Relating Financial and Energy Return on Investment

King, Carey W.; Hall, Charles A. S.

doi:10.3390/su3101810

Cited by 91 publications

(63 citation statements)

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“…This correlation does not imply that other factors are not also important. However, energy costs, as discussed above, probably reflect to a large degree the EROI of the energy source [16] and thus, unlike other costs such as labor, represent sunk costs; money spent that is unlikely to be recycled into increased spending elsewhere. For example, if the cost of labor should rise, much of the money paid to workers would reappear elsewhere in the economy, as workers spend at least some of their increased pay.…”

Section: Discussionmentioning

confidence: 99%

“…While energy price and EROI are not necessarily directly correlated, due to subsidies and other mechanisms that can distort markets, empirically EROI and the price of a fuel are inversely and moderately strongly related [16,17]. Certainly, a declining EROI must eventually translate to a higher price, and conversely, a continued high price suggests a relatively low EROI.…”

Section: Coalmentioning

confidence: 99%

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Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950–2013

Aucott

Hall²,

Stern³

2014

Energies

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Abstract:We examined data on fuel consumption and costs for the years 1950 through 2013, along with economic and population data, to determine the percent of U.S. gross domestic product (GDP) spent each year on fuels, including fossil fuels and nuclear ore, and the growth of the economy. We found that these variables are inversely correlated. This suggests that the availability and cost of energy is a significant determinant of economic performance. We believe this relation is consistent with analyses based on the energy return on investment (EROI) concept in that increasingly scarce, and hence expensive, fuels are a drag on economic growth. The best-fitting linear equation relating the percent of GDP (energy cost share) and year-over-year (YoY) GDP change variables suggests that a threshold exists in the vicinity of 4%; if the percent of GDP spent on fuels is greater than this, poorer economic performance has been likely. Currently, about 5% of GDP is spent on fuels; most of this is for liquids. Continued weak economic performance appears likely unless improvements in energy efficiency, on the order of a factor of 3 for liquid fuels, and/or a more rapid adoption of renewable or nuclear energy sources can be achieved, provided that the EROI of these new sources proves to be sufficiently high.

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Section: Discussionmentioning

confidence: 99%

Section: Coalmentioning

confidence: 99%

Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950–2013

Aucott

Hall²,

Stern³

2014

Energies

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“…However, empirical evidence corroborate that complexities in the energy system (further discussed in Section 2) create significant inertia in the price-response mechanism with, for example, oil prices exhibiting non-linear behavior with regard to diminishing energy return on energy invested [6,7]. This non-linearity and inertia in the energy system behavior poses an important policy problem on the global and regional scale as policy intervention is required to address the potential of market failure in a successful energy transition additionally bounded by climate change considerations [2].…”

Section: Theories Of Energy Transitionsmentioning

confidence: 90%

A Framework for Defining Sustainable Energy Transitions: Principles, Dynamics, and Implications

Sgouridis¹,

Csala²

2014

Sustainability

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While partial energy transitions have been observed in the past, the complete transition of a fossil-based energy system to a sustainable energy one is historically unprecedented on a large scale. Switching from an economy based on energy stocks to one based on energy flows requires a social paradigm shift. This paper defines Sustainable Energy Transition (SET) and introduces a set of five propositions that prescribe its sustainability. The propositions are comprehensive, spanning environmental constraints, resource availability, equity, and the transition dynamics from an energy and economic accounting perspective aimed at addressing all three pillars of sustainability. In order to rigorously define the constraints of SET a theoretical energy economy framework is introduced along with the concept of the renewable energy investment ratio. The paper concludes with a practical application of the SET propositions on the global energy system and identifies an order of magnitude underinvestment in the renewable energy investment ratio in comparison to the estimated level needed for a controlled transition that satisfies all propositions. The option of drastically increasing this ratio in the future may not be available as it would reduce societally available energy, imposing unacceptably high energy prices that would induce either fossil resource extraction beyond the safely recoverable resources or energy poverty.

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“…Odum, Georgescu-Roegen, Hall, King and many others have applied this concept to describe energy production systems and technologies within the context of the overall economy (Odum 1971;GeorgescuRoegen 1971GeorgescuRoegen , 1979Hall and Klitgaard 2012;Hall et al 1986;King and Hall 2011;King 2010;King et al 2015a, b;King 2015a). In particular, Hall has promoted the idea that ''net energy'' is an important metric that relates to societal structure and economic growth (Hall et al 2009).…”

Section: Net Energy Perspectivementioning

confidence: 99%

Information Theory to Assess Relations Between Energy and Structure of the U.S. Economy Over Time

King

2016

Biophys Econ Resour Qual

Self Cite

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This paper describes the changing structure of the United States' (U.S.) domestic economy by applying information theory-based metrics to the U.S. input-output (I-O) tables from 1947 to 2012. Here the I-O tables are an economic network where the sectors are the nodes. The value of these metrics is that they describe the balance or trade-off between efficiency and redundancy of network flows as well as equality and hierarchy of flows through nodes in a network. I relate these metrics to the U.S. gross power consumption and annual intermediate spending by the food and energy sectors, the latter being a proxy for the inverse of the net power ratio (or net energy) of the economy, to test hypotheses of energy-economy structural linkages. The results of this paper show that increasing gross power consumption, as well as a decreasing share of intermediate expenditures of the food and energy sectors, correlates with increased distribution of money among economic sectors, and vice versa. The information theory metrics indicate two time periods at which major structural shifts occurred. The first was between 1967 and 1972, and the second was around the turn of the twenty-first century when food and energy expenditures no longer continued to decrease after 2002. In response to the latter, it is clear that the U.S. economy did trade off structural reserves (e.g., decreasing metrics of conditional entropy, redundancy, and equality) for structural efficiency (e.g., increasing metrics of efficiency, mutual constraint, and hierarchy) after food and energy expenditures increased post-2002. I also test the structural trends with increasingly simpler (e.g., fewer sectors) representations of the I-O tables, and the results are more consistent for I-O representations that account for inputs and outputs (e.g., value added and gross domestic product) rather than only the intermediate transactions among sectors. The findings of this paper have important implications for economic modeling in at least two ways. First, the paper helps explain how fundamental shifts in resources costs relate to economic structure and economic growth. Second, the paper shows that the number of sectors used to represent economic transactions influences the systemic metrics themselves.

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Relating Financial and Energy Return on Investment

Cited by 91 publications

References 20 publications

Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950–2013

Does a Change in Price of Fuel Affect GDP Growth? An Examination of the U.S. Data from 1950–2013

A Framework for Defining Sustainable Energy Transitions: Principles, Dynamics, and Implications

Information Theory to Assess Relations Between Energy and Structure of the U.S. Economy Over Time

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