Energy accounting as a policy analysis tool

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Title:
Energy accounting as a policy analysis tool prepared for the Subcommittee on Energy Research, Development, and Demonstration of the Committee on Science and Technology, U.S. House of Representatives, Ninety-fourth Congress, second session
Series Title:
Serial no. 94-CC
Physical Description:
vii, 667 p. : ill. ; 23 cm.
Language:
English
Creator:
Library of Congress -- Environment and Natural Resources Policy Division
United States -- Congress. -- House. -- Committee on Science and Technology. -- Subcommittee on Energy Research, Development, and Demonstration
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U.S. Govt. Print. Off.
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Washington
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Subjects / Keywords:
Energy policy -- Mathematical models -- United States   ( lcsh )
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federal government publication   ( marcgt )
bibliography   ( marcgt )
non-fiction   ( marcgt )

Notes

Bibliography:
Includes bibliographies.
Statement of Responsibility:
by the Environmental and Natural Resources Division, Congressional Research Service, Library of Congress ... June 1976.
General Note:
At head of title: Committee print.

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University of Florida
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All applicable rights reserved by the source institution and holding location.
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aleph - 025828673
oclc - 02819398
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AA00024842:00001

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[COMMITTEE PRINT]


ENERGY


ACCOUNTING AS A POLICY


ANALYSIS TOOL




PREPARED FOR THE

SUBCOMMITTEE ON ENERGY RESEARCH,
DEVELOPMENT, AND DEMONSTRATION

OF THE

COMMITTEE ON
SCIENCE AND TECHNOLOGY

U.S. HOUSE OF REPRESENTATIVES

NINETY-FOURTH CONGRESS
SECOND SESSION
BY THE
ENVIRONMENT AND NATURAL RESOURCES DIVISION
CONGRESSIONAL RESEARCH SERVICE
LIBRARY OF CONGRESS

Serial CC


JUNE 1976


Printed for the use of the Committee on Science and Technology


U.S. GOVERNMENT PRINTING OFFICE


68-391 0


WASHINGTON : 1976


For sale by the Superintendent of Documents, U.S. Government Printing Office
Washington, D.C. 20402 Price $5.45














COMMITTEE ON SCIENCE AND TECHNOLOGY


OLIN E. TEAGUE, Texas, Chairman


KEN HECHLER, West Virginia
THOMAS N. DOWNING, Virginia
DON FUQUA, Florida
JAMES W. SYMINGTON, Missouri
WALTER FLOWERS, Alabama
ROBERT A. ROE, New Jersey
MIKE McCORMACK, Washington
GEORGE E. BROWN, JR., California
DALE MILFORD, Texas
RAY THORNTON, Arkansas
JAMES H. SCHEUER, New York
RICHARD L. OTTINGER, New York
HENRY A. WAXMAN, California
PHILIP H. HAYES, Indiana
TOM HARKIN, Iowa
JIM LLOYD, California
JEROME A. AMBRO, New York
CHRISTOPHER J. DODD, Connecticut
MICHAEL T. BLOUIN, Iowa
TIM L. HALL, Illinois
ROBERT (BOB) KRUEGER, Texas
MARILYN LLOYD, Tennessee
JAMES J. BLANCHARD, Michigan
TIMOTHY E. WIRTH, Colorado


CHARLES A. MOSHER, Ohio
ALPHONZO BELL, California
JOHN JARMAN, Oklahoma
JOHN W. WYDLER, New York
LARRY WINN, JR., Kansas
LOUIS FREY, JR., Florida
BARRY M. GOLDWATER, JR., California
MARVIN L. ESCH, Michigan
JOHN B. CONLAN, Arizona
GARY A. MYERS, Pennsylvania
DAVID F. EMERY, Maine
LARRY PRESSLER, South Dakota


JOHN L. SWIGERT, Jr., Executive Director
HAROLD A. GOULD, Deputy Director
PHILIP B. YEAGER, Counsel
FRANK R. HAMMILL, Jr., Counsel
JAMES E. WILSON, Technical Consultant
J. THOMAS RATCHFORD, Science Consultant
JOHN D. HOLMFELD, Science Consultant
RALPH N. READ, Technical Consultant
ROBERT C. KETCHAM, Technical Consultant
REGINA A. DAVIS, Chief Clerk
MICHAEL A. SUPERATA, Minority Counsel



SUBCOMMITTEE ON ENERGY RESEARCH, DEVELOPMENT, AND DEMONSTRATION
MIKE McCORMACK, Washington. Chairman


KEN HECHLER, West Virginia
DON FUQUA, Florida
JAMES W. SYMINGTON, Missouri
GEORGE E. BROWN, JR., California
RAY THORNTON, Arkansas
RICHARD L. OTTINGER, New York
HENRY A. WAXMAN, California
PHILIP H. HAYES, Indiana
TOM HARKIN, Iowa
JEROME A. AMBRO, New York
CHRISTOPHER J. DODD, Connecticut
ROBERT (BOB) KRUEGER, Texas
MARILYN LLOYD, Tennessee
JAMES J. BLANCHARD, Michigan
TIMOTHY E. WIRTH, Colorado


BARRY M. GOLDWATER, JR., California
ALPHONZO BELL, California
JOHN W. WYDLER. New York
LARRY WINN, JR., Kansas
LOUIS FREY, JR., Florida
MARVIN L. ESCH, Michigan
JOHN B. CONLAN. Arizona


(n)











LETTER OF TRANSMITTAL


HOUSE[ OF REPRESENTATIVES,
COMMITTEE ON SCIENCE AND TECHNOLOGY,
Washington, D.C., June 8,1976.
Hon. OLIN E. TEAGUE,
Chairman, Committee on Science and Technology,
House of Representatives, Washington, D.C.
DEAR MR. CHAIRMAN: Energy accounting, or energy analysis as it
is sometimes called, is often cited as a basis for support of or objection
to policy alternatives we consider in our authorizations of energy re-
search, development and demonstration programs. In the Federal
Non-Nuclear Energy Research and Development Act of 1974, Congress
required that "the potential for production of net energy . shall
be analyzed and considered in evaluating proposals" for alternative
energy supply for technologies.
The energy accounting literature is growing rapidly, and opinions
as to its relevance to policy analysis vary widely. Accordingly, I have
asked the Congressional Research Service to review this growing body
of literature and assess its current relevance to our legislative needs.
The CRS report, supplemented by representative writings in the field
of energy accounting, concludes that the technique is not yet well
enough developed to live up to many of the claims made for it. I believe
that this judgment, which speaks primarily to the question of current
utility of the technique, will be of interest to the Committee in
its deliberations on alternative energy supply and conservation
technologies.
MIKE McCORMACK,
Chairman, Subcommittee on Energy Research,
Development and Demonstration.
(ImI)



















