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Tag Archives: gross domestic product

Industrial strategy: greening industry

By Dave Elliott

Following on from an earlier Green paper and its Clean Growth Strategy, the UK government has now produced a White Paper on Industrial Strategy. Although examples are provided of specific infrastructure projects and opportunities, it’s mostly couched in very general policy terms, identifying four ‘Grand Challenges’. It says we must put the UK at the forefront of the artificial intelligence and data revolution; maximise the advantages for UK industry from the global shift to clean growth; become a world leader in shaping the future of mobility; and harness the power of innovation to help meet the needs of an ageing society’.  (more…)

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Wood Pellets – Does a Resurgence in an old fuel Signal that Technological Innovation is Failing?

An article in the July 7th edition of the Wall Street Journal (WSJ) describes how the use of wood pellets is on the rise as a fuel for electricity in the EU. They are the “new Tulip” now being traded as a commodity on the Amsterdam energy exchange. In just looking up the price for industrial wood pellets, the price is hovering in the range of 130-140 €/MT (metric ton). With an energy content near 7,500 Btu/lb, this is similar to low rank (brown or lignite) coal.

With the well-written WSJ article referenced above, I won’t discuss the issue further here, other than to marvel that the use of wood is competing for the generation of electricity and heat with fossil and other modern renewable. Granted, the wood pellet stoves are much more controlled and efficient than your great-great-great-great-great-great-great-great (i.e. great8 to great10) grandfather’s wood burning stove. But this story is still a good example of technology struggling to overcome the limits of resources and moving back to a previous fuel. Unfortunately, we know that there are limits to the quantity of wood that can be replaced sustainably, but this is also an important feedback.

Over the last 300 years industrialized society has moved away from wood because the fossil energy resources had much higher energy density and concentration in mines and fields with oil and gas. Now industrialized society is moving somewhat (albeit on a very small scale) back to biomass in the form of these wood pellets for heat and electricity (often thrown into boilers with coal), but also including biomass for biofuels. This represents the struggle of “technology” to solve problems that society wishes to solve (in this case less greenhouse gas emissions) and the lack of focus of businesses to create substitutes for the services that primary energy resources (i.e. oil, gas, nuclear materials, biomass, sun, etc.) provide and that people want.

Unfortunately we have traditionally waited for the retrospective economic effects to tell us to return to a focus upon the value that energy resources and services provide to civilization. Data from the last 40 years shows us that people and the government focus upon energy costs when they become approximately 9-10% (at least half is for oil) of the gross domestic product of the US (for example see data at the EIA and chart in this paper by Charles Hall). Full data are not out for the last two years, but it appears as though we passed this threshold in 2007 and were likely well above 10% in 2008.

But this focus upon energy services has become, will become further, and should be center to discussions of economics. What percentage of GDP should we be spending upon energy? If this percentage gets too low, consumers and industry are not focused upon energy conservation and long term impacts. If this percentage gets too high (or too high too quickly) then general economic slowdowns tend to occur, mostly driven by oil prices in the last 40 years. Another question: How much we are in control of what this “energy/GDP” is or can be? The amount of energy obtained compared to searching and obtaining primary energy resources, or energy return on energy invested (EROI), is highly influential. If we get 50 barrels of oil when using the energy equivalent of 1 barrel of oil (e.g. EROI = 50) to find and extract that oil, then we have 49 barrels of oil to power the rest of the economy. If the EROI is 20, then this is significantly different. Less energy for health care. Less energy for education. Less energy for agriculture and food production. Etc.

We must understand to associate EROI with GDP much better than we currently understand. Otherwise, we won’t be able to foresee the longer term and very important implications of our energy policy and technology decisions. EROI must be used and understood as a measure of technical innovation.

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High Debt and Energy Return on Energy Invested Don’t Mix

The June 13th edition of The Economist has a cover story about the heavy debt burden being placed upon the younger generation of the US citizens due to government spending on bailout packages. There are some staggering numbers (e.g. $483,000 for every household is owed to pay for unfunded obligations for elderly pensions and health care) and we’re almost assured to reach a debt of at least 100% of GDP in 1-2 years. This debt is worrisome not only because of the typical concerns about paying back money that is owed, but because the energy situation is different now than when the US had gross debt of 120% of its gross domestic product just after World War II. Future energy resources are poised to have less energy return on energy invested than past energy resources – that means less of a driver for economic growth.

The situation in the late 1940’s was that much of the US spending that caused the debt to increase was into factories, technology development, and worker training. Then these investments in infrastructure and skill transferred to the private sector after much of it came from the private sector because of the war – think Singer typewriter factories making M1 Garand carbine rifles. Then, after much of Europe and Japan was destroyed by acting as the battlefield, the US was the remaining industrialized country with no infrastructure damaged at home. Therefore, the world bought American products … and the US nor the world had yet not peaked in conventional oil production.

