I've been reviewing the posts on this boards recently regarding EROEI, and I am sorry to say that I've seen some staggeringly inaccurate arguments made about it (my apologies to those who have argued correctly about it, however). On the whole, I see notions about EROEI as among the least developed in the range of terms and arguments concerning Peak Oil. In particular, there seem to be a few who understand, in concrete terms, why EROEI affects carrying capacity, and why an energy source with high EROEI will extend carrying capacity for the planet. My purpose here, then, is to try to develop some notion of what EROEI is, and moreover, what it means for our society.
For the benefit of those new to the issue, I will offer a brief explanation of what EROEI means. Basically, it is an acronym for Energy Returned On Energy Invested. Imagine for a moment that someone produces an invention that captures energy from a particular source and makes it available for purposeful use. EROEI would be calculated by taking the amount of energy produced over the lifetime of the gadget and dividing that by the amount of energy used to produce it. Energy that the gadget captures and makes available is the output. Energy required to make the gadget and keep it running is the input. Thus, if over its entire lifetime it took one unit of energy to produce and maintain (including any infrastructure necessary to make the energy available at point of use), but it produced 30 units of energy, the EROEI would be 30:1. If, on the other hand, it took one unit to produce, maintain, and transport product, but it only ever produced half a unit, the EROEI would be 1:2. It's easy to see that we wouldn't be able to power anything if that were our only energy option.
Of course, in the real world, things aren't that simple. But it appears that some people, on these boards as well as elsewhere, are determined to make the notion as complex and confusing as possible. I would like to cite two arguments sometimes offered on EROEI and explain why they are flawed.
Argument 1: The boundary of an EROEI analysis is not clear.
This argument goes that it's impossible to rigorously define what counts as an input. Do we include the energy in the breakfast that the platform workers ate before they started pumping oil that day? Do we include the energy generated by the electricity wired to the refinery? Do we include the energy that feeds the banker who loans money to the oil field owner for development? Casting our boundaries wide enough, it is argued, we could find compelling reason to think that the whole infrastructure of society has to be present to produce a single barrel of oil; and if inputs cannot be determined, then the entire calculation cannot be done.
This argument at least somewhat sensical and relevant to the issue. It is, however, not an objection to using EROEI the way that Peak Oilers normally do. If we had only one energy source option, and all other variables were held equal, then an EROEI calculation would necessarily have to have inputs rigorously defined, and there would definitely have to be considerable discussion about what constitutes an input. Opinions would likely vary, as we see that they do among the scientists who attempt EROEI studies. Despite this, I believe it would be possible to reasonably and rigorously define what was and was not an input, and what the total output would be.
But EROEI as it relates to oil peak is more useful as a comparative number. We'd like to compare the quantitative advantage that oil gives us over nuclear, coal, biomass, solar, wind, and so on. And here's where the objection loses steam; it is not necessary to examine and make a judgement about every input, to agree (absent any comparison) exactly where the boundary should be drawn, and so on. Provided that certain basics could be agreed upon, it's really only necessary to hold the boundaries constant across comparable calculations. If we include the breakfast that the oil workers eat, then we include the breakfast that the biomass farmers eat, though costs in each system may be wildly different. And so on.
Of course, some analogies have to be made. Where for a modern oil rig, a fraction of oil (usually diesel) powers the machinery that pumps the oil, food powers the lumberjack who chops wood. The energy inputs are analagous, however, and I think it's pretty easy to see that. The machine that gets the oil out of the ground is a pump, the machine that gets the wood out of the forrest is a human being. Both are powered by the afforementioned inputs.
What seems confusing to a lot of people is that the analogy has to be made functionally, not categorically. It doesn't (or shouldn't) matter that diesel and food are typically taken to be in different categories. Functionally, they serve the same purpose with regard to this sort of analysis.
Arguement #2 Economic impact of EROEI is negligible
This argument has it that there will always be a willingness to invest in any energy scheme that generates positive EROEI. Even though the Athabascan oil sands may have a much lower EROEI than conventional oil, the markets will take care of the extra energy cost because profit will still be generated.