Digitized by the Internet Archive
in 2013














http://archive.org/details/energyacc00libr










LETTER OF SUBMITTAL


THE LIBRARY OF CONGRESS,
CONGRESSIONAL RESEARCH SERVICE,
Washington, D.C., March 8,1976.
Hon. MIKE McCORMACK,
Chairman, Subcommittee on Energy Research, Development, and
Demonstration, Committee on Science and Technology, U.S.
House of Representathives, Washington, D.C.
DEAR MR. CHAIRMAN: I am submitting herewith a report entitled
"Energy Accounting as a Policy Analysis Tool" which was prepared at
your request. The report describes the essential elements of Energy
Accounting, traces its development over the past several years as an
analytical technique, and measures its potential utility in policy
analysis against its utility as demonstrated to date.
The report, supplemented by a number of selected writings from the
field, was prepared by David E. Gushee, Specialist in Environmental
Policy in our Environment and Natural Resources Division.
NORMAN BECKMAN,
Acting Director, Congressional Research Service.















CONTENTS


Page
Letter of submittal---- ------------------------------------------ nII
Letter of transmittal---------------------------------------------- v
Introduction------------------------------------------------------ 3
What is Energy Accounting?- -------------------------------------- 5
Methodology ------------------------------------------------- 5
Energy Flow Data-------------------------------------------- 8
Contemporary Analyses ---------------------------------------- 8
Conclusions ------------------------------------------------------ 13
APPENDIX----------------------------------------------------- 19
(VII)


























ENERGY ACCOUNTING AS A POLICY ANALYSIS TOOL
By David E. Gushee

Specialist in Environmental Policy, Environment and Natural
Resources Division
March 8, 1976

THE LIBRARY OF CONGRESS
CONGRESSIONALRESEARCH SERVICE
CONGRESSIONAL RESEARCH SERVICE













INTRODUCTION


ENERGY ACCOUNTING
The oil embargo of 1973-74 brought into sharp focus what is known
and what is not known about energy flows in the U.S. A great deal is
known on the supply side-how much oil, gas, coal, and uranium ore
are produced, where it comes from, how it is transported, and where
it is used. Less is known on the demand side-how consumption varies
with capacity utilization, how much is used for heat, for processes,
or for raw materials. And still less is known about interfuel substi-
tutability, potential for conservation, and impact of changes in con-
sumption patterns on raw energy supply needs.
These information gaps are not surprising. So long as energy sup-
plies were very large compared to demand, energy flows have been
accounted for as components of dollar flows and flows of raw mate-
rials and products. Energy inputs were not constraining; there was
no need to identify them separately and treat them as independent
variables, except as cost elements in financial accounting systems.
The situation has now changed. Not only is energy more expensive
(which means it has become worthy of special consideration in cost
control), but its availability is no longer assured. Where it comes
from, how it is used, whether it can be substituted for, how much is
wasted, all become significant policy questions not only for individ-
uals and companies but for the Nation as a whole.
Predicting direct and indirect effects of changes in energy supply
and usage patterns is also critical. Does saving energy in one walk of
life lead to a savings in overall energy demand or does it, as a result
of the complexity and perversity of modern life, lead instead to a net
increase in overall energy demand? If it does conserve, who benefits,
how, and where? Who loses?
For some years before the Arab oil embargo of 1973-74, a number
of close observers of the energy scene were predicting that trends in
energy consumption were cause for long term concern. Not only had
geologists such as M. King Hubbert been predicting that U.S. oil and
gas reserves would soon begin to deplete, but foreign policy experts,
among others, were predicting that the U.S. economy, fueled as it is
primarily by oil and gas, would soon be in a position of import de-
pendence. Studies were made and warnings were raised, but little was
done, as we all know.
A small coterie of physical scientists were, however, trying in those
years to map energy flows through the U.S. economy to see how plen-
tiful fuels such as coal might be substituted for depleting fuels like
oil and gas, where energy might be conserved, and ,how the American
lifestyle might be modified to reduce its enormous appetite for energy.
Ecologists were concerned about the impact on the ecosphere of con-
tinued growth in energy demand.
(3)






They had not progressed very far at the time the embargo hit. They
are not very much farther ahead now. But their work has attracted a
great deal of attention, in part because of their claims for its values
and in part because of the failures of economic tools to provide ade-
quate insight into the consequences of economic and energy policy
alternatives proposed in response to the embargo, the subsequent
increases in world energy prices, and the slowdowns in the econo-
mies of most of the oil-consuming nations.
Mapping energy flows is now on the thresliold of becoming an in-
dependent discipline. It is called "energy accounting" by some, "en-
ergy analysis" by others. Other names have also surfaced from time
to time. Its purpose is to model energy flows in a manner analogous
to the way that economics models money flows. Some of its more
extreme proponents claim that energy is a more basic unit of value
than money and that energy accounting should replace money ac-
counting.1 Most energy analysts, however, claim only that energy
accounting can provide insights that economic analysis cannot and
that, were its methodology and data base improved, it would provide
a useful, if not indispensable, additional tool for predictive (and
therefore for policy) purposes.
Some skeptics claim that energy accounting is nothing more than the
traditional chemical engineer's energy balance and that, when applied
to policy problems, it reveals nothing not already known through
economic analysis.
As is the case with most new analytical techniques, the truth will
eventually become clear, and the technique will take its rightful place.
At present, energy accounting appears to be of potential value in
evaluation of alternative energy supply technologies and in identifi-
cation and ranking in priority of energy conservation opportunities.
Whether it will ever become useful in improving economic forecasts.
energy demand forecasts, or impact analysis of policy options such
as increased recycling of resources or energy tax proposals is not yet
clear.
1 Hannon, Bruce M., An Energy Standard of Value. Annals of the American Academy of
Political and Social Sciences, No. 410, 1973, pp. 139-53. Reprinted in Appendix. page 27.










WHAT Is ENERGY ACCOUNTING?


