Energy Quality: One of the Causes of the Recession?
Smart and cogent – if not experimental – analysis by Carey King at the University of Texas at Austin. King’s data shows that Energy Return on Investment (EROI) is a metric that illustrates energy as a limiting factor on economic growth:
In economic terms, the quality of the nation’s energy supply is referred to as Energy Return on Energy Investment (EROI). For example, if an oil company uses a 10th of a barrel of oil to drill, pump, transport and refine one barrel of oil, the EROI for the refined fuel is 10.
“Many economists don’t think of energy as being a limiting factor to economic growth,” says King, a research associate in the university’s Center for International Energy and Environmental Policy. “They think continual improvements in technology and efficiency have completely decoupled the two factors. My research is part of a growing body of evidence that says that’s just not true. Energy still plays a big role.”
The worst recessions of the last 65 years were preceded by declines in energy quality for oil, natural gas and coal.
Especially interesting is King’s use of another metric – the EIR (Energy Intensity Ratio) – viewed in a historical perspective. In 1972, the EIR was 5.9 and more recently in 2008 it was 5.5 – both periods of limited growth or contraction. Compare those numbers to the 1990s, a period of strong economic growth, when the EIR was well over eight.
Worth your time to read the whole thing.
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