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Insights Regarding the Operation of the Energy-Economy

Updated: Oct 24, 2018

Gail Tverberg


This presentation lays out insights into how the economy operates as a self-organized system powered by energy. There is a physics problem involved, but it is not the same physics problem that people in the 1970s thought was the case. Most systems in the universe behave like energetically open systems. They tend to grow and change over time. None of them are permanent. The economy is such a system. There are many other such systems (including stars, hurricanes, plants and animals, individual cells in plants and animals, and ecosystems). Whether or not an economy can continue to operate seems to depend on whether (Total Energy Returned/ Population) is high enough. There are really several separate problems:

(1) Diminishing returns affecting the numerator (considered by EROI)

(2) Continually rising population affecting the denominator (not considered by EROI)

(3) Problems associated with growing “complexity” also causing the ratio to fall (not considered by EROI)

We hit the (Total Energy Returned/ Population) limit before “Peak Oil” hits, because (2) and (3) determine that Total Energy Returned must be rising fairly quickly. Thus, our energy problem is a Quantity Problem. The total quantity consumed must keep rising very quickly, or the world economy is likely to collapse in a manner somewhat similar to the way many early civilizations civilizations. The limit on economic growth is likely to manifest itself as a financial problem, because if people are to cooperate on a project, there is the need for debt and debt-like products that promise future payments for goods and services made now. In order to maintain high enough payments to repay all of the debt with interest, the EROIs of fuels must be exceedingly high—probably 50:1 or more. 

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