Energy accounting is tracing the flows of energy into, through, and
out of systems. A system can be defined at will: anything from a car
to the U.S. economy as a whole, or to the economies of a number of
countries or the world at large. The simpler and more specific the
system, the more precise the analysis can be. As systems under analysis
become more complex, generalized data, if available, must be used
to reduce the computation volume; if generalized data are not avail-
able, they must be estimated from indirect sources such as economic
data and materials flows. Resorting to generalized data or to esti-
mated data introduces errors of unknown magnitudes and cause:
loss of detail.
The type of analysis used and the definition of the system to be
analyzed depend on the purpose of the analysis. As there are many
ways to analyze and many things to be analyzed for, there are sig-
nificant variations in basic assumptions, methodologies, and data
estimation techniques in the studies carried out to date. These varia-
tions make comparisons between studies difficult at best and often
lead analysts to different conclusions.
These variations are not unusual for a new discipline. As interest
has mounted and new workers have entered the field, the need for
some standardization has become recognized. Two international meet-
ings have been held with this in mind-in August 1974 in Gulds-
medshyttan, Sweden. and in June 1975 in Lidingo, Sweden. Both
were held under the auspices of the International Federation of In-
stitutes for Advanced Study. The 1974 meeting focused on the
mechanics of energy accounting, including terminology, units of
measurement, system definition, and format for reporting results.
The 1975 meeting focused on the relationship between energy analy-
sis and economic analysis, seeking to find the aspects of each of po-
tential value to the other. Reports of the two meetings are reproduced
in the Appendix.
These two meetings have helped to reduce the variations from study
to study and have begun to build a bridge between energy accounting
and economics. But much remains to be done before a body of agreed-
upon analytical results becomes available and usable for further
analyses.
Given this background, energy accounting is developing on three
broad fronts:
Methodology
Energy Flow Data
Contemporary analyses

I. METI HODOLOGY
There are two basic methodological approaches to energy accouint-
ing: (a) process analysis, which treats ind(lividuial processes or groups
(5)







of processes, using either directly measured data or industry aver-
ages; and (b) input/output analysis, which uses economic data on
inter-industry transfers of goods and services transformed to esti-
mates of associated energy transfers.
A. Process Analysis
In process analysis, the analyst makes what engineers call a "mate-
rial balance" and an "energy balance." He makes a block diagram to
include each process step and identifies the quantities and physical
and thermodynamic states of materials and energy flowing in and
out plus all internal transformations and flows. Where actual meas-
ured values are available, those are used; in their absence, the analyst
makes estimates based on his knowledge of physical and chemical
principles.
Process analysis has the advantage of giving detailed insight into
the process and how it varies as conditions change. The analyst can
derive averaged information and incremental information-how unit
consumption change as production is increased or decreased, for
example.
Process analysis, although it may be new to the policy arena, is a
classic tool of the industrial process engineer, particularly in the
chemical process industries such as iron and steel, petrochemical,
metallurgical, and aluminum. There are three main differences, how-
ever, between process analysis as practiced in industry and as prac-
ticed for policy work. First, the process engineer has available, or can
estimate from chemical and physical principles, all the numbers nec-
essary to develop a complete energy picture of the process. Secondly.
he is not interested in what went on before his process inputs reached
him nor in what happens after his products and wastes leave his plant
boundaries. Thirdly, he is not privy to how his energy balance com-
pares to those of other processors in other companies at other
locations.
The first point-complete process knowledge-means that the in-
dustrial engineer can identify energy conservation opportunities in his
plant, can calculate the effects on energy consumption caused by
changes in operating rate or process conditions, and can calculate the
effects of process redesign or raw material changes.
The second point-process isolation-means that he is less concerned
with the impact on upstream or downstream energy flows that might
be caused by changes he might make within his plant. A change from
gas to coal for process heat, for example, would change his flowsheet
and economics. What that would do to the railroad traffic or inter-
state gas flow are not taken into account in his deliberations.
The third point-competitive isolation-means that no individual
in an industry has complete knowledge of the whole industry and thus
cannot make an accurate process analysis for the industry as a whole.
This is particularly important with respect to changes in operating
rates as economic activity changes and to policy changes in fuel prices
or availabilities.
In sum, process analysis fits directly into energy conservation actions
by industry on a case by case basis but is not directly suited for broader
policy questions such as externally imposed constraints or require-
ments. In order for it to provide meaningful predictions of impacts







from such external impositions as fuel-switching requirements or
mandatory conservation goals, the detailed data and analyses made
on specific processes would have to be made available to some central
entity where the impact on the whole could be calculated from the
sums of impacts on the individuals. To date, only one industry-iron
and steel-has been able to develop such a central capability, at
Arthur D. Little, Inc.,2 in Cambridge, Mass. The data and mathe-
matical model are held in tight secrecy to protect the proprietary
individual company data, and not all the process units in the industry
are represented, although the majority (130 of 139 plants of members
of American Iron and Steel Institute, representing 99% of total AISI
production) are.
B. Input/Output Analysis
Input/output analysis, based on economic data on inter-industry
transfers of goods and services, starts at the industry level and can be
aggregated upward to groups of industries or combinations of indus-
tries and sectors (such as transportation). By its very nature, input/
output cannot be disaggregated downward-that is, it cannot provide
an accurate picture or predictive capacity for impacts of external
changes within an industry.
An input/output table shows the dollar flows from one industry
into others-where iron and steel go, for example. Taken the other
way, it shows where an industry, such as iron and steel, gets its inputs
and how much it pays for them. It does not measure energy transfers,
although it does measure fuel and electricity inputs as dollar flows.
Nor does it show how the inputs are used-as feedstocks or process
heat, for example, nor how they are distributed among the various
functions within the industry.
Further, input/output tabulations become available only some years
after the fact. The latest complete set for the U.S., for example, is
based on 1967 figures. To add further difficulty, the economic data
must be converted to energy units on the basis of some average price.
Where a significant portion of the energy flows are under vertically-
integrated control, or prices vary widely as a function of rapidly-
varying over and undersupply or seasonal demand, or deliveries are
under long term price contracts whose terms are not known, the use
of average price introduces an unknown error in energy flows and can
misrepresent the probable impact of external change such as spot
market price changes.
Despite these shortcomings, input/output analysis does give num-
bers for energy flows through economic sectors, and some of these
numbers for some sectors are claimed by energy analysts to have
policy value (for some purposes). The main value is apparently their
reflection that every product or service represents an overall energy
flow in the economy significantly larger than the energy directly
required to make it, and that "gross enerqry requirement" is different
for different types of products. A particularly promising result from
such an analysis, for example, is that making, polyethylene in the U.S.
has a much greater gross energy requirement than making the same
2 Steel and the Environment: A Cost Impact Analysis. Arthur D. Little, Inc.. Report to
the American Iron and Steel Institute. May 1975.







material in the Netherlands, as a result of differing raw materials in
the two countries.3 Whether this result is right and if right whether
it signals the need for some sort of policy initiative are not yet clear.
Nonetheless, the main advantage of input/output analysis is the rela-
tive ease of use and the opportunity to use the same set of starting data:
the Federal input/output statistics.
Articles describing and evaluating both process analysis and input!
output analysis are reprinted in the Appendix. In the U.S., R. Stephen
Berry and Thomas V. Long and coworkers, University of Chicago,
are the leading developers and practitioners of process analysis, while
Bruce Hannon, Robert Herendeen, and coworkers Center for Ad-
vanced Computation, University of Illinois, play the same role for
input-output analysis.

