbleThe credit bubble

The stock market bubbleThe political bubble

The understanding of economics bubble!George Mobus University of Washington Tacoma

The Neoclassical ViewThe Neoclassical View

Firms Households

Products & Services

Land, Labor, & Capital

Purchases

Wages & Profits

Resources

Wastes

?

?

The Economy As A Closed System

8

8

George Mobus University of Washington Tacoma

The Economy

Externalities

Growth in a Closed SystemGrowth in a Closed SystemAssumptions in Neoclassical Economics

• Technology will always provide more efficient means of production

• Money supplies can be expanded through acceleration (higher rate of throughput)

• Debt can be used to finance expansion• Resources are essentially infinite (esp. with

substitution)

George Mobus University of Washington Tacoma

Obvious Fallacies Obvious Fallacies • Infinite resources

– Renewable (only if rate of renewal is sufficient)– Non-renewable (always depleting)

• Technology cannot be guaranteed to increase efficiency indefinitely – Carnot limit: Every machine has an upper limit – Moore’s Law not applicable to non-digital

machines

• Growth of natural (physical) systems is always constrained by negative feedbacks (covered later)George Mobus University of Washington Tacoma

• Embedding the human economy in the global ecology

• Ecology, economy – same root: ECOS Greek for HOME

Ecological Economics Ecological Economics – First – First Approximation of RealityApproximation of Reality

Households

PurchasesResources

Waste recyclingWages & ProfitsFirms

Organics, water, & gasses

Minerals

Solar energy

Geothermal energy

DepositsRecycling Processes

Solar energy

Purification

Ecological System

Economic System

Products & services

Land, labor, & capital

Photosynthesis

Fossil fuel

formation

Purchases

Biophysical Economics

• The Economy: Energy, work, and goods/services

usersentropic decayconsumption

equipment, maintenance, & improvements

raw energywaste heat

energy capture & conversion

tools

physical assets

work processes

value added

stocks

usable energy

services

raw material

The Concept of AssetsThe Concept of AssetsAnything and Everything Created

by Human Endeavor• Tangible

– Appropriated natural resources - land, cut timber, ores– Fixed (long-term) – plant, equipment, houses, etc.

• life expectancies in decades• wear down with age (entropy) and use, require maintenance

– Fixed (intermediate-term) – automobiles, appliances• life expectancies in fractions of decades (e.g. 1 ½ ~ 15 years)• wear out with use and need repair and replacement

– Supplies (short-term) – clothing, paper– Consumables (very short-term) – food, plastic packaging

• Intangible• Biomass

George Mobus University of Washington Tacoma

The Concept of Assets The Concept of Assets (cont)(cont)• Tangible• Intangible

– Has value but limited physical extent– Knowledge – human memories, documents, patents– Social relationships – organizations, institutions,

communities; process frameworks• Biomass – non-food related

– People– Pets– Ornamental plants

George Mobus University of Washington Tacoma

The Concept of Assets The Concept of Assets (cont)(cont)• Possession – exclusive right to use

– control over how and when used– may require on-going work to maintain

• Obtained through effort expended– created by work process– either directly produced or obtained via a value

transaction – traded for something of equal value• Presumed to have a future benefit

– can be used to accomplish a valued end– special case – tools, or capital, allow more work to be

done (increase income)

George Mobus University of Washington Tacoma

The Concept of Assets The Concept of Assets (cont)(cont)• Capital assets – Needed to produce more assets in the

future; Investment– Physical plants, equipment, and tools– Land– Buildings

• Consumables – Objects that are degraded to waste as a result of use (various time scales, but generally short-term)

• Discretionary – Objects that are not ‘needed’ but desired (esthetics beyond functionality, e.g. luxury cars, artwork)

• Mixed purposes assets – Objects that may be used as either capital or discretionary (esp. in households), e.g. automobiles, computers

George Mobus University of Washington Tacoma

Assets and Work ProcessesAssets and Work Processes• All assets derive from work processes

– All work processes consume energy (from the definition of energy in physics)

– Energy inputs must be of a high potential able to drive the process

– All work processes take time– Energy consumed over time = power

• Intangible assets are just as much a result of work processes, but generally represented by symbolic forms (e.g. contracts, patents, customer files, computer programs) or embodied in human memories as a result of discovery and education

