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Gail the Actuary almost gets it right

Gail the Actuary almost gets it right thumbnail
In the entry of July 11th, I commented on Gail Tverberg’s list of monetary problems that arise in connection with energy technologies that have an EROI as low as 5.0 in the methodology employed by Charles Hall until quite recently when he began to collaborate with Pedro Prieto who has added many (but not all) items to the energy investments necessary to determine sustainability, quasi-sustainability, or feasibility as defined in the post of August 14th.  I include part of Gail’s article and my comments below.

In my earlier comment, I neglected to mention that, if the monetary deficits are known, there is no reason not to convert money to energy according to the methodology mentioned in the comment and get a better estimate of ERoEI.  In case, Pedro’s methods were employed, one must be careful not to double count the energy consumed by employees to maintain their standards of living.

Now, Pedro said that he accounted for the employees; but, he did not promise that he counted the total increase in the world energy budget due to the employees being paid at all; that is, the energy invested term must be increased not only by the entire energy budgets of the employees but also by the increase in the energy budgets of everyone who receives any of that money when it is spent.  There are multiplication factors to aid the analyst in doing this.

Indeed, the list items are of different types.  If the project is never built because funds of one type or another are not available, we can treat the item either as a hypothetical energy investment expense or a barrier.  It is not fair to charge different rents for necessary plots of ground to different instances of the same technology; therefore, land should be given a separate account and charged at the rate of insolation or wind area number or merely counted toward Maximum Renewables as I did in .

Private profit is an energy expense and one of the largest I fear.   The analyst must compute the difference in the world energy budget as he did for wages except that this is a completely unnecessary expense.  If sustainability is under investigation, the energy costs of pollution must be reckoned as in the post of December 8th, 2012.  Otherwise, the best one can do is to determine feasibility.

In any and every case, Gail’s conclusion is probably still correct, namely, that ERoEI is less than 1.0 and more research in energy technology must be supported.  This represents an energy burden that must be borne by the entire energy sector.

 Gail Tverberg’s List

 Primary problems

 1.   Funds are not available to pay for fossil-fuel subsidies for renewable energy projects.
2.   Wages consistent with financial solvency and private profit are too low.
3.   Energy production companies, especially heavily front-loaded renewable energy production such as photovoltaic solar energy installations, need to borrow money that the credit system can no longer supply.
4.   There are insufficient financial returns to pay taxes desperately needed by governments.

 Secondary problems

1.  Private profit from energy production is seen as inadequate by corporations.
2.  Rent cannot be paid for land used in energy production. This cost might be highest in bio-fuel operations, but it belongs to every process that harvests sunlight in real time.
3.  Insufficient funds are available to prevent pollution and mitigate its effects.  These costs are never paid unless mandated by law – if then.
4.  Energy production companies do not pay to prevent mineral depletion and degradation of soil or even try to nor do they pay fines for failure.
5.  Energy producers do not account for limitations in so-called free energy.  For example, there ought to be a cost premium charged to the process for using limited coastal or off-shore wind power sites.
Gail Tverberg, the actuary, in the article posted by Jay
Hanson, wrote, “Commenters frequently remark that such-and-such an energy source has an
Energy Return on Energy Invested <http://en.wikipedia
.org/wiki/Energy_returned_on_energy_invested> (EROI) ratio of greater than
5:1, so must be a helpful addition to our current energy supply. My finding
that the overall energy return is already too low seems to run counter to
this belief. In this post, I will try to explain why this difference occurs.
Part of the difference is that I am looking at what our current economy
requires, not some theoretical low-level economy. Also, I don’t think that
it is really feasible to create a new economic system, based on lower EROI
resources, because today’s renewables are fossil-fuel based, and initially
tend to add to fossil fuel use.”

It is true that alternative energy installations that employ photovoltaic
cells, for example, incur heavy energy investment expense before any energy
at all is returned. In a US-type market economy, the fossil-fuel debt that
must be incurred early in the life cycle of such an installation might never
be repaid. That is because, in a market economy, significant energy
investment expense is required just to operate the market [1]. This expense
is never recorded in conventional approaches to ERoEI analysis such as
Charlie Hall’s methodology which has received widespread attention.
Moreover, the energy costs of private profit, borrowing money, paying taxes,
paying adequate wages to employees and other economic actors who make
part-time contributions to producing energy such as the energy employee’s
health-care providers, auto mechanics, tax accountants, and other indirect
energy expenses at all levels, including, for instance, the appropriate
pro-rata share of the energy executive’s insurance company’s actuary, are
not counted. Thus, Gail – or anyone else – has no idea if EROI = 5 is
adequate or not.

In ERoEI* (pronounced “E R o E I star”) as described at and on my blog at all of these and every other facet of energy
technology that influences sustainability and whether or not the technology
will actually be employed is considered; so, when the analysis is complete,
the analyst knows that an ERoEI* greater than 1.0 is adequate with as much
certainty as went into the collection of his raw data.

In “Energy in a Mark II <>
Economy” I analyzed the meaning of the ratio of Total Energy Budget over
Gross Domestic Product for an entire economy, some form of which the DOE
records for every nation and every year. It might be interesting to obtain
similar ratios for each individual sector including the government and
finance sector to aid in converting Gail’s monetary expenses into
appropriate energy expenses. If nothing else, we could then determine if
Gail’s threshold figure of 5.0 make any sense at all.

