Peak Oil, EROI, Investments and the Economy in an Uncertain Future

  • Charles A. S. Hall
  • Robert Powers
  • William Schoenberg

Abstract

The issues surrounding energy are far more important, complex and pervasive than normally considered from the perspective of conventional economics, and they will be extremely resistant to market-based, or possibly any other, resolution. We live in an era completely dominated by readily available and cheap petroleum. This cheap petroleum is finite and currently there are no substitutes with the quality and quantity required. Of particular importance to society’s past and future is that depletion is overtaking technology in many ways, so that the enormous wealth made possible by cheap petroleum is very unlikely to continue very far into the future. What this means principally is that investments will increasingly have to be made into simply getting the energy that today we take for granted, the net economic effect being the gradual squeezing out of discretionary investments and consumption. While there are certainly partial “supply-side” solutions to these issues, principally through a focus on certain types of solar power, the magnitude of the problem will be enormous because of the scale required, the declining net energy supplies available for investment and the relatively low net energy yields of the alternatives. Given that this issue is likely to be far more immediate, and perhaps more important, than even the serious issue of global warming it is remarkable how little attention we have paid to understanding it or its consequences.

Keywords

Energy oil energy return on investment investments U.S. economy 

Reference

  1. Adelman, M. A. & Lynch, M. C. (1997). Fixed view of resource limits creates undue pessimism. Oil and Gas Journal, 95, 56–60.Google Scholar
  2. Andersson, B. A., Azar, C., Holmerg, J. & Karlsson, S. (1998). Material constraints for thin-film solar cells. Energy, 23, 407–411.CrossRefGoogle Scholar
  3. Ayers, R.U. (1996). Limits to the growth paradigm. Ecological Economics, 19, 117–134.CrossRefGoogle Scholar
  4. Boulding, K. E. (1966). The economics of the coming spaceship earth. (In H. Jarrett (Ed.), Environmental quality in a growing economy (pp. 3–14). Baltimore: Johns Hopkins University Press )Google Scholar
  5. Bartlett, R Representative U.S. Congress. http://bartlett.house.gov/Google Scholar
  6. Campbell, C. (2005). The 2nd half of the age of oil. Paper presented at the 5th ASPO Conference, Lisbon PortugalGoogle Scholar
  7. Campbell, C. & Laherrere, J.(1998). The end of cheap oil. Scientific American (March), 78–83.Google Scholar
  8. Cleveland, C. J. (1991). Natural resource scarcity and economic growth revisited: economic and biophysical perspectives. (In Costanza R. (Ed.) Ecological Economics: The Science and Management of Sustainability (pp. 289–317). New York: Columbia University Press.)Google Scholar
  9. Cleveland, C. J. (2005). Net energy from the extraction of oil and gas in the United States. Energy: The International Journal, 30(5), 769–782.Google Scholar
  10. Cleveland C. J. & Ruth, M. (1997). When where, and by how much do biophysical limits constrain the economic process?: A survey of Nicholas Georgescu-Roegen’s contribution to ecological economics. Ecological Economics, 22, 203–223.CrossRefGoogle Scholar
  11. Cleveland C. J., Costanza, R., Hall, C. A. S. & Kaufmann, R. K. (1984). Energy and the US economy: A biophysical perspective. Science, 225, 890–897.CrossRefGoogle Scholar
  12. Cottrell, F. (1955). Energy and society. (Dutton, NY: reprinted by Greenwood Press)Google Scholar
  13. Daly, H. E. (1977). Steady-state economics. (San Francisco: W. H. Freeman)Google Scholar
  14. Deffeyes, K. (2005). Beyond oil: The view from Hubbert’s Peak. (New York: Farrar, Straus and Giroux)Google Scholar
  15. Duncan, R. C. (2000). Peak oil production and the road to the Olduvai Gorge. Keynote paper presented at the Pardee Keynote Symposia. Geological Society of America, Summit 2000Google Scholar
  16. Dung, T.H. (1992). Consumption, production and technological progress: A unified entropic approach. Ecological Economics Vol. 6, 195–210CrossRefGoogle Scholar
  17. EIA (2007). (U.S. Energy Information Agency website, accessed June 2007)Google Scholar
  18. Energyfiles.com Accessed August 2007. www.energyfiles.comGoogle Scholar
  19. Farrell, A. E., Plevin, R. J., Turner, B. T., Jones, A. D., O’Hare, M. & Kammen, D. M. (2006). Ethanol can contribute to energy and environmental goals. Science, 311, 506–508CrossRefGoogle Scholar
  20. Georgescu-Roegen, N. (1971). The Eentropy Law and the economic process. (Cambridge, MA: Harvard University Press)Google Scholar
  21. Hall, C. A. S. (1991). An idiosyncratic assessment of the role of mathematical models in environmental sciences. Environment International, 17, 507–517.CrossRefGoogle Scholar
  22. Hall, C. A. S. (1992). Economic development or developing economics? (In M. Wali (Ed.) Ecosystem rehabilitation in theory and practice, Vol I. Policy Issues (pp. 101–126) The Hague, Netherlands: SPB Publishing.)Google Scholar