II. ENERGY FLOW DATA
To date, there is no centralized collection of energy flow data. There
are many data collections which include relevant, though partial,
data-so many in fact that a recent Federal Energy Administration
report summarizing Federal energy information sources is more than
two inches thick. Data are generated on fuel supply and transportation
activities in great detail on a continuous basis. Fuel flows into indi-
vidual industrial categories are also available. Fuel use patterns within
industries and other consuming sectors are, however, measured only
sporadically and vary in comprehensiveness of coverage and com-
patibility with other energy flow data.
Technical and trade publications and a number of handbooks and
manuals also include energy data. These tend to be "typical" plant
data representing an idealized process or plant or highly specific to
an individual set of circumstances.
This mixed bag of data resources is very much like that for eco-
nomics. Some activities are well documented; others are treated pri-
marily only on an aggregated basis. There is a major gulf between the
"micro" level and the "macro" level (specific systems vs. aggregated
systems) which can be bridged only by making a number of assump-
tions subject to great inherent uncertainty.

11. CONTEMPORARY ANALYSES
The energy accounting literature is expanding rapidly, as funding
increases and new workers enter the field. The studies published to
date fall into one or more of the three following categories
(a) Net energy analysis of energy supply systems.
(b) Gross energy requirements of economic sector activities.
(c) Energy impacts of price, supply, and technology alterna-
tives and vice versa.
A. Net Energy A nlwysq of Eine/gy Supply Systems
Net energy analysis applied to energy supply systems is designed
to identify how much energy is used up in the process of extracting
3 R. S. Berry, T. V. Long, and H. Makino. An International Comparison of Polymers and
Their Alternntives. Energy Policy, Vol. ,. June 1975. pp. 144-155. Reprinted in Appendix.
4 Enprzv Information in the Federal Government. Federal Energy Administration NTIS
No. I'B. 246703, 1975.







an energy resource such as coal or uranium, transforming it to usable
forms, and delivering it to the points of use. Its rise in popularity and
potential value is associated with the current ongoing debate on the
finiteness of non-renewable resources, ultimate "limits to growth," and
the probable requirement to exploit resources that are progressively
harder to get at and leaner in usable energy content.
Although trends toward leaner and leaner ores have been recognized
for generations, net energy yield as a rallying cry first surfaced about
five years ago when E. J. Hoffman of the University of Wyoming
calculated 5 that "the net energy realized by nuclear fission may be
nearly a full order of magnitude (a factor of ten) below that pre-
dicted. In other words, instead of plant or thermal efficiencies of 30%,
the net plant efficiency realized-based on the ideal value for the fuel-
may run as low as 3%."
This calculation was admittedly imprecise, based as it was on a
number of necessary assumptions about the shape of the ultimate
nuclear fuel cycle and waste management procedures. Nonetheless, it
was seized upon by opponents of nuclear power as an additional argu-
ment in their favor.
At about the same time, Howard T. Odum, an ecologist at University
of Florida, was incorporating the net energy concept into a general
concern over the ability of the world's ecosphere to absorb the ever-
increasing heat loads of industrial and population growth. Although
he had published a highly technical book on the subject,6 his ideas
really took hold only after he published a simplified, semitechnical
article in 1973."
Since 1973, the net energy concept has been developing along two
separate paths: net energy yield of nuclear power as part of the debate
on the future role of nuclear power in the U.S. and other national
economies; and net energy yields of energy supply systems generally,
but particularly with respect to alternative energy sources such as
synthetic fuels, solar energy, and oil shale.
On nuclear power, the debate in print started out questioning the
energy yield per nuclear power plant. As analytical sophistication in-
creased, analytical results began to show incontrovertibly that a new
nuclear plant would pay back its original energy investment rapidly
compared to its life expectancy even given conservative assumptions
about energy needs associated with fuel reprocessing, waste manage-
ment, and plant decommissioning. The latest studies now are converg-
ing on each other in their estimates of net energy yield, showing that
the initial energy investment is repaid within two years or less of plant
start-up. These plants are expected to operate for at least 30 years
thereafter contributing "net energy."
As the original question of net energy yield for fission reactors was
being shown to be unimportant, the focus of the debate shifted to the
impact on overall energy demand as nuclear plant investment es-
calated. Concern was expressed that, far from being an overall energy
conserver, a burgeoning nuclear program would sharply increase
overall demand for fossil fuels and, if rapid enough, would always
have that effect. Later studies, however, have shown that a rate of
5 Hoffman, E. J., Overall Efficiencies of Nuclear Power. December 1971, unpublished.
Odum, H. T.. Environment. Power and Society, John Wiley, 1972.
7 Odum. H. T., Energy. Ecology and Economics. Amblo. Vol. 2. No. 6, 1973, pp. 220-5.
Reprinted in the Appendix. page 19.