Thus, there are two important concepts (at least) that are fundamentally different for our future than our past:

(1) In dealing with the current economic recession and increasing debt load, the US is no longer the only industrial game in town, and

(2) Energy resources are generally more scarce and those remaining have less energy return on energy invested (EROI), or “bang for the buck”.

I will not dwell on item (1) as it is obvious today that China is the world’s manufacturer. They emit as much CO2 now as the US, although Americans still consume more (i.e. is responsible for more) CO2 embodied in purchased products and services than the Chinese. China is a net exporter of CO2 and the US is a net importer.

It is item (2) above that is the more long term concern and a fundamental driver in how world society will change. The US used its oil production capacity to fuel the Allied victory in World War II as the Germans had succumbed to turning coal into liquid diesel, and the Japanese were forced to pursue Southeast Asian islands in search of oil. The US strategy was still affected by not having oil and diesel available at any quantity desired, but to a much lesser extent than that of the opposition.

During the 1950’s the available oil in the US enabled the boom of the automobile age and rebel attitudes embodied by James Dean. With the US oil production peak in 1970 and the Arab oil embargos of 1973-74, Phase I of the “limits to growth” movement began. People could now conceptualize that there were limits to finite resources such as oil, but that is only part of the story. The energy return on energy invested – the amount of energy obtained, say in barrels of oil, after using one unit (e.g. barrel of oil) to obtain the new energy resource – for fossil resources is on an inevitable decrease and the EROI of renewable resources is not as high as the best (and past) EROI for oil, natural gas, and coal. In fact, some research ( suggests that the renewable resource/technologies with the highest EROI are wood and hydropower – the oldest form of primary energy and the oldest form of powering automated processes (water wheels). You could also say that investing in modern hydropower dams played a large part in bringing the US out of the Great Depression.

We are now in Phase II of “limits to growth” movement with greenhouse gas emissions looming as an even larger environmental limit. The original energy resource limit concerns are also back at the center of discussion. The “easy oil”, or that with high EROI, has been found and extracted. Shale gas finds and extraction methods (i.e. fracing) have enabled new natural gas resources to become economic reserves accessible at any time, but at a higher cost than in the past, and likely with higher EROI than past natural gas fields (an ongoing study is attempting to quantify EROI for shale gas).

One set of solutions that is envisioned to solve our energy, environmental, and economic dilemma is the use of renewable energy technologies. Modern renewable technologies such as wind turbines, solar photovoltaic panels, and concentrating solar panels produce power when the input resource (wind and sun) are available. Since these resources are intermittent, research and technology focus upon how to either create steady electrical output or output on demand. This essentially means generating excess electricity at some time, storing that energy, and releasing it when desired. This extra investment in storage systems requires energy and again lowers the EROI for the entire system of electricity generation devices.

Because economic growth and energy availability are highly correlated, lower EROI also implies lower monetary return on investment. This in turn means that large investments in modern renewable energy infrastructure will not return the same amount of energy or money in the future as the same quantity of investment in hydropower in the 1930’s and oil in the 1950’s and 1960’s. So economic models that do not account for the energy return on clean/green/renewable technologies as well as returns on nuclear and fossil systems will likely overestimate the economic growth of the future. Some think that we have significantly decoupled our economic system from our energy system, but this is a short-sided view of the use and influence of historically high EROI fossil fuels on human civilization. Look at the figure below and ask yourself two questions:

(1) how this increase in primary energy consumption and GDP could have existed without fossil fuels?

(2) Can energy consumption and GDP continue their upward trends into the future, or even maintain current levels, without fossil fuels?


When looking on this 3000 year time scale, it is appropriate to ask these questions. One can visualize the day when fossil fuels will no longer be economic to extract. This is why more research into EROI and how it affects economic growth is needed. The understanding of how energy conservation (e.g. less energy consumption overall) programs affect economics and business structures needs to be better understood. This means going beyond energy efficiency (“energy/unit output”) which businesses are technically incentivized to do now already. It’s time to find out how people (at least those in the middle class who pay taxes yet don’t have too much disposable income) value their time and habits vs. investing in concepts such as the smart grid, electricity storage systems, biofuels, and oil shale.

Why do Americans who consume on average 350 GJ/person/yr (1 GJ = 1 billion joules of energy), compared to an average of 80 GJ/person/yr for the world, think that any sacrifice in energy consumption is not tolerable when other countries consume 1/3-1/2 the energy and have just as fulfilling, if not more fulfilling, lives? There are a few good reasons such as the US is a relatively large country that requires a good deal of energy to move from city to city. But designing cities and transportation systems to use less energy should be a priority instead of not even an afterthought. Transportation across a large country is just one example of a strategic challenge, but until we stop paying photographers to chase around Angelina Jolie and Britney Spears, then I’ll know we still aren’t serious as a society about tackling the energy challenges of our future. I believe we can have equal if not better livelihoods in the US by consuming less energy in the future. It’s not hard to convince Western Europeans of this, but they still have a large number of paparazzi …


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