Energy and the U.S. Economy: A Biophysical Perspective

Abstract

A series of hypotheses is presented about the relation of national energy use to national economic activity (both time series
and cross-sectional) which offer a different perspective from standard economics for the assessment of historical and current
economic events. The analysis incorporates nearly 100 years of time series data and 3 years of cross-sectional data on 87
sectors of the United States economy. Gross national product, labor productivity, and price levels are all correlated closely
with various aspects of energy use, and these correlations are improved when corrections are made for energy quality. A large
portion of the apparent increase in U.S. energy efficiency has been due to our ability to expand the relative use of high-quality
fuels such as petroleum and electricity, and also to relative shifts in fuel use between sectors of the economy. The concept
of energy return on investment is introduced as a major driving force in our economy, and data are provided which show a marked
decline in energy return on investment for all our principal fuels in recent decades. Future economic growth will depend largely
on the net energy yield of alternative fuel sources, and some standard economic models may need to be modified to account
for the biophysical constraints on human economic activity.

Full text

Title: Energy and the U.S. economy: a biophysical perspective
Author(s): Cutler J. Cleveland , Robert Costanza , Charles A.S. Hall and Robert Kaufman
Source: Science. 225 (Aug. 31, 1984): p890.
Document Type: Article
Full Text: COPYRIGHT 1984 American Association for the Advancement of Science
http://www.sciencemag.org.ezproxy.bu.edu/
Full Text:
Stable consumer prices, full employment, and increasing per capita wealth have been economic and
political goals in the United States since at least the 1930's. Aggregate economic growth has been the
principal means for realizing these goals. On average, these goals were met from the mid-1940's to the
early 1970's, when the U.S. economy grew at an averagfe annual rate of 4 percent, recessions were
relatively short and mild, and inflation rates rarely exceeded 4 percent. Since 1973, however, the
United States and other Western nations have experienced irregular and even negative economic
growth rates together with high unemployment, unprecedented inflation and budget deficits, and
declining productivity rates.
These events seem to defy explanation by or even to contradict some of the most fundamental
economic models that guided the prosperity of the preceding 40 years. A number of analysts have
commented on the difficulties these models now encounter. Drucker (1) stated that "both as economic
theory and as economic policy Keynesian economics is in disarray." Leontief (2) described many
economic models as unable "to advance, in any perceptible way, a systematic understanding of the
structure and the operations of a real economic system." Instead, they are bsed on "sets of more or less
plausible but entirely arbitrary assumptions" leading to "precisely stated but irrelevant theoretical
conclusions." Bailey and others (3) chronicled the failure, mutual conflicts, and frustrations of a
number of economic models.
Glassman (4), responding to Leontief, suggested that greater diversity in economic theory is needed to
supplement the conditioned expectations of formal theory. We agree, and present a different
theoretical perspective for analyzing economic production based on relatively simple models that
begin with the importance of natural resources, and fuel energy in particular. Our intent is not to
replace standard economic models, nor do our models offer solutions for all the economic problems
described above. Rather, our perspective, which in part has been presented by others (5), shows how
some economic problems can be understood more clearly by explicitly accounting for the physical
constraints imposed on economic production.
We examine the historical record of the last 90 years to test hypotheses generated by our model.
Empirical testing of economic theories is a difficult but essential procedure which is too frequently
ignored. Simultaneous changes in variables make controlled observations difficult if not impossible.
The empirical analyses of time series and cross-sectional data presented below cannot be used to
prove hypotheses unequivocally, nor do they assure that the parameters will not change in new ways
in the future. Empirical assessments, however, can be used to identify hypotheses that are consistent
with reality and to reject hypotheses that are not. Statement of Hypotheses
We approach macroeconomics from a thermodynamic perspective that emphasizes the production of
goods, rather than the neoclassical perspective that emphasizes the exchange of goods according to
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subjective human preferences. Production is the economic process that upgrades the organizational
state of matter into lower entropy goods and services. Those commodities are allocated according to
human wants, needs, and ability to pay. Upgrading matter during the production process involves a
unidirectional, one-time throughput of low entropy fuel that is eventually lost (for economic purposes)
as waste heat. Production is explicitly a work process during which materials are concentrated,
refined, and otherwise transformed. Like any work process, production uses and depends on the
availability of free energy. The laws of energy and matter control the availability, rate, and efficiency
of energy and matter use in the economy and therefore are essential to a comprehensive and accurate
analysis of economic production.