68-391 0 76 2





10


growth of nuclear power having that effect would be insupportable on
other grounds-either overall growth rate of electricity demand or
constraints on manpower or materials. This debate, reprinted in the
Appendix, appears to be cooling in significance as the planned rate
of future construction of nuclear power plants slows down.
On the more general question of net energy yields of a range of
alternative energy supply systems, after an initial period of expan-
siveness, claims for the value of net energy analyses are becoming
more realistic and hedged with qualifications. One of the more recent
reports8 is typical: "In calculating the amount of energy it takes to
get energy, we have examined each major step in the pathway from
extraction to conversion to fuel as well as to electricity with some trans-
mission losses factored in. A brief thumbing through the report will
indicate how detailed the analysis has become and how inclusive it
must be to accurately reflect energy inputs and outputs.... (T)he key
feature is that the method does not rely on one number to express the
variety of issues associated with energy analysis. There is no 'net'
energy calculation in the sense that we can provide a single number
for policy making. Hopefully, we run a lesser risk that the complexity
will result in confusion, than simplification will result in misunder-
standing" (page 5).
Although the complexity and lack of a single number do not
necessarily negate the potential value of net energy analysis, they do
demonstrate that the technique will not supersede other evaluative
methods such as economic analysis and subjective judgment. The role
it will play remains unclear, even though Congress has legislated9
that net energy analyses will be required components of evaluations
of proposed energy supply alternatives:
"... the comprehensive program in research, development, and demon-
stration required by this Act shall be designed and executed according
to the following principles: . (5) the potential for production of
net energy by the proposed technology at the state of commercial
application shall be analyzed and considered in evaluating proposals."
The conference report on S. 1283,10 which became Public Law 93-577,
goes on to explain: "The intent of (this) principle . is that in the
assignment of priorities for Federal encouragement of commercial
applications of new energy technologies, consideration should be given
to the net, as opposed to the gross, energy yield. The processes and
facilities necessary to produce energy also consume energy, and in
the case of certain technologies, this consumption may account for a
substantial portion of the potential yield of the energy resource ....
(In) the early research or development phases of new technologies,
the projected applications may even involve a net loss of energy. This
principle is not intended in any way to deter such research or to
deter the demonstration of new technologies which are not energy
efficient or cost effective in the early stages of development."
The Energy Research and Development Administration (ERDA),
the agency responsible for implementing Public Law 93-577, is moving
cautiously in translating this requirement for net energy analyses into
8 A Study to Develop Energy Estimates of Merit for Selected Fuel Technologies. Develop-
ment Sciences. Inc., Contract 14-01-0001-2141 DSI 038, to U.S. Department of the Interior.
September 1975.
SPublic Law 93-577, The Federal Non-Nuclear Energy Research and Development Act of
1974. Section 5(a) (5).
10 House Report 93-1563, Conference Report on S. 1283, December 11, 1974.







action. It has assigned the responsibility to a newly established position
of Assistant Director for Systems Analysis in the Office of Assistant
Administrator for Planning and Analysis. The methodology to be
used is still being worked out. In addition to the Development Sciences
study, a number of others funded prior to the formation of ERDA
have been made. Two of the more comprehensive of these11' 12 show
some of the difficulties that this new technique faces in its development
phase.
To supplement the insights gained by these studies, ERDA, with
assistance from the National Science Foundation which had been
supporting methodological studies for several years, convened a work-
shop of leading theoreticians and practitioners of energy analysis.13
The specialists in attendance were unable to hammer out agreement
among themselves; since then. ERDA has been continuing its de-
liberations on methodologies and is currently not expecting to finalize
its approach for many months.
B. Gross Energy Requirements
Despite the limitations imposed by weaknesses and gaps in present
analytical techniques and available data, energy analysts continue to
apply both process analysis and input/output analysis to national
economies and to various economic sectors. Although their results are
subject to uncertainties, as indicated earlier, these analysts are be-
ginning to make comparisons between countries and to generate num-
bers for goods and services that represent the relative overall energy
intensities for the activities going into their manufacture or their de-
livery of service. Several such analyses are reprinted in the Appendix.
It is difficult to find any unique policy value in these studies. One
of the basic purposes of making them has been to identify situations
where economic analysis does not adequately reveal the energy inten-
siveness of an economic sector and therefore does not adequately
predict the energy impacts of economic changes or the reverse. An
oft-quoted statistic, for example, is the fact that the energy con-
sumption per capital in the U.S. is twice as great as that for Sweden.
Switzerland, or some other country with equivalent or nearly equivalent
gross national product per capital.
Energy analyses show significant differences between countries and
between plants within a country in gross energy requirements for
steel production, transportation, plastic production, and other goods
and services. But the analyses do not yet show how much of these
differences are real, and therefore the results of differences in tech-
nological approach and energy costs, and how much might be the
consequence of, for example foreign trade, which is a much larger
factor in European economies than in the U.S. economy.
Nor is it possible for energy analysts to calculate the consequences
of systemic changes, such as switching from gas to coal or increasing
the proportion of recycled materials. Nor is it possible for the analysts
to show that their analyses have yet, in fact, uncovered situations where
the energy analysis points to policy options that differ markedly from
those indicated by traditional economic analysis.
U Energy Alternatives: A Comparative Analysis. Science and Public Policy Program,
University of Oklahoma. May 1975.
nEnvironmental Impacts Efficiency and Cost of Energy Supply and End Use. Hittman
Associates, January 1975, to Council on Environmental Quality and other agencies.
1 Net Energy Analysis Workshop, August 25-28. 1975. sponsored by National Science
Foundation.
















CONCLUSIONS
Energy accounting is being offered as a policy analysis tool able to
provide new or more defensible insights than have heretofore been
available into the use of energy in the United States and other social
and economic systems. Its proponents suggest that it can supple-
ment, if not replace, existing analytical tools such as economic analysis
and provide insurance against mistakes that might occur as a result of
weaknesses in economics such as basic assumptions of input substituta-
bility, the behavior of a free market, and the discount rate.
Economic analysis, despite its long history and acceptance as a
scholarly discipline and a contributor of insights, has many weak-
nesses and limitations, as events of recent years demonstrate and as
economists admit. It is not surprising, therefore, that energy account-
ing, as a new methodology still seeking acceptance as a discipline, has
many weaknesses and limitations and suffers the slings and arrows of
many critics.
On the record as exemplified by the articles included in the Appen-
dix, one must conclude that energy accounting has only limited
policy value in its current state of development. In the short term,
its greatest potential would appear to lie in identifying energy con-
servation opportunities on a case by case basis and in providing an
energy efficiency criterion for use in evaluating new technologies for
energy production.
Whetller energy accounting will ever be able to supplement economic
analysis as a tool to predict impacts of alternative public policy
options is not yet clear. There is some possibility that its insights
can enrich the economists' mathematical treatment of the form value
of energy (variations in potential utility of the energy as a function
of its physical and thermodynamic properties) and the applicability
of the discount rate when applied to non-renewable resources.14
Neither of these enrichments hlias yet occurred in economic analysis,
and economists are working on the same problems from other angles
as well as from inputs provided by energy accounting.
In sum, in its present state of development, energy accounting is
worth following for its possible future value but appears to be of very
limited value for current use.
1 Talbot Page. Economics of Recycling., in Senate Public Works Committee Print Resource
Conservation. Resource Recovery, and Solid Waste Management. Serial No. 93-12, 1973.
Page discusses the economic issues associated with the conservation criterion, the factor
through which a finite, depleting, nonrenewable resource is or might be given a current
economic value.
(13)