  23. Hall, C. A. S. (Ed.) (2000). Quantifying sustainable development: The future of tropical economies. (San Diego: Academic Press)Google Scholar
  24. Hall, C. A. S. & Ko, J. Y. (2007). The myth of efficiency through market economics: A biophysical analysis of tropical economies, especially with respect to energy, forests and water. (In G. LeClerc & C. A. S. Hall (Eds.) Making world development work: Scientific alternatives to neoclassical economic theory (pp. 90–103). Albuquerque: University of New Mexico Press)Google Scholar
  25. Hall, C.A.S., Cleveland, C. J. & Kaufmann R. K. (1986). Energy and resource quality: The ecology of the economic process. (New York: Wiley-Interscience. Reprinted 1992. Boulder: University Press of Colorado.)Google Scholar
  26. Hall, C. A. S., Volk, T.A. ,Murphy, D.J., Ofezu, G., Powers R., Quaye A., Serapiglia, M. & Townsend, J. (in review). Energy return on investment of current and alternative liquid fuel sources and their implications for wildlife. Journal of Wildlife Science Google Scholar
  27. Hallock, J., Tharkan, P., Hall, C., Jefferson, M. and Wu, W. (2004). Forecasting the limits to the availability and diversity of global conventional oil supplies. Energy, 29, 1673–1696.CrossRefGoogle Scholar
  28. Hannon B. (1981). Analysis of the energy cost of economic activities: 1963–2000. Energy Research Group Doc. No. 316. Urbana: University of Illinois.Google Scholar
  29. Heinberg, R. (2003). The Party’s Over: Oil, War and the Fate of Industrial Societies. (Gabriella Island, B.C. Canada: New Society Publishers)Google Scholar
  30. Hirsch, R., Bezdec, R. & Wending, W. (2005). Peaking of world oil production: impacts, mitigation and risk management. U.S. Department of Energy. National Energy Technology Laboratory. Unpublished Report.Google Scholar
  31. Hubbert, M. K. (1969). Energy Resources. In Resources and Man. National Academy of Sciences. (pp. 157–242). (San Francisco: W.H. Freeman)Google Scholar
  32. Hubbert, M. K. (June 4, 1974). Washington, D.C. Testimony before Subcommittee on the Environment of the Committee on Interior and Insular Affairs, House of Representatives, Ninety-Third Congress , Serial no. 93–55 U.S. Government Printing Office, Washington: 1974.Google Scholar
  33. Jorgenson, D. W. (1984). The role of energy in productivity growth. The American Economic Review, 74(2), 26–30.Google Scholar
  34. Jorgenson, D. W. (1988). Productivity and economic growth in Japan and the United States. The American Economic Review, 78: 217–222.Google Scholar
  35. Herendeen, R. & Bullard, C. (1975). The energy costs of Goods and Services. 1963 and 1967, Energy Policy, 268.Google Scholar
  36. IEA. (2007). (European Energy Agency, web page, accessed August 2007).Google Scholar
  37. Kaufmann, R. (2004). The mechanisms for autonomous energy efficiency increases: A cointegration analysis of the US Energy/GDP Ratio. The Energy Journal, 25, 63–86.Google Scholar
  38. Kümmel R. (1982). The impact of energy on industrial growth. Energy - The International Journal, 7, 189–203.Google Scholar
  39. Kümmel R. (1989). Energy as a factor of production and entropy as a pollution indicator in macro-economic modelling. Ecological Economics, 1, 161–180.CrossRefGoogle Scholar
  40. Lynch, M. C. (1996). The analysis and forecasting of petroleum supply: sources of error and bias. (In D. H. E. Mallakh (Ed.) Energy Watchers VII. International Research Center for Energy and Economic Development.)Google Scholar
  41. Laherrère. J. Future Oil Supplies. Seminar Center of Energy Conversion, Zurich: 2003.Google Scholar
  42. LeClerc, G. & Hall, C. A. S. (2007). Making world development work: Scientific alternatives to neoclassical economic theory. (Albuquerque: University of New Mexico Press)Google Scholar
  43. Odum, H. T. (1972). Environment, power and society. (New York: Wiley-Interscience)Google Scholar
  44. Quinn, M. (2005). Peak Oil, Energy, and Local Solutions: Reports from Recent Conferences. Megan Quinn, Global Public Media, 10 June 2005.Google Scholar
  45. Ricardo, D. (1891). The principles of political economy and taxation. London: G. Bell and Sons. (Reprint of 3rd edition, originally pub 1821).Google Scholar
  46. Smil, V, 2007. Light behind the fall: Japan’s electricity consumption, the environment, and economic growth. Japan Focus. http://japanfocus.org/products/details/2394Google Scholar
  47. Soddy, F. (1926). Wealth, virtual wealth and debt. (New York: E.P. Dutton and Co.)Google Scholar
  48. Solow, R. M. (1974). The economics of resources or the resources of economics. American Economic Review, 66, 1–14.Google Scholar
  49. Strahan, D. (2007) Open letter to Duncan Clarke. Posted on Wednesday, August 15th, 2007 http://www.davidstrahan.com/blog/?p=35.Google Scholar
  50. Tryon FG. (1927). An index of consumption of fuels and water power. Journal of the American Statistical Association 22: 271–282.CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media B.V. 2008

Authors and Affiliations

  • Charles A. S. Hall
    • 1
  • Robert Powers
    • 1
  • William Schoenberg
    • 1
  1. 1.State University of New York, College of Environmental Science and Forestry, SyracuseNY 13210

Personalised recommendations