Changes in natural resource quality affect the ease and cost of fuel and matter throughput in human
economies because lower quality resources nearly always require more work directly and indirectly to
upgrade them into goods and services. Technological change can counter changes in natural resource
quality to varying degrees, but historically, many technical advances that have lowered unit labor
costs have been realized by increasing the quantity of fuel used directly and indirectly to perform a
specific task. The degree to which technological change can offset declining resource quality as some
basic natural resources are depleted (for example, fuel and metal ores) and/or mismanaged (some
biotic resources) is an empirical question and cannot be easily predicted. Nevertheless, such resource
changes have important implications for what is and is not possible in the economy. Economic theory
and policy must incorporate the physical properties of resources if economic predictions are to be
accurate and economic policies effective.
In the section below we present a series of specific hypotheses derived from our biophysical
perspective, accompanied by an alternative example of a more traditional hypothesis. In our empirical
assessments of how changes in fuel quantity and quality have affected the U.S. economy, we examine
(i) various relations between fuel use, economic output, productivity, and inflation over the past 90
years and (ii) cross-sectional relations between direct and indirect fuel use and economic value for
1963, 1967, and 1972. We use real gross national product (GNP) as a measure of aggregate output in
the time series analysis, while acknowledging some of the inadequacies of GNP as a measure of
output and social welfare. As a measure of fuel use we sum the quantities of fossil, nuclear, and
hydropower fuels used in the economy and analyze the effects of changing fuel mix by adjusting
caloric heat measures for fuel quality. Except as indicated, nuclear and hydropower fuels are
converted to heat equivalents based on the prevailing heat rate at fossil steam electric plants.
1) A strong like between fuel use and economic output exists and will continue to exist, both
temporally and cross sectionally. The correlation is strengthened when adjustments are made for fuel
quality and the sector in which fuel is combusted. Alternative hypotheses are that such a link never
existed, or that it can be and has been substantially decoupled, especially as the price of fuel increases
(6).
2) A large component of increased labor productivity over the past 70 years resulted from increasing
the ability of human labor to do physical work by empowering workers with increasing quantities of
fuel, both directly and as embodied in our industrial capital equipment and technologies. One
alternative hypothesis views productivity as an exogenous technical driving force that has increased
the productivity of capital and labor (7).
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3) Changes in the general price level have been correlated with changes in the money supply relative
to the physical supply of energy. This suggests that the rising real physical cost of obtaining energy
and other resources from the environment is one important factor in inflation. Various economic
models emphasize either monetary or fiscal measures for explaining inflation (8).
4) Energy costs of locating, extracting, and refining fuel and other resources from the environment
have increased and will continue to increase despite technical improvements in the extractive sector.
This reduces the supply of non-energy goods producible from a given quantity of energy. One
alternative hypothesis is that resource-augmenting technical change and/or the development of
inexhaustible fuel supply systems will mitigate any foreseeable natural resource scarcity (9).
Our hypotheses are not necessarily inimical to standard economics. Rather, we believe such an
approach provides a physical basis for some macroeconomic phenomena. Such an analysis leads
neither to an unrealistic cornucopian view of our future material condition, nor to one of "gloom and
doom." We believe a physical analysis of economic production provides relaistic assessments of the
problems we face and some of the needed characteristics of any plausible solution. Energy and
Economic Production
The economic process is frequently depicted in basic economic texts as a closed system in which the
flow of output is "circular, self-feeding, and selfrenewing" (10). This model is seriously incomplete.