APPENDIX
I. Spreading Awareness:
1. "Energy, Ecology, and Economics." Howard T. Odum, Pago
Ambio, v. 2, No. 6, 1973: pp. 220-227------------------ 19
2. "An Energy Standard of Value." Bruce M. Hannon, Annals
of the American Academy of Political and Social Science,
v. 410, 1973; pp. 139-153---------------------------- 27
3. "It Takes Energy to Produce Energy: The Net's the Thing."
Edward Flattau and Jeff Stansbury, The Washington
Monthly, March 1974; pp. 20-26---------------------- 37
4. "Systems of Energy and the Energy of Systems." Thomas A.
Robertson, Sierra Club Bulletin, v. 60, March 1975; pp.
20-23--------------------------------------------- 41
5. "The Old Economics Has Failed: A New System is Needed to
Find the True Cost of Energy." Wade Rowland, Science
Forum, v. 8, August 1975; pp. 3-6--------------------- 46
6. "It Takes Energy To Get Energy; the Law of Diminishing
Returns is in Effect." Wilson Clark, Smithsonian, v. 5,
December 1974; pp. 84-90---------------------------- 50
7. "Energy Analysis and Public Policy." Martha W. Gilliland,
Science, v. 189, September 26, 1975; pp. 1051-1056- ------ 55
8. "Net Energy Analysis Can be Illuminating." Rice Odell,
editor, Conservation Foundation Letter, October 1974- ...- 65
II. Critics Begin to Surface:
9. "Energy Accounting vs. the Market." Based on a paper by
Joel Darmstadter, Resources, No. 50, October 1975; pp. 4-5- 75
10. "The Economics of Energy Analysis." Michael Webb and
David Pearce, Energy Policy, v. 3, December 1975; pp.
318-331 ------------------------------------------- 76
11. "Net Energy Analysis-Is It Any Use?" Gerald Leach, Energy
Policy, v. 3, December 1975; pp. 332-344- ---------------- 87
III. Analytical Methodology:
12. "Use of Input/Output Analysis to Determine The Energy
Cost of Goods and Services." Robert A. Herendeen, in
Energy Demand, Conservation, and Institutional Pro-
blems, edited by Michael S. Macrakis, MIT Press, 1974 _- 101
13. "Energy costs: a review of methods." P. F. Chapman, Energy
Policy, v. 2, June 1974; pp. 91-103--------------------- 111
14. Energy Analysis Workshop on Methodology and Conven-
tions, Guldsmedshyttan, Sweden, August 1974; held under
the auspices of the International Federation of Institutes
for Advanced Study. Report No. 6--------------------- 125
15. Workshop on Energy Analysis and Economics, Lidingo,
Sweden, June 1975; under the auspices of the International
Federation of Institutes for Advanced Study. Report No. 9- 214
16. "Thermodynamics and Energy Accountancy in Industrial
Processes." C. Cozzi, Energy Sources, v. 2, No. 2, 1975;
pp. 165-178----------------------------------------- 325
IV. The Nuclear Power Debate:
17. "Energy Inputs and Outputs for Nuclear Power Stations."
P. F. Chapman and W. D. Mortimer, Energy Research
Group, Open University, Milton Keynes, Report ERG
005, revised December 1974 -------------------------- 335
18. "Dynamic Energy Analysis and Nuclear Power." John H.
Price, Friends of the Earth Ltd. (for Earth Resources
Research Ltd.) December 1974----------------------- 412
19. "Nuclear Energy Balances in a World With Ceilings." Gerald
Leach, International Institute for Environment and De-
velopment, preliminary paper December 1974; unpub-
lished---------------------------------------------- 446
(15)






16

IV. The Nuclear Power Debate-Continued Page
20. "Energy analysis of nuclear power." John Wright and John
Syrett, New Scientist, v. 65, January 9, 1975; pp. 66-67.- 473
21. "Nuclear Power's Contribution to Energy Growth." W. Ken-
neth Davis, paper presented at the Atomic Industrial
Forum Conference on Accelerating Nuclear Power Plant
Construction, March 3, 1975; New Orleans-------------- 475
22. "The Net Energy from Nuclear Reactors." F. von Hippel,
M. Fels and H. Krungmann. FAS Professional Bulletin,
v. 3, April 1975; pp. 6-7----------------------------- 492
23. "Energy Accounting and Nuclear Power." L. G. Brookes,
Atom, v. 227, September 1975; pp. 164-168 ------------.- 494
24. "Energy analysis of nuclear power: For and against nuclear
power." Peter Chapman; "The growth of a myth." Len
rookes, New Scientist, v. 65, October 1975; pp. 142-147- 499
25. Net Energy from Nuclear Power. R. M. Rotty, A. M. Perry,
D. B. Reister, Institute for Energy Analysis Report IEA-
75-3 (Summary and Conclusions) -------------------- 503
26. "Energy analysis of nuclear power stations." Peter W.
Chapman, Energy Policy, v. 3, December 1975; pp.
285-297------------------------------------------- 507
27. "Nuclear power and oil imports: a look at the energy bal-
ance." J. H. Hollomon, B. Raz, R. Triitel, Energy Policy,
v. 3, December 1975; pp. 299-305-------------------- 520
28. "Energy analysis of a power generating system." K. M. Hill
and F. J. Walford, Energy Policy, v. 3, December 1975;
pp. 306-317--------------------------------------- 527
V. Net Energy Yield of New Energy Supply Systems:
29. Energy Study. Summary chapter, interim report, Office of
Energy Research and Planning, Office of the Governor,
State of Oregon. July 1974---------------------------- 541
30. "The energy cost of fuels." P.F. Chapman, G. Leach, M.
Slesser, Energy Policy, v. 2, September 1974; pp. 231-243- 544
31. "Procedures for comparing the energy efficiencies of energy
alternatives." Chapter 15, in Energy Alternatives: A
Comparative Analysis. The Science and Public Policy
Program, University of Oklahoma, May 1975----------- 557
32. "A Study to Develop Energy Estimates of Merit for Selected
Fuel Technologies," summary chapter, Development
Sciences, Inc., September 1975------------------------ 575
VI. Applications of Energy Analysis to National Economies and to
Economic Sectors:
33. "Total Energy Demand for Automobiles." Eric Hirst and
Robert Herendeen. Paper 730065 delivered at the Inter-
national Automotive Engineering Congress, Society of
Automotive Engineers, January 1973------------------- 589
34. "The Energy Cost of Automobiles." R.S. Berry and M.F.
Fels; Science and Public Affairs, v. 29, December 1973;
pp. 11-17 and 58-60-------------------------------- 595
35. "Energy Thrift in Packaging and Marketing." R.S. Berry
and Hiro Makino, Technology Review, v. 76, February
1974; pp. 32-43 ----------------------------------- 606
36. "Goods and services: an input-output analysis." David J.
Wright, Energy Policy, v. 2, December 1974; pp. 307-315- 619
37. "The energy costs of materials." P.F. Chapman, Energy
Policy, v. 3, March 1975; pp. 47-57------------------- 628
38. "An international comparison of polymers and their al-
ternatives." R.S. Berry, T.V. Long, H. Makino, Energy
Policy, v. 3, June 1975; pp. 144-155------------------ 639
39. "The energy cost of goods and services." Clark W. Bullard III
and Robert A. Herendeen, Energy Policy, v. 3, December
1975; pp. 268-278 --------------------------------- 651
40. "The energy cost of goods and services in the Federal
Republic of Germany." Richard V. Denton, Energy
Policy, v. 3, December 1975; pp. 279-284--------------- 662





















