This is a guest post by Roger Brown, known as Roger K, whose graduate work was in physics. In reading about net energy and EROEI, he realized that energy balance alone is insufficient for characterizing the economics of energy production. In this post, he develops a multi-variable approach to account for the cost of other production resources. This post is the first publication of his innovative ideas. A summary is available at the end of the post.

Labor Cost of Energy

In order to produce an economic output, you have to invest production resources. At a minimum some amount of human labor must be invested. There is no such thing as a labor-free production process. Even if you lived in a sparsely inhabited tropical paradise filled with streams jumping with large tasty fish and heavily laden fruit trees growing profusely in the natural forests, you would still have to spend some amount of time gathering fruit and fish.

If you could gather all the food you needed for a single day in a half hour of work, then your food would be very cheap. If you lived in a less productive natural environment and had to spend eight hours a day gathering all of the food you needed, then your food would be very expensive.

_{Annual rates of total drilling for and production of oil and gas in the US, 1949-2005 (R² of the two = 0.005; source: U.S. EIA and N. D. Gagnon). Since drilling and other exploration activities are energy intensive, other things being equal EROI is lower when drilling rates are high.}

As oil prices increase and the presidential campaigns heat up there is a lot of discussion about increased drilling for oil. In economic theory higher prices will give market signals to increase exploration and exploitation of resources and hence deliver more to society, although at a higher price. Will this in fact occur with oil for the United States? Of course we will not know until we do it, but we can look to the past for hints. The enclosed figure represents the history of drilling and production for oil and gas in the United States. The answer seems inescapable: the rate of drilling for oil in the United States has been unrelated to finding or producing oil and gas, which is determined principally by geology. Mother nature, not market theory, determines resource availability, at least in this case and probably many more. (Source: Hall, Powers and Schoenberg (in press))

This is a repost from Cutler Cleveland on the underlying principles of net energy. We previously highlighted Dr. Clevelands work on the Energy Return from Wind. This post is Professor Clevelands latest installment on net energy analysis at the Encyclopedia of Earth, which I have reformatted to theoildrum. The Encyclopedia of Earth, where Prof. Cleveland is an editor/director, is a great academic/content based web clearinghouse for information on earth and our environment. I encourage everyone to follow some of the hyperlinks in the below story and peruse that site.

Outside of taxes and profits, we are a society used to thinking in gross terms. But the net is what we get to use. Net energy analysis, (and its subset EROI) get alot of airtime in peak oil discussions, but not yet in public. If the world is running on a certain total energy surplus, what are the implications for a decline in this surplus? Will the market, via dollars, treat gross production the same and forget to factor in increased costs? There seems to be much disagreement as to how best to use EROI and net energy principles, if at all, in planning for the looming energy crisis.

This is 4th in a continuing series of articles by Professor Charles Hall of the SUNY College of Environmental Science and Forestry and his students, describing the energy statistic, "EROI" for various fuels.

The concept of an energy theory of value has been around since (at least) the 1930s and net energy actually became part of law after Mark Hatfield petitioned Congress in 1970 regarding the importance of EROI. His efforts resulted in the passing of (now defunct) Public Law 93.577 which stipulated that all prospective energy supply technologies considered for commercial application must be assessed and evaluated in terms of their ‘potential for production of net energy”. However, insurmountable theoretical and practical difficulties arose when using the energy unit to understand, a) the conversion among disparate fuel types (energy quality), b) the contribution of the environment, and c) the boundaries of analysis. Despite these problems, energy analysis is grounded (largely) in physical principles, which gives it an important long term edge over financial analysis which may proximately be related to real things, but ultimately is related to the political will to print money.

Nuclear power is the logical step up in energy density from dung, wood, coal, oil..., but its scaling has been controversial and uncertain. Below is an overview of both the nuclear fuel cycle and its energy return. Please add your comments, links and expertise in a manner that Prof Goose is fond of saying, 'that would improve the silence'...;-)