George Mobus University of Washington Tacoma

Money is NOT an Asset!Money is NOT an Asset!• Money is a representation of asset value• Money is a claim on embodied energy• Money flows in a direction opposite to the flow of

work/energy, acting as a message to control that flow

• Money is a convenient means of conducting transactions where assets are exchanged

• Accumulated money (savings) is a virtual asset as long as the representation form maintains its relation to the underlying value in embodied energy – no inflation or deflation

Debt As MoneyDebt As Money• Borrowing from past savings

– Profit – creating excess assets through efficiency– Saving excess assets for future use and insurance– Banking and fractional reserves – short term debt

• Virtual money

• Borrowing from future earnings– Promises to pay back debt with interest from profits to

be made in the future– Longer-term investments, it will take time to recoup

the principal with interest– Creative paper instruments to represent future money

George Mobus University of Washington Tacoma

Debt Financing as BettingDebt Financing as Betting• Risks in borrowing from the past or the future

– Past savings exist as a form of insurance against future disasters – borrowing diminishes resources and puts people at risk

– Borrowing from the future is betting that the future will turn out as expected – what happens if it doesn’t?

• Both are risky in terms of future contingencies• If ‘rational’ agents have had the experience of the

present being better than the past, they will assume that the future will be better still

• This worked for most of human history but the reason wasn’t obvious

George Mobus University of Washington Tacoma

The Reason Debt WorkedThe Reason Debt Worked• For all of human history we have always

(generally) experienced increasing access to greater power sources

• Through clever observation of nature and trial and error (later science and technology) we have discovered and exploited better energy sources– Clothing and shelters decreased energy loss (effectively

increasing energy available), domestication of fire , agriculture and domestication of animals, waterwheels and windmills, coal, petroleum, hydroelectric and nuclear power

• The growth of energy resources led to expansion of work processes and accumulation of assets – economic growth – meaning profits

George Mobus University of Washington Tacoma

Limits to GrowthLimits to Growth• Appropriation of non-renewable (or slowly renewable)

natural resources from finite stocks takes increasing energy to accomplish – Best-First Principle

• Fossil fuels, which now supply more than 80% of global energy, are a non-renewable, finite resource

• Renewable energy sources can only be exploited by building an infrastructure that requires using high power energy (from fossil fuels!)

• Renewable energy sources are based on real-time solar insolation which is diffuse (you can walk around in it)

Now for a Real Inconvenient Truth – Now for a Real Inconvenient Truth – Limits on Energy FlowLimits on Energy Flow

Hubbert’s Peak – Fossil Fuels

1970

rates for lower 48 states, USA

exponential riserapid exploitation

diminishing marginal gain

declining oil extraction

?today

The Extraction of Finite The Extraction of Finite ResourcesResources

• The positive reinforcement of acquisitiveness coupled with increasing population drives increased efforts at extraction - Demand

• Eventually the Best-First principle catches up and the Law of Diminishing Returns takes over causing deceleration in extraction rates

• At some point it is no longer economical to start new extraction efforts (new wells or mines) and production is based on existing facilities that continue to deplete the resource

• There will be an exponential decline in extractionGeorge Mobus University of Washington Tacoma

Inevitable!Inevitable!• The only real question has been: when?• The answer is looking like NOW.• Hubbert’s prediction for the peak of production for the

lower 48 states in the US for early in the 1970’s (made in 1956) turned out to be right on in terms of timing (actual volume was a bit higher than expected).

• His prediction for global oil peak was for in the early 2000’s. Current models and empirical data suggest strongly that world conventional oil production peaked between 2005 and 2008.

• Because of Best-First we are now turning to nonconventional sources like tar sands and shale oil.

George Mobus University of Washington Tacoma

Gross and Net Energy PeaksGross and Net Energy Peaks• Net energy peaks in production before gross energy

peaks• The down-side of the curve is steeper than Hubbert’s

36

Effect on Asset AccumulationEffect on Asset Accumulation• Asset accumulation follows energy availability

(flow)

growth feasible growth decelerating

decline

Fossil fuels only - BAU

Adding in Alternative SourcesAssumes a WWII-Style Marshalling of Resources