In reality, the human economy is an open system embedded in a global environment that depends on a
continuous throughput of solar energy. The global system produces the environmental services,
foodstuffs, fossil and atomic fuels derived from solar and radiation energies, and various other
resources that are essential inputs to the human economy. The human economy uses fossil and other
fuels to support and empower labor and to produce capital. Fuel, capital, and labor are then combined
to upgrade natural resources to useful goods and services. Economic production can therefore be
viewed as the process of upgrading matter into highly ordered (thermodynamically improbable)
structures, both physical structures and information. Where one speaks of "adding value" at
successive stages of production, one may also speak of "adding order" to matter through the use of
free energy (11).
Fuel quality as well as quantity limits economic production because fuels differ in the amount of
economic work they can do per unit heat equivalent (kilocalorie). Petroleum, for example, can
perform a more versatile array of tasks and do many of them more efficiently than coal (12). Per
kilocalorie, petroleum is estimated to be 1.3 to 2.45 times as valuable as coal (13). Similarly,
electricity can be converted to mechanical and heat energy at the point of application and can be
controlled precisely, reducing the heat equivalents required to perform many tasks (14). One measure
of the quality of electrical energy is the opportunity cost of transforming fossil fuels to electricity (3 to
4 kilocalories of fossil fuel per kilocalorie of electricity in 1983).
Another important quality of fuels is the amount of energy required to
locate, extract, and refine them to a socially useful state. This aspect of fuel quality is measured by a
fuel's energy return on investment (EROI), which is the ratio of gross fuel extracted to economic
energy required directly and indirectly to deliver the fuel to society in a useful form. As the EROI for
fuel declines, the energy opportunity costs of securing additional amounts increase, and increasing
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amounts of already extracted energy must be diverted from the production of nonenergy goods to
extract a given quantity of new fuel. Net energy is a more relevant measure of fuel supply than gross
energy because it represents the energy available to produce final-demand goods and services. At an
absolute minimum, the aggregate EROI for fuels must be greater than 1 for an economic system to
function, and probably much greater for it to grow. Ceteris paribus, economies with access to higher
quality natural resources, particularly fuels with higher EROI, can do more economic work than those
with lower EROI fuel resources.
Energy costs of capital and labor. Fuels, nonfuel minerals, capital, and labor are all necessary to
produce economic output. Most standard models of production consider fuel and other natural
resources to be qualitatively no different from other factors of production. As a result, many believe
that natural resource inputs to production are "small potatoes compared to labor, or even to capital,"
and that "reproducible capital is a near perfect substitute for land and other exhaustible resources"
(15). This view is inaccurate because free energy is required to upgrade and maintain all organized
structures, including capital and laborers, against the ravages of entropy. It ignores the physical
interdependence of capital, labor, and natural resources.
All goods and services (both economic and environmental) have quantifiable direct and indirect
energy costs of production, termed their embodied energy. The embodied energy of a good or service
can be calculated with input-output techniques developed by Herendeen and Bullard and by Hannon
et al. (16), which were based on the pioneering economic work of Leontief (17). Early attempts to
quantify the embodied energy of goods ignored the energy costs of labor, capital, and government
services. These factors do have substantial energy costs. Labor consumes energy directly in the form
of fuel and food, and indirectly as fuel energy embodied in shelter, clothing, education, and social
services, and other commodities. These energy costs can be incorporated directly in calculations of
embodied energy (18), or can be thought of as an energy opportunity cost (19) for labor, which is the
amount of fuel that would have to be diverted from other uses to substitute for labor at the margin.
Standard production functions do not account for the important physical interdependence between
energy and all other factors: the availability of all factors created by humans depends on the existence
of free energy in the natural environment. Capital and labor are combined to extract energy from the
environment, but they cannot create in a physical sense the free energy and matter from which they
are derived. Thus, elasticities of substitution between natural resources and capital and labor
calculated at the level of the firm or industry do not necessarily reflect true substitution possibilities
over the economy as a whole. Including the direct and indirect energy costs of producing capital and
labor reduces the degree to which capital and labor can be substituted for fuel in production (20).
