Thursday, March 13, 2014

A Chemist’s Critique of Economics and “Sustainable Development”

Part I: Contemplation of the Energy Return on Investment (EROI)

Author’s note        This post is a bit longer (and headier) than previous posts, but herein I open a very complex and somewhat controversial constellation of subjects, and attempt to treat matters in a cross-disciplinary manner and at the root-level.

My intention in blogging for Chemists Without Borders is, in addition to producing journalistic descriptions of field projects and laboratory research geared to the development of appropriate water and sanitation technologies, from time-to-time to develop in-depth discussion of pertinent “big-picture” themes in economics and sustainability. I invite you to participate in the discussion through the “Comments” section – your feedback will likely shape future posts on these complex topics.

That a Chemist would inveigh against contemporary prevailing economic orthodoxies is perhaps a rarity but not without precedent.  Frederick Soddy won the 1921 Nobel Prize in Chemistry for his work (with Ernest Rutherford) on radioactive decay, but spent much of the rest of his career developing critique and prescriptions for economics rooted in physics. He called for radical shifts in our concepts and policies pertaining to money and finance, including, for example, the abolition of fractional reserve banking. For this, according to one reviewer of Soddy’s legacy writing recently in the NY Times op-ed section, he was “roundly dismissed as a crank.”

I’m well aware of the danger of also being labeled a crank, at least in the short term. But as the saying goes, “Nature bats last.” Moreover, the ideas of Mr. Soddy and his intellectual heirs in the emergent paradigm of Ecological Economics go along way to explain the abysmal failure of most establishment efforts in “sustainable development” over recent decades. These matters are deeply relevant to scientists such as “Chemists Without Borders” aspiring to impact the humanitarian development sector in a durable and beneficial manner.

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The word sustainability is flung around an awful lot these days, not least in the eponymous sector of sustainable community development. Unfortunately this most often happens with an astonishing lack of comprehension of basic foundational concepts. As “Chemists Without Borders,” we might hope to offer some prescriptive illumination on the subject.

A major hindrance to authentic sustainable development arises from the gaping disconnect between economics and the natural sciences. As an undergraduate Chemistry major, I was introduced to the First and Second Laws of Thermodynamics – in lay terms, (1) matter and energy are conserved, neither created nor destroyed but rather altered in form, and (2), there’s no such thing as a free lunch. Accordingly, it never fails to send me into a state of sputtering apoplexy when I hear economists, business people, political leaders, and development wonks stumping for this-or-that program designed to “promote and ensure sustainable growth.”

It ought to be obvious to everyone that pursing infinite growth on a finite planet is a futile (and destructive) absurdity. But most professionals, even those working explicitly in the “sustainable development” sector don’t seem to get it. (Trust me – I have been to their conferences, and no, they don’t get it.)

The problem extends right up to the highest levels of thought-leadership. To wit, financier Michael Metcalfe’s recent vacuous and smarmy TED talk suggesting the solution to global poverty is just to print more money. Jeez – why didn’t we think of that decades ago and avoid the whole problem of poverty in the first place?

Concerns about the rampant inflation such an approach would trigger notwithstanding (Metcalfe lamely dodges this point in his talk), it’s obvious that the self-proclaimed “financial whiz, economist and macro strategist” has no grasp on the fact that debt-based money represents a future claim on real wealth, that the ultimate source of all real wealth is Nature (i.e. the biosphere), and that under a highly leveraged fractional reserve system the aggregate of such claims may far exceed the capacity of physical resources to pay them back.

I harshly pick on Metcalfe as a rhetorical foil to make the point that we Chemists (With or Without Borders), along with our other natural science colleagues, have a mission to “connect-the-dots” that will bring economic and development agendas back into conformation with bio-physical reality.

EROI: Energy Return on Investment

To do this, our conceptual toolkit should include an in-depth look at EROI: “Energy Return on Investment.” EROI is net energy – the amount of energy left over once the energy costs of extraction are subtracted. Professor David Murphy of Northern Illinois University has recently published an excellent review of EROI with sobering implications for the future of economic growth.

We in the developed world have gotten used to continual economic growth as "normal" over several generations' time since the advent of fossil fuels, oil being of prime significance. In the past, we have always being able to expand our access to cheap, accessible high-EROI oil, and this has enabled economic growth and vast increase in societal and infrastructure complexity. In the initial heyday of US oil drilling in the early 20th Century, for example, the EROI was 100:1 or more (Hall and Day, 2009; Heinberg, 2011). This means that for every barrel of oil expended in exploration, drilling and extraction, we got 99+ barrels in return – an energy windfall unprecedented in the evolutionary history of the planet.

Given that the exponential increase in global economic output over the past 200 years is highly correlated with the same exponential increase in energy consumption (Murphy, 2014; see also below), the exhaustion of cheap high-EROI oil can be expected to cause economic growth to stall and reverse into contraction. This, in turn, can be expected to precipitate rapid civilizational decomplexification along with severe social and economic dislocation, since the energy surpluses used to build and maintain societal infrastructure at a previously high EROI erode rapidly and in a nonlinear manner.