APPENDIX I

SPREADING AWARENESS
From its origins in highly technical academic circles, energy ac-
counting has caught the fancy of conservationists, scientists, and mak-
ers of public policy. The articles which follow, starting with Howard
T. Odum's seminal "Energy, Ecology, and Economics," typify the
diffusion of awareness of the potential of this new technique into other
disciplines and to the public at large.










19


Energy, Ecology, and Economics

BY HOWARD T ODUM


As long-predicted energy shortages appear, as questions
about the interaction of energy and environment are raised
in legislatures and parliaments, and as energy-related infla-
tion dominates public concern, many are beginning to see that
there is a unity of the single system of energy, ecology, and
economics. The world's leadership, however, is mainly ad-
vised by specialists who study only a part of the system at a
time.
Instead-of a single system's understanding, we have ad-
versary arguments dangerous to the welfare of nations and
the role of man as the earth's information bearer and pro-
grammatic custodian. Many economic models ignore the
changing force of energy regarding effects of energy sources
as an external constant; ecoactivists cause governments to
waste energy in unnecessary technology; and the false gods
of growth and medical ethics make famine, disease, and cata-
lytic collapse more and more likely for much of the world.
Some energy specialists consider the environment as an an-
tagonist instead of a major energy ally in supporting the
biosphere.
Instead of the confusion that comes from the western civ-
ilization's characteristic educational approach of isolating
variables in tunnel-vision thinking, let us here seek common
sense overview which comes from overall energetic. Very
simple overall energy diagrams clarify issues quantitatively,
indicating what is possible. The diagrams and symbols are
explained further in a recent book (1).
For example, Figure I shows thebasis of production in
interaction of fuel reserves, steady energies of solar origin
and feedback of work from the system's structure. Figure 1
is the computer simulation of this model for our existence,
showing a steady state after our current growing period. As
the fuel tank is drained, we return to a lower solar base of
simpler agriculture. Simple macroscopic minimodels based


on overview of world energy provides the same kind of trend
curves as the detailed models of Forrester and Meadows (see
Ref 2). With major changes confronting us, let us consider
here some of the main points that we must comprehend so
we may be prepared for the future.


1. The true value of energy to society is the net energy, which
is that after the energy costs of getting and concentrating that
energy are subtracted.

Many forms of energy are low grade because they have to
be concentrated, transported, dug from deep in the earth
or pumped from far at sea. Much energy has tQ be used di-
rectly and indirectly to support the machinery, people, sup-
ply systems, etc to deliver the energy. If it takes ten units
of energy to bring ten units of energy to the point of use, then
there is no net energy. Right now we dig further and further,
deeper and deeper, and go for energies that are more and
more dilute in the rocks. Sunlight is also a dilute energy that
requires work to harness.
We are still expanding our rate of consumption of gross
energy, but since we are feeding a higher and higher per-
centage back into the energy seeking process, we are decreas-
ing our percentage of net energy production. Many of our
proposed alternative energy sources take more energy feed-
back than present processes. Figure 2 shows net energy
emerging beyond the work and structural maintenance
costs of energy processing.

2. Worldwide inflation is driven in part by the increasing
fraction of our fossil fuels that have to be used in getting more
fossil and other fuels.








20


For explanation of symbols, see references and notes (5)


Figure 1 A. Generalized world model of man and nature based on one-
shot fossil fuel usages and steady solar work. Pathways are flows of
energy from outside source (circle) through interactions (pointed blocks
marked 'X' to show multiplier action) to final dispersion of dispersed
heat. The tank symbol refers to storage. Here world fuel reserve storage
helps build a storage of structure of man's buildings, information, pop-
ulation, and culture.


Figure 2 Energy flow diagram illustrating energy laws, and the difference
between net and gross energy flows.


Figure 3. Relationship of money cycles to the energy circuit loops.


Figure 1 B. Graphs resulting from simulation of the model in Figure 1 A.
Available world fuel reserve was taken as 5 x 1019 kilocalorles and
energy converted from the solar input and converged into man's produc-
tive system of growth and maintenance was 5 x 1016 kilocalories when
structure was 101" kilocalories. Peak of structural growth was variable
over a 50-year period depending on amounts diverted into waste path-
ways.


40 years


Figure 1 C. The steady state observed in some simulations of Figure 1 A
was an oscillating one as in the graph shown here.

1019 -



U.9_


U -
-0
4)


400 years


If the money circulating is the same or increasing, and if
the quality energy reaching society for its general work is less
because so much energy has to go immediately into the
energy-getting process, then the real work to society per unit
money circulated is less. Money buys less real work of other
types and thus money is worth less. Because the economy
and total energy utilization are still expanding, we are misled
to think the total value is expanding and we allow more
money to circulate which makes the money-to-work ratio
even larger. Figure 3 shows the circulation of money that con-
stitutes the GNP in a counter-current to the energy flow.

3. Many calculations of energy reserves which are supposed
to offer years of supply are as gross energy rather than net
energy and thus may be of much shorter duration than often
stated.