Fuel use and economic output. Fuel use and economic output in the United States have been highly
correlated for at least the past 90 years (21). This relation is shown in various ways in Figs. 1 and 2.
The high coefficient of determination of Fig. 1c is consistent with the hypothesis that, at least in the
past, economic output and fuel use have been tightly linked. While a causal relation from fuel use to
GNP or vice versa cannot be verified, a strong contemporaneous link between the two variables is
supported (22).
The results of statistical analyses of long time series of economic variables often are dominated by
trends rather than correlations between annual variations in the variables. The validity of the statistical
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correlation of Fig. 1 was analyzed further with a Box-Jenkins transfer function analysis, a procedure
that can remove the nonstationary components of the two time series. When this analysis is applied to
the first differenced time series of real GNP and fuel use in the United States from 1900 to 1980, the
results support a significant interrelation between the annual rates of change of GNP and fuel use (23).
Cross-sectional analysis of direct plus indirect fuel use and economic output in the United States
reinforces the results of the time series analysis. Regression analysis od embodied fossil fuel, hydro,
and nuclear energy use and dollar value of output across 87 sectors of the U.S. economy indicates a
strong correlation between the two variables if the energy costs of labor and government services are
included (18, 24) (Fig. 2). This relation holds true for all the years for which the requisite national
input-output tables are available.
Fuel efficiency. Despite problems inherent in measuring fuel quality, fuel use, and GNP as a measure
of welfare (25), the fuel use/real GNP (E/GNP) ratio remains a popular and not inappropriate measure
of fuel efficiency (26). The U.S. E/GNP ratio has declined 42 percent since 1929, about half of this
since 1973 (Fig. 3a). This decline has been interpreted by some as meaning that factor substitution
and conservation measures have decreased substantially the quantity of fuel used per unit of economic
output and that similar improvements are possible in the future (6). We believe this interpretation of
changes in the E/GNP ratio overestimates past improvements and potential future gains in actual
energy efficiency.
Figure 3 shows the sensitivity of the E/GNP ratio to corrections made for fuel quality and to GNP
modifications to account for relative shifts in fuel use between sectors of the economy. Between 1929
and 1981, a period when the ratio was declining, three factors which are not normally considered as
contributing to improved fuel efficiency account for 96 percent of the annual variation in the E/GNP
ratio (27). The factors are (i) the proportion of total fuel use accounted for by petroleum, (ii) the
proportion of total fuel use accounted for by primary electricity (hydro and nuclear), and (iii) the
proportion of direct fuel use in final demand (that is, gasoline or electricity used by households)
versus intermediate demand sectors (oil or electricity used in manufacturing).
An empirical examination of the relation between these factors indicates that 69 percent of the
variation in the E/GNP ratio since 1929 can be attributed to changes in the type of fuel used. As the
percentage of high-quality fuels such as petroleum and primary electricity increased, more economic
work was done (more GNP produced) per heat equivalent burned, and the E/GNP ratio declined.
Correcting fuel use data for changing fuel quality produces a smaller overall decline in the E/GNP
ratio (Fig. 3, lines a, b, and d) and even a slight increase in the ratio if the quality factors derived from
our regression analysis (27) are used (Fig. 3, line d). Thus, much of the decline in the E/GNP ratio has
been due to our ability to expand the use of higher quality fuels.
A relative shift in direct fuel use from final demand sectors to intermediate sectors, or vice versa, also
changes the E/GNP ratio. For example, a dollar's worth of fuel purchased by households represented
145,000 kilocalories in 1972, whereas a dollar's worth of nonfuel good or service purchased by
households represented only 5,600 to 11,800 kilocalories (28). Thus, the E/GNP ratio is sensitive to
the partitioning of fuel between direct household use and fuel use to produce goods consumed by
households. Such relative shifts in the point of fuel combustion account for 27 percent of the variation
in the ratio since 1929; they were most important during World War II, when petroleum use was
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rationed, and since 1973, when the high price of fuel has discouraged its direct use by households.