[1] In “Energy in a Mark II
<> Economy” I employed the
figure of 22% of the total energy budget that the US Department of Energy
(DOE) charges directly to commerce. Of course, some portion of the energy
consumed by transportation and manufacturing should be charged to commerce
and finance as well. Moreover, if an entrepreneur extracts a large profit
from his – usually subsidized – renewable energy business and builds an
overly large house, additional energy costs should be charged to the energy
installation. This amounts to some fraction of the energy charged by the
DOE to the residential sector. In “Energy in a Natural Economy
<> ” I found a rough estimate of the energy
overhead of the US market economy by looking at Bureau of Labor Statistics

Tom Wayburn, Houston, Texas

P.S. In the entry of July 11th of I wrote the
following paragraph in connection with establishing a reasonably sane
monetary system partly in response to Gail Tverberg’s list (see below):

Special Characteristics [of a monetary system] Needed to Avoid Economic

Our crisis has a physical component and an imaginary component. The physical
component comes from limitations in the quantities of land, water,
consumable energy, and the environment itself. The ecological footprint of
the human race exceeds the carrying capacity of Earth. The imaginary
component is instability in the monetary system caused by excessive debt and
excessive monetary inequality. To ameliorate the physical crisis we must
eliminate the imaginary one. I do not mean that indebtedness, poverty, and
wealth are imaginary; but, rather, that we can eliminate all three with the
application of our imaginations without affecting the physical universe.
Stabilizing our population and reducing our ecological footprint will
ultimately have a desirable effect upon the universe.

Regardless of what the people want, the owners of the country want to retain
their positions of power, privilege, and wealth. Naturally, they despise the
idea of government control of the economy and the means of production;
however, when a crisis arises that they cannot handle, they readily accede
to crisis socialism to save them. During World War II, without adopting
socialism completely, they allowed rationing, wage and price control, and
management of vital industries by government employees even if they were
paid only one dollar per year.

To respond appropriately to resource and environmental limits, we need to
establish crisis socialism. However, to eliminate debt, we need to repudiate
the US dollar; and, to eliminate inequality, we need to pay everyone the
same even if no work can be found for them to replace the inessential work
from which they were furloughed to reduce our consumption of fossil fuels
and our ecological footprint. After all, the requirement that every citizen
does useful work to get paid and the requirement that the pay should be
commensurate with the value of the work are completely imaginary. The idea
that everyone should be allowed to get as much money as he can is completely
wrong. (One of the reasons Dematerialism is right and everything else is
wrong is that any society in which it is possible for one person to acquire
more wealth than another is doomed.)

*Adequate Return for All Elements Required for Energy Investment*

In order to extract oil or create biofuels, or to make any other type of
energy investment, at least four distinct elements described in Figure
1: (1) adequate payback on energy invested, (2) sufficient wages for
humans, (3) sufficient credit availability and (4) sufficient funds for
government services. If any of these is lacking, the whole system has a
tendency to seize up.

EROI analyses tend to look primarily at the first item on the list,
comparing “energy available to society” as the result of a given process
to “energy required for extraction” (all in units of energy). While this
comparison can be helpful for some purposes, it seems to me that we
should also be looking at whether the*dollars collected*at the
end-product level are sufficient to provide*an adequate financial return
to meet the financial needs of all four areas*simultaneously.

My list of the four distinct elements necessary to enable energy
extraction and to keep the economy functioning is really an abbreviated
list. Clearly one needs other items, such as profits for businesses. In
a sense, the whole world economy is an energy delivery system. This is
why it is important to understand what the system needs to function

More here

http://www.theoildr <>

http://www.theoildr <>


4 Comments on "Gail the Actuary almost gets it right"

  1. BillT on Tue, 27th Aug 2013 1:45 am 

    Dreamer…lol. If I read this correctly, we needed to start this about 10,000 years ago and build our civilization differently. That we can do a radical change now, voluntarily, is ridiculous. No one has the will or the power to make it happen except Mother Nature and she is going to do it her way. She doesn’t care if humans survive or not.

    The author is still talking about profits. That is the problem. “For Profit” Capitalism is what will kill / is killing homo sapiens and the rest of the world, not lack of energy. We have built a greed system that needs profit for ANYTHING to happen. Money now controls EVERYTHING. If you think that that is going to change this side of catastrophe, you are dreaming.

  2. Plantagenet on Tue, 27th Aug 2013 5:47 am 

    Socialism has already killed tens of millions in the USSR and China, with more millions killed by the natioanl socialist variant in Hitlers Germany

    Capitalisms record looks darn good compared to socialism

  3. andya on Tue, 27th Aug 2013 8:13 am 

    I have NFI what this article is about. I have even less idea why it has been posted around as if it was somehow related to reality.

    It’s actually not Capitalism, it’s people that are plundering and polluting the planet. Happens under any social structure if history is any guide. The problem is us.

    Hows the capitalism record? Know of any communist nations that have nuked entire cities of innocent civilians? The only nation in the world to have a record of nukeing civilians has the hypocracy to prevent other nations building nuclear power plants.

  4. BillT on Tue, 27th Aug 2013 8:49 am 

    Really planet? There are no Capitalist countries left on earth. None. They have not existed since at least 1971. And if you live in the West, you live in a socialist country.

    However, The Empire’s form of capitalism has started more wars in the last 100 years than all of the socialist countries combined. In fact, I cannot think of one war not started by capitalist ‘for profit’ motives. At least, not in my 69 years of living.

    Tally up all of the ‘war’ deaths direct and indirect since 1913 and see if they do not exceed the so called atrocities of Hitler, Mussolini and Stalin, et all, combined. Start with WW2 and then Korea, Vietnam, Iraq, Afghanistan, then Libya, Egypt, now Syria, and Yemen, Nigeria, and many coups in South America and Africa. The CIA, sales arm of the MIC, has been busy promoting death since it was organized. War is good for profits … The US cannot survive without our major export, DEATH.

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