Over the past decade, we've run out of cheap, easily accessible, high quality oil, and have begun to exploit more dispersed, environmentally risky, geo-politically contentious, low quality, and therefore more expensive, low-EROI resources such as fracked shale oil, tar sands, and super deepwater offshore deposits. Murphy summarizes that  “the average EROI for US oil production has declined from roughly 20 in the early 1970s to 11 today, while the global average EROI was roughly 30 in 2000 and has declined to roughly 17 today.” He indicates that the EROIs of oil production from ultra-deep-water areas, biofuels, and tar sands/oil shale are “less than 10,” “between 1 and 3,” and “roughly 1.5,” respectively.

For professionals in all fields concerned with true sustainable development, then, the ineluctable but deeply troubling questions is,

What is the minimum EROI required to run a highly globalized and integrated, sub-/urbanized, industrialized, hyper-complex society, and where are we now with respect to that minimum?

Furthermore, this question must be asked with the cognizance that, as Murphy points out, (1) the exponential relation between gross and net energy flows (the so-called ‘net energy cliff’, see below) comprises a critical point in the relation between EROI and price at an EROI of about 10; (2) the relationship between EROI and profitability becomes highly nonlinear as the EROI declines below 10; and (3) the minimum oil price needed to increase global oil supply in the near term is comparable to that which has triggered economic recessions in the past.

High oil prices reliably send the economy into a recession, because energy is the “master resource” that effects the production, and prices, of all other goods and services in the economy. Economic recession destroys demand, lowering oil prices; but if oil prices drop, then it is no longer economical for energy companies to exploit expensive low EROI resources. These upper and lower oil price bounds have characterized the bumpy plateau of oil production that we have been on since 2005, and go along way explaining our protracted economic non-recovery from the financial crash of 2008. Some analysts think that this indicates we’ve hit peak oil, and also that it signals the end of the era of economic growth (e.g. Heinberg, 2011) – that we are not in a "recession" per se, because "recession" implies a defined trough ending with an uptrend back to "normal," but are experiencing the first symptoms of economic stall and contraction.

The problem within the so-called “sustainable development” sector is that we talk incessantly about sustainability when we should be talking about un-sustainability. Economic growth is unsustainable, by definition, since it implies increasing demands for energy, resources, and waste assimilation capacity. Moreover, at this point in time the proliferation of “illth” (economic “bads”) has outstripped the production of wealth (economic “goods”), and so further growth should rightly be termed uneconomic (Daly, 2005). Substitution, technological innovation, and gains in efficiency can help, but not beyond the limits specified by the laws of thermodynamics. (Many scientists and engineers who should know better frequently forget this point.) Moreover, efficiency gains often backfire as increased consumption outstrips them (the so-called Jevons Paradox, or rebound effect). Technological innovation routinely creates more problems than it solves through unintended consequences and diminishing returns (e.g., see Heusemann and Heusemann, 2011). And as ecological economists have demonstrated, human capital is complimentary to natural capital, not a substitute for it as assumed by mainstream economists (Daly and Farley, 2004). This limits the extent to which resource substitution is effective or possible.

These are all concepts that Chemists and other natural scientists should have no problem grasping, because they are rooted the same laws (conservation of matter and energy, thermodynamics and entropy, etc.) that form the basis of our research and teaching. Our task is therefore to help society use these science-based methods for setting targets for authentically sustainable development.

Delving into more specifics and variations for how we can accomplish this task will be taken up in future blogs.

As per usual, please feel free to follow me on Facebook (, and “Like” Aqueous Solutions (!

References and Further Reading

Berry W. Faustian Economics. Harpers Magazine, May 2008.

Berry W. Inverting the Economic Order. The Progressive, Vol. 73, September 2009.

Daly H.  Economics in a Full World. Scientific American, September 2005.

Daly H., Farley J. Ecological Economics: Principles and Applications. 2004. Island Press, pubs.

Georgescu-Rogen N. The Entropy Law and the Economic Process. 1971. Harvard Press, pubs.

Hall C., Day J. Revisiting the limits to growth after peak oil. American Scientist Vol. 97, May-June 2009.

Heinberg R. The End of Growth: Adapting to Our New Economic Reality. 2011. New Society, pubs.

Heusemann M., Heuseman J. Techno-Fix: Why Technology Won't Save Us Or the Environment. 2011. New Society, pubs. []

Murphy D. The implications of the declining energy return on investment of oil production. Phil. Trans. R. Soc. A January 13, 2014.

Sorrel S. Energy, Economic Growth and Environmental Sustainability: Five Propositions, Sustainability 2010, 2(6), 1784-1809.

Zencey E. Mr. Soddy’s Ecological Economy. New York Times, Opinion-Editorial section, April 11, 2009.

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1 comment:

  1. Nicely done, Josh. I look forward to your future blogs on this subject. Mobilizing chemists and others to speak out on these issues is essential. How do we accomplish that on the scale required to make a difference? Is it time for your own TED talks?
    Peace, Bego