Eighty-eight percent of the decline in the E/GNP ratio since 1973 can be explained by the declining
proportion of GNP spent on fuel by households. Lines c and e in Fig. 3 show the effects on the ratio of
including corrections for fuel quality and for relative shifts in fuel use between households and
intermediate sectors. When these effects are accounted for, the corrected E/GNP ratio shows little or
no long-term trend since 1929 (Fig. 3, line e).
We do not argue that there have been no energy efficiency improvements during this period. Even
with corrections, the E/GNP ratio does show a modest decline since 1973, indicating that higher fuel
prices have led to real efficiency improvements, as other analysts have suggested (29). The fuel
quality and GNP modifications are an attempt to include important attributes of fuel use and social
welfare not accounted for in uncorrected fuel use and GNP statistics. The E/GNP ratio is sensitive to
such modifications. Our regression analysis suggests that technological change which has led to a
decline in the E/GNP ratio has often relied on intensified use of higher quality fuels. Our analysis does
not support the hypothesis that the shift toward a service-oriented economy, such as the United States
has undergone since World War II, is a significant factor in the decline in the E/GNP ratio. Labor
Productivity and Technical Change
In many economic models, technological advance is presented as an exogenous driving force powered
by advances in human knowledge that increase labor and capital productivity. Denison (7) states that
advances in "human knowledge of how to produce things at low cost" are the most important causes
of the increase in per capital national income observed between 1948 and 1973. In this and other
analyses, technological change is not measured directly, but rather is assigned the residual of increases
in per capital income after all "tangible" factors have been accounted for. Because energy and natural
resources are not considered tangible factors by most analysts, a large residual remains. Griliches and
Jorgenson (30) stated that relabeling changes in factor productivity as 'technical progress" or "advance
in knowledge leaves the problem of explaining growth in total output unresolved."
From an energy perspective, productivity gains are facilitated by technical advances that enable
laborers to empower their efforts with greater quantities of high-quality fuel embodied in and used by
capital structures. As Cottrell (5) observed, "productivity increases with the per capital increase in
available energy." Various empirical analyses support this view, and cross-sectional and temporal
changes in labor productivity are correlated with the quantity of fuel used to empower a worker's
efforts. Boretsky (31) noted that higher labor productivity rates in the United States than in Western
Europe nations were associated with the substantially greater quantities of fuel used per employee in
the United States. We found that in the U.S. manufacturing sector, output per worker-hour is closely
related to the quantity of fuel used per worker-hour (32) (Fig. 4). A similar relation exists in the U.S.
agricultural industry.
Such relations can be merged with standard economic models to explain historical changes in labor
productivity. From 1900 to 1973 the real price of fuel declined relative to the wage rate, and fuel was
substituted for labor in many processes. Labor productivity increased during this period. Since 1973
the price of fuel has risen relative to the wage rate, and labor has been substituted for fuel, thereby
reducing productivity. While other factors certainly affected the decline in labor productivity in the
1970's, a biophysical analysis supports those analyses which indicate higher fuel prices as a
significant contributor (33). Energy and Inflation
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The high rates of inflation that have recently plagued most industrialized nations can be explained by
uniting the importance of fuel use and money supply. If an expanding money supply stimulates
demand beyond the level that can be satisfied by existing fuel supplies, price levels must rise (34). A
historical analysis indicates that changes in the ratio of money supply to fuel use are significantly
correlated with changes in the consumer price index since 1890 (35) (Fig. 5). Manipulation of the
monetary, and even fiscal, policy as a means of stimulating economic growth may now be less
effective due to the increasing real physical cost of obtaining new quantities of fuel from the
environment. Natural Resource Quality from an Energy Perspective
The issue of natural resource scarcity has received considerable attention in recent years (36). Many
suggest that the negative economic effects of depleting high-quality mineral deposits can be mitigated
indefinitely through technical innovation and/or the use of more energy and capital structures to mine
vast quantities of low-quality ore (9). Evidence for this hypothesis is that capital and labor inputs per
unit output in the extractive sectors have either declined or remained stable throughout most of this
century (37), a trend attributed to technical advance in those industries.
