Peak Oil, EROI, Investments, and Our Financial Future

Abstract

The enormous expansion of the human population and the economies of the United States and many other nations in the past 100 years have been facilitated by a commensurate expansion in the use of fossil fuels ► [1]. To many energy analysts, that expansion of cheap fuel energy has been far more important than business acumen, economic policy, or ideology, although they too may be important ► [1–15]. While we are used to thinking about the economy in monetary terms, those of us trained in the natural sciences consider it equally valid to think about the economy and economics from the perspective of the energy required to make it run. When one spends a dollar, we do not think just about the dollar bill leaving our wallet and passing to someone else’s. Rather, we think that to enable that transaction, that is, to generate the good or service being purchased, an average of about 5000 kJ of energy (roughly half the amount of oil that would fill a standard coffee cup) must be extracted and turned into roughly a half kilogram of carbon dioxide. Take the money out of the economy and it could continue to function through barter, albeit in an extremely awkward, limited, and inefficient way. Take the energy out and the economy would immediately contract or stop. Cuba found this out in 1991 when the Soviet Union, facing its own oil production and political problems, cut off Cuba’s subsidized oil supply. Both Cuba’s energy use and its GDP declined immediately by about one-third, almost overnight groceries disappeared from market shelves within a week, and soon the average Cuban lost 20 pounds ► [16]. Cuba subsequently learned to live, in some ways well, on about half the oil as previously, but the impacts were enormous. While the United States has become more efficient in using energy in recent decades, most of this is due to using higher-quality fuels, exporting heavy industry, and switching what we call economic activity (e.g., ► [17]), and many other countries, including efficiency leader Japan, are becoming substantially less efficient ► [18–20].