This argument stands in sharp contrast to the first in that not only is it incomplete, it's just plain stupid. The economic definition of energy is the capacity to do work. When you pay money to someone else for something, you're paying for work done to extract or recover essential resources and turn them into something you can use to further your own survival or comfort. In terms of ultimate origin, you're not paying anything for the creation of the resources; nature took care of that.
This may seem a little odd at first, but an illustration should clear things up. Lets talk about a tomato. The inputs for making a tomato are commonly taken to be fertilizer, land, seed, water, and sunlight. In the case of the first four, farmers pay money for those things, in order that they may produce tomatos and themselves be paid. But no one currently pays a dime for sunlight. Suppose, however, that something happened to the atmosphere to cause the sun not to shine through bright enough anymore to grow tomatoes. Then, suppose that someone invented a process that would clarify the atmosphere and reverse those effects, but this would have ongoing maintenance. People would, likely, have to pay for this process, probably through higher taxation. But would they be paying for sunlight, or the energy consumed in making the sunlight usable? Clearly, the latter.
Similarly, when we pay money for a product (surely the basis of any modern economy; people pay money for products, which money they got for their products, and so on), we are paying for energy expended in going from raw materials to finished goods. Even when we pay for land, we're paying for the energy necessary to adjucate and administer land records. If we imagine that there were only, say, 50 people spread throughout the world, no one would need to pay for land.
But energy isn't the sum total of the value of money. Something else that lends value to money is faith. Money that is in circulation right now is not valued entirely on the sum total of the energy available in the economy. If that were the case, things would have collapsed long ago.
Currency itself has little or no intrinsic value. It's value derives from what it represents (energy), and also faith that it will continue to represent a relatively constant amount of energy. For this reason, the total amount of energy available to an economy can contract or stay constant while the sum total face value of currency in circulation may expand.
But it is a mistake to assume that energy can contract significantly without the currency that represents it losing value. In the real world, this is easy to understand. As gasoline prices go up, for instance, the cost of goods to the end user will rise, though they lag behind the rise in fuel costs. The question of how far available energy has to contract before money devalues substantially enough that endemic mass unemployment and economic collapse result is not easily answered. This is true mainly because faith in the value of the currency is not quantifiable.
However, it strains the imagination to believe that the sum total of the energy available to an economy might be cut in half, or worse, without significant damage being the result. Especially when faith in the value of the currency and the government that controls its supply are also waning.
And understanding what happens as energy leaves is crucial to understanding the threat of Peak Oil. For the purposes of simplification, let's assume that tomatos are the only food that all people eat. Let us also assume that half their retail price is derived from the cost of shipping them from their point of origin to the point of consumption. As more energy becomes necessary to make energy usable (i.e. the EROEI ration decreases), the higher the cost of transportation. If EROEI decreases by half, say, from 100:1 to 50:1, all other things being equal, fuel costs will double. This will cause the cost of each tomato to rise 25%. So if tomatoes started out costing a dollar each, now they cost $1.25. If the EROEI drops again, this time lets say it takes a nosedive down to 5:1, tomatoes actually cost $10.50 a piece. For those with little discretionary income, this means that they have to eat 10 times less than they previously did--probably not possible if they want to live.
Of course, it's not the case that prices actually follow this kind of linear function. And all sorts of measure may forestall this fate. But they will not avert it forever.
One thing that tends to hold things together for a time is the afforementioned faith in the ability of the currency to hold its value. So long as everyone thinks that they can get as much energy with the currency tomorrow as they are giving away today, the economy will not collapse. But it's not possible for this to go on forever, especially when prices rise while currency in circulation remains constant. If people don't notice that their money won't buy as much as it used to, they'll eventually be forced to produce less when they can't afford to eat.
What is of prime importance in understanding the impact of oil peak is determining the kind of roll-off that will be taking place. Right now, we don't have the data necessary to come to firm conclusions, though there is enough evidence that it may be fairly sharp. In that event, hard times, and a probably die-off, are assured.