When analyzed from a physical perspective, the trend in the scarcity of some important natural
resources is less reassuring. Technical improvements in the extractive sectors have made available
previously uneconomic deposits only at the expense of more energy-intensive forms of capital and
labor inputs (38). Physical output per kilocalorie of direct fuel input in the U.S. metal mining
industries has declined 60 percent since 1939 (Fig. 6a), although a few exceptions to the trend are
known (39). The energy cost per ton of metal at the mine mouth for industrially important metals such
as, copper, aluminum, and iron has risen sharply as their average grade declined. For all U.S. mining
industries (including fossil fuels), output per unit input of direct fuel has declined 30 percent since
1939. This and other analyses (40) substantiate Brobst and Pratt's (41) statement that the cost and
physical availability of fuel may well be the most important factors determining the limits to the
economic exploitation of many nonrenewable resources.
Claims such as "it is simply not true . . . that average rock will never be mined" (42) to meet society's
needs must be evaluated in light of the energy and environmental costs associated with mining and
processing vast amounts of elements at or near their crustal abundance. Such costs had little negative
economic impact prior to the 1970's, when domestic oil production was still increasing and real fuel
prices were stable or declining. Energy costs of mineral extraction are especially important now
because the energy costs of extracting fuel itself have increased substantially.
U.S. oil discoveries peaked in about 1930 and oil production in 1970 (43). For natural gas these dates
were 1950 and 1973, respectively. As we have increasingly exhausted the possibilities of finding new
large petroleum deposits, the rate at which we find new oil per unit of drilling effort in the lower 48
states has declined precipitously (44). The large increase in drilling effort since 1973 has not reversed
this decline. As a result, the running average EROI for oil and gas at the wellhead has declined
precipitously (Fig. 6b). In Louisiana, a region that has accounted for 17 percent of all domestic oil and
gas discovered and produced to date, the EROI for natural gas extraction declined from 100:1 in 1970
to 12:1 in 1981 (46). There has been a similar decline in the ratio of the energy in the petroleum we
obtain from foreign sources compared to the energy required to make the goods and services we
exchange for that petroleum (Fig. 6b) (45). Foreign suppliers acquired the leverage to raise oil prices
dramatically in 1973 because domestic production could not keep pace with domestic demand, a gap
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that began in the late 1940's and was accentuated following the 1970 peak in domestic oil production.
The bituminous coal industry shows a similar but less dramatic trend over the past 15 years. The
EROI for coal at the mine mouth has decreased from about 80:1 in the mid-1960's to about 30:1 in
1977 (Fig. 6b) (45).
Declining resource quality and higher fuel prices impede economic growth by diverting increasting
amounts of capital and labor to the extractive and resource processing sectors. Throughout most of
this century, the real dollar value of the mining sector share of real GNP was relatively small and
constant, averaging 3 to 4 percent (Fig. 7). This led some to conclude that natural resources were a
small and unimportant factor of production (47). By 1982, however, more than 10 percent of real
GNP was needed to extract mineral resources from the environment. Most of this increase was for
fossil fuel purchases, which in 1981 were 4.5 times greater in inflation-corrected dollars than in 1972,
despite the fact that total fossil fuel use was about the same in both years. Clearly, the cost of minerals
is not "irrelevant" to our standard of living, as some suggest (9).
