This week’s edition of Scientific American has a couple of great infographics put together by Mason Inman on Energy Return on Investment (EROI). Strangely, these graphics are behind a paywall on Scientific American’s web site but are available open access on the site of Nature, the sister publication, here (click for larger image).
The infographics show that we are needing to use an ever-larger amount of energy in order to harvest energy from liquid fossil fuels. From a world in which we used to invest one unit of energy in conventional land-based oil production and get perhaps 50 units out, we are moving to a world where we now invest one unit of energy in unconventional fossil fuels but only get five or six units out.
For those interested in the source of the numbers that sit behind this graphic, then Inman has done us a service by listing them all here. As would be expected in any piece on energy extraction efficiency, he also references Professor Charles Hall, the father of EROI and, indeed, conducts a Q&A with Hall here. If you want to understand the implications of a low EROI, Hall explains it this way:
Is there some minimum EROI we need to have?
Since everything we make depends on energy, you can’t simply pay more and more and get enough to run society. At some energy return on investment—I’m guessing 5:1 or 6:1—it doesn’t work anymore.
What happens when the EROI gets too low? What’s achievable at different EROIs?
If you’ve got an EROI of 1.1:1, you can pump the oil out of the ground and look at it. If you’ve got 1.2:1, you can refine it and look at it. At 1.3:1, you can move it to where you want it and look at it. We looked at the minimum EROI you need to drive a truck, and you need at least 3:1 at the wellhead. Now, if you want to put anything in the truck, like grain, you need to have an EROI of 5:1. And that includes the depreciation for the truck. But if you want to include the depreciation for the truck driver and the oil worker and the farmer, then you’ve got to support the families. And then you need an EROI of 7:1. And if you want education, you need 8:1 or 9:1. And if you want health care, you need 10:1 or 11:1.
Civilization requires a substantial energy return on investment. You can’t do it on some kind of crummy fuel like corn-based ethanol [with an EROI of around 1:1].
And on the implications for economic growth:
Do you think we’re facing limits to growth now?
I think if you correct the U.S. GDP for debt—in other words, the debt is some kind of not-real growth—then I think the GDP hasn’t grown at all since 2005. It’s just grown through debt. I think clearly growth has declined; it’s possible that growth has either stopped or may soon stop.
We know that the middle class has not increased its income now for 20 years. Behind that—not always the immediate cause, but looking over the shoulder of the causes—I find the decline in the availability of energy.
It’s terrifying to people—politicians and economists—who base everything on growth. I think they won’t talk about it because the concept is terrifying.
Personally, I find resource depletion and rising real resource prices to be one reason for the current stalling of economic growth in advanced countries, but certainly not the main cause—yet. Nonetheless, policy-makers (or indeed any economist trained within the neoliberal paradigm) appear little aware of the implications of thermoeconomics (for an introduction into this field read, for example, Reiner Kummel’s “The Second Law of Economics: Energy, Entropy, and the Origins of Wealth“).
Nor indeed do policy makers understand the implications that the current changes in technology are having on employment, effective demand and economic growth. And this is before we address the even more important question of climate change. In the face of such ignorance, we get the folly of believing that the old methods (even dressed up in new clothes) can address new problems. So, for example, we see the Bank of Japan’s decision to instigate a super-aggressive monetary ease to try to jump start more growth (which I just blogged on here).
However, for a touch of optimism, I would direct you to the second infographic on the EROI of electrical energy generation (click for larger image):
As Hall himself points out, the EROIs of many forms of renewables are low. Nonetheless, many of them have one thing going for them compared with fossil fuels: the application of technology means that in many cases renewable EROIs are rising (for example with solar), while, despite the application of technology, resource depletion means that the EROIs of fossil fuels are falling.
Neoliberals must, therefore, understand that technology plus free markets are not sufficient to flatten and push out long-term supply curves for fossil fuels (even the IMF gets this now, here). Ironically, renewables are where all the neoliberal technology-plus-markets action is to found.
Against this background, the recent announcements of certain people of a neoliberal persuasion that fracking (technology plus markets) has rendered peak oil theory dead are laughable. The empirical evidence for this claim is just not there (see Professor Jim Hamilton at Econbrowser for a trot through the numbers). Actually, you don’t even have to do that: just look at the bloody oil price! If peak oil is dead, why is Brent oil still above $100 per barrel? And the people who claim that peak oil is dead say they believe in the messages put out by free markets. I have never understood how they have managed to get around that self-contradiction.
Finally, why on earth is the media establishment worldwide hammering renewables the world over as a costly indulgence in a time of austerity? Renewables are the only thing that stand between us and outright energy decline. What is more, they are coming down their cost curves, their EROIs are improving, they help mitigate carbon emissions, they are a source of home employment, they reduce global trade imbalances and they promote geopolitical security. What is not to like?
Risk and Well-Being 
I don’t understand why analysts report three significant figures for ERoEI, but do not include the energy consumption of all of the stakeholders and the accidental participants in the energy-invested term so as to avoid throwing away such precision as has been exercised in the ERoEI computation by picking out of the air a single digit that is supposed to determine sustainability. In a simple thought experiment involving a community of energy workers who devote themselves to providing the exact amount of economic activity necessary to harvest their own energy requirements (leaving nothing to be given or done by anyone not in their community) and managed in such a way that surplus energy can be exported if and only if ERoEI is greater than 1.0 — I say, by means of this thought experiment we see exactly what belongs in EI and what does not.