Energy derived from finite and renewable resources is a function of multiple inputs including land, labor and raw materials — any of which may become a limiting factor for energy production. A technology might have a high EROI and yet require sufficient levels of scarce, non-energy inputs as to be extremely restricted in potential scale. For example, the amount of land required for biofuels is between 100 and 1,000 times more than the land area required for conventional fossil fuels. In addition to non-energy inputs, energy technologies vary in their waste outputs and impact on environment. Within the biofuels class itself, there is a large disparity of pesticide and fertilizer requirements. For example, per unit of energy gained, soybean biodiesel requires just 2% of the nitrogen, 8% of the phosphorous, and 10% of the pesticides that are needed for corn ethanol, inputs that impact groundwater quality and stream runoff.1 As such, future refinements to an energy and water policy framework will probably have to look beyond energy and water supplies.
How Much Water Does It Take to Provide Energy?
The net Energy Return on Water Invested (EROWI) for selected fuels Source: (2) This graph has a logarithmic scale so the bars represent orders of magnitude. The actual amounts are shown at the top of each bar. As it takes 250 times more water to produce ethanol from sugar cane to run a car than it does to run one on ordinary diesel, the availability of water is likely to place a tight limit on biofuel production.
In a world constrained by energy and increasing environmental limitations, but with a growing human population, adherence to accounting frameworks based on natural capital will be essential for policymakers to assess energy, water and other limiting factors. Such a framework will help us discard energy dead-ends that would waste our remaining high-quality fossil sources and, perhaps equally importantly, our time and effort. The world as a whole needs to build a renewable-supply investment portfolio that achieves the highest returns on our scarcest inputs rather than on money that is based on nothing scarce at all.
Endnotes
1. Hill et al., “Environmental, Economic, and Energetic Costs and Benefits of Biodiesel and Ethanol Biofuels,” Proc. Acad. Nat. Sci. 103:11206–11210 (2006).
2. K. Mulder, N. Hagens, B. Fisher, “Burning Water: Energy Return on Water Invested,” AMBIO — Journal of Human Environment 39, no. 1 (February, 2010).
3. M. Webber, C. King, “The Water Intensity of the Plugged-In Automotive Economy,” Environmental Science & Technology 42, no. 12 (2008): 4305–4311.
4. C. Cleveland, “Net Energy from the Extraction of Oil and Gas in the United States,” Energy 30 (2005): 769–782.
5. Robert F. Service, “Another Biofuels Drawback: The Demand for Irrigation,” Science 23, vol. 326, no. 5952 (October 2009): 516–517.
INNOVATION IN BUSINESS, MONEY AND FINANCE
The Supply of Money in an Energy-Scarce World
RICHARD DOUTHWAITE
Money has no value unless it can be exchanged for goods and services but these cannot be supplied without the use of some form of energy. Consequently, if less energy is available in future, the existing stock of money can either lose its value gradually through inflation or, if inflation is resisted, be drastically reduced by the collapse of the banking system that created it. Many over-indebted countries face this choice at present — they cannot preserve both their banking systems and their currency’s value. To prevent this conflict in future, money needs to be issued in new, non-debt ways.
The crux of our present economic problems is that the relationship between energy and money has broken down. In the past, supplies of money and energy were closely linked. For example, I believe that a gold currency was essentially an energy currency because the amount of gold produced in a year was determined by the cost of the energy it took to extract it. If energy (perhaps in the form of slaves or horses rather than fossil fuel) was cheap and abundant, gold mining would prove profitable and, coined or not, more gold would go into circulation enabling more trading to be done. If the increased level of activity then drove the price of slaves or steam coal up, the flow of gold would decline, slowing the rate at which the economy grew. It was a neat, natural balancing mechanism between the money supply and the amount of trading which worked rather well.
In fact, the only time it broke down seriously was when the Spanish conquistadors got gold for very little energy — by stealing it from the Aztecs and the Incas. That damaged the Spanish economy for many years because it meant that wealthy Spaniards could afford to buy from abroad rather than using the skills of their own people, which consequently did not develop. It was an early example of “the curse of oil” or the “paradox of plenty,” the paradox being that countries with an abundance of nonrenewable resources tend to develop less than countries with fewer natural resources. Britain suffered from this curse when North Sea oil began to come ashore, distorting the exchange rate and putting many previously sound firms out of business.
Nineteenth-century gold rushes were all about the conversion of human energy into money as the thousands of ordinary 21st-century people now mining alluvial deposits in the Amazon basin show. Obviously, if supplies of food, clothing and shelter were precarious, a society would never devote its energies to finding something that its members could neither eat, nor live in, and which would not keep them warm. In other words, gold supplies swelled in the past whenever a culture had the energy to produce a surplus. Once there was more gold available, its use as money made more trading possible, enabling a society’s resources to be converted more easily into buildings, clothes and other needs.
Other ways of converting human energy into money have been used besides mining gold and silver. For example, the inhabitants of Yap, a cluster of ten small islands in the Pacific Ocean, converted theirs into carved stones to use as money. They quarried the stones on Palau, some 260 miles away and ferried them back on rafts pulled by canoes, but once on Yap, the heavy stones were rarely moved, just as no gold has apparently left Fort Knox for many years. According to Glyn Davies’ mammoth study, The History of Money, the Yap used their stone money until the 1960s.
Wampum, the belts made from black and white shells by several Native American tribes on the New England coast, is a 17th-century example of human-energy money. Originally, the supply of belts was limited by the enormous amount of time required to collect the shells and assemble them, particularly as holes had to be made in the shells with Stone Age technology — drills tipped with quartz. The currency was devalued when steel drill bits enabled less time to be used and the last workshop drilling the shells and putting them on strings for use as money closed in 1860.
The last fixed, formal link between money and gold was broken on August 15, 1971, when President Nixon ordered the US Treasury to abandon the gold exchange standard and stop delivering one ounce of gold for every $35 that other countries paid in return. This link between the dollar and energy was replaced by an agreement that the US then made with OPEC through the US-Saudi Arabian Joint Commission on Economic Cooperation that “backed” the dollar with oil.1 OPEC agreed to quote the global oil price in dollars and, in return, the US promised to protect the oil-rich kingdoms in the Persian Gulf against threat of invasion or domestic coups. This arrangement is currently breaking down.
The most important link between energy and money today is the consumer price index. The central banks of every country in the world keep a close