Alternative fuel sources. Because of the importance of net fuel supply, continued economic growth
hinges in large part on our ability to develop new fuel sources with EROI's comparable to those we
use today. As the values in Table 1 indicate, most alternative fuel sources have a positive but small
EROI relative to fossil. For proposed "inexhaustible" sources such as largescale photovoltaics and
fusion and breeder reactors, it is not yet clear whether the EROI will be large, marginal, or less than
break-even. Current estimates of the EROI for new technologies are probably overly optimistic
because the record shows we have routinely underestimated actual capital costs of new energy process
plants by more than 100 percent (48). A recent survey of 40 nuclear power plants in various stages of
construction in the United States indicates that they all will eventually cost an average of seven times
their first cost estimates (49). Conclusions
In one of the first detailed empirical analyses of fuel use in the United States, Tryon (50) stated in
1927 that Anything as important in industrial life as power deserves more attention than it has yet
received from economists. . . . A theory of production that will really explain how wealth is produced
must analyze the contribution of this element energy. Toward this theory of production, our analysis
emphasizes the economic importance of changes in the quality and availability of fuel and other
natural resources faced by the United States. Declining energy return on investment for fuels and
increasing energy costs for nonfuel resources have a negative impact on economic growth,
productivity, inflation, and technological change. Some economic models that guided economic
growth during the preceding period of high-quality resource abundance have become increasingly less
powerful because they do not account for the importance of changes in natural resource quality and
availability.
Some resource analysts have suggested that have was no physical reason for domestic oil demand to
outstrip domestic production by almost 100 percent in the 1970's (51). The degree of depletion of
domestic petroleum in the 1970's, however, was predicted accurately with physically based models
over a quarter-century ago by Davis, Hubbert, and others (44). The "energy crisis" and ensuing
economic probles cannot, therefore, be blamed solely on misguided regulatory policies, the monopoly
power of the Organization of Petroleum Exporting Countries, a conspiracy among the multinational
oil companies, or lack of proper economic incentive for the petroleum exploration and development
industry. While these factors may have exacerbated the situation, underlying the energy crisis and the
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ensuring economic malaise was the declining physical availability of high-EROI petroleum, and a
reliance on economic and political models that did not account for it. Market incentives in response to
a quadrupling of real oil prices and a 280 percent increase in drilling effort between 1972 and 1981
made no significant reversal in declining oil and gas production and discovery rates in the United
States.
If we are to sustain current levels of economic growth and productivity as minimum long-run goals,
alternative fuel technologies with EROI ratios comparable to that of petroleum today must be
developed, or these must be unprecedented improvements in the efficiency with which we use fuel to
produce economic output. Many discount the decreasing availability of high-quality fossil fuel
deposits, stating that such depletion is merely a signal of our impending transition to a society based
on a "boundless supply of energy at reasonably low cost" (52) such as breeder or fusion reactors or
direct solar power. But past experience with capital-intensive ventures such as fission and synfuels
suggests that it would be unwise to assume a priori that fusion or any other proposed fuel source will
necessarily have a large EROI. Although we should research aggressively all potential fuel
technologies, particularly in regard to their potential EROI, we should also plan for the contingency
that new high-EROI sources might not be found.
Based on our analysis, the economic recovery from the 1980-1982 recession was due in part to
declining OPEC oil prices, which themselves were due to decreased world oil demand brought about
by the worldwide recession. In effect, the EROI for imported oil rose recently because importing
nations had to divert less of their output to trade for oil. Rising economic activity and fuel use,
however, will again confront the economy with the physical limits of declining domestic fuel quality,
and thereby increase the chances of a tight oil market in the near future (53). our ability to cope with
any economic contingencies will depend on the ability of our economic models to account for the
biophysical constraints on human economic activity, and on the ability of our citizenry to accept and
adapt to the realities of physical constraints imposed on our economic possibilities.
Source Citation (MLA 7
th
Edition)
Cleveland, Cutler J., et al. "Energy and the U.S. economy: a biophysical perspective." Science 225
(1984): 890+. Academic OneFile. Web. 11 June 2013.
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