Suppose for every ten units of some quality of oil shale
proposed as an energy source there were required nine units
of energy to mine, process, concentrate, transport, and meet
environmental requirements. Such a reserve would deliver
1/10 as much net energy and last 1/10 as long as was calculat-


AMBIO, 1973












ed. Leaders should demand of our estimators of energy re-
serves that they make their energy calculations in units of
net energy The net reserves of fossil fuels are mainly un-
known but they are much smaller than the gross reserves
which have been the basis of public discussions and decisions
that imply that gro, th can continue.

4. Societies compete for economic survi al by Lotka's prin-
ciple (3), which says that systems win and dominate that
maximize their useful total power from all sources and flex-
ibly distribute this power toward needs affecting surn-ival.

The programs of forests, seas, cities, and countries survive
that maximize their system's power for useful purposes. The
first requirement is that opportunities to gain inflowing
power be maximized, and the second requirement is that
energy utilization be effective and not wasteful as compared
to competitors or alternatives. For further discussion see
Lotka (3) and Odum (1).

5. During times when there are opportunities to expand one's
power inflows, the survival premium by Lotka's principle is
on rapid growth even though there may be waste.

We observe dog-eat-dog growth competition every time a
new vegetation colonizes a bare field where the immediate
survival premium is first placed on rapid expansion to cover
the available energy receiving surfaces. The early growth
ecosystems put out weeds of poor structure and quality ,
which are wasteful in their energy-capturing efficiencies,
but effective in getting growth even though the structures
are not long lasting. Most recently, modern communities of
man have experienced two hundred years of colonizing
growth, expanding to new energy sources such as fossil fuels,
new agricultural lands, and other special energy sources.
Western culture, and more recently, Eastern and Third
World cultures, are locked into a mode of belief in growth
as necessary to survival. "Grow or perish" is what Lotka's
principle requires, but only during periods when there are
energy sources that are not yet tapped. Figure 3 shows the
structure that must be built in order to be competitive in pro-
cessing energy.

6. During times when energy flows have been tapped and
there are no new sources, Lotka's principle requires that
these systems win that do not attempt fruitless growth but
instead use all available energies in long-staying, high diver-
sity, steady state works.


Whenever an ecos. stem reaches its steady state after peri-
ods of succession, the rapid net growth specialists are re-
placed by a new team of higher diversity, higher quality.
longer living, better controlled, and stable components. Col-
lectively, through division of labor and specialization, the
climax team gets more energy out of the steady flow of avail-
able source energy than those specialized in fast growth
could.
Our system of man and nature will soon be shifting from
rapid growth as the criterion of economic survival to -ceadN
state non-growth as the criterion of maximizing one's work
for economic survival (Figure 1). The ;iming depends only
on the reality of one or two pos-sibl% high-s iclding nuclear
energy, processes (fusion and breeder reactionNi which mj\
or may not be very wielding
Ecologists are familiar with both gr,,i th states and steady
state, and observe both in natural s\,tenis in their work
routinely, but economists were all trained in their subject
during rapid growth and most don't even know there is such
a thing as steady state. Mlo,.t economic advisors have never
seen a steady state even though most of man's million year
history was close to steady state. Only the last two centuries
have seen a burst of temporary growth because of temporary
use of special energy supplies that accumulated over long
periods of geologic time.

7. High quality of life for humans and equitable economic
distribution are more closely approximated in stead) state
than in growth periods.

During grow th. emphasis is on competition, and large dif-
ferences in economic and en-rgutic welfare develop; com-
petitive exclusion, intabii)y, lx)crt.. and unequal wealth
are characteristic. During steadN ,tate. competition is con-
trolled and eliminated, being replaced with regulatory sys-
tems, high division and diversity of laNbor, uniform energy
distributions, little change, and grow th only for replacement
purposes. Love of stable system quality replaces love of net
gain. Religious ethics adopt something closer to that of those
primitive peoples that were form:crl dominant in zones of
the world with cultures based on the steady energy flows
from the sun. Socialistic ideals about distribution are more
consistent with steady state than grow th

8. The successfully competing economy must use its net out-
put of richer quality energy flows to subsidize the poorer
quality energy flow so that the total power is maximized.


AMBIO0 VOL[ 2 NO 6







22


In ecosystems, diversity of species develop that allow more
of the energies to be tapped. Many of the species that are
specialists in getting lesser and residual energies receive
subsidies from the richer components. For example, the sun
leaves on top of trees transport fuels that help the shaded
leaves so they can get some additional energy from the last
rays of dim light reaching the forest floor. The system that
uses its excess energies in getting a little more energy, even
from sources that would not be net yielding alone, devel-
ops mpre total work and more resources for total survival.
In similar ways, we now use our rich fossil fuels to keep all
kinds of goods and services of our economy cheap so that
the marginal kinds of energies may receive the subsidy bene-
fit that makes them yielders, whereas they would not be
able to generate much without the subsidy. Figure 4 shows
the role of diversity in tapping auxiliary energies and main-
taining flexibility to changing sources.
Figure 4. Relationship of general structural maintenance to diversity and
secondary energy sources.


9. Energy sources which are now marginal, being supported
by hidden subsidies based on fossil fuel, become less econom-
ic when the hidden subsidy is removed.

A corollary of the previous principle of using rich energies
to subsidize marginal ones is that the marginal energy sour-
ces will not be as net yielding later, since there will be no
subsidy. This truth is often stated backwards in economists'
concepts because there is inadequate recognition of external
changes in energy quality. Often they propose that marginal
energy sources will be economic later when the rich sources
are gone. An energy source is not a source unless it is contri-
buting yields, and ability of marginal sources to yield
goes down as the other sources of subsidy become poorer.
Figure 4 shows these relationships.


10. Increasing energy efficiency with new technology is not
an energy solution, since most technological innovations are
really diversions of cheap energy into hidden subsidies in
the form of fancy, energy-expensive structures.

Most of our century of progress with increasing efficien-
cies of engines has really been spent developing mechanisms
to subsidize a process with a second energy source. Many
calculations of efficiency omit these energy inputs. We build
better engines by putting more energy into the complex
factories for manufacturing the equipment. The percentage
of energy yield in terms of all the energies incoming may be
less not greater. Making energy net yielding is the only pro-
cess not amenable to high energy-based technology.

11. Even in urban areas more than half of the useful work
on which our society is based comes from the natural flows
of sun, wind, waters, waves, etc that act through the broad
areas of seas and landscapes without money payment. An
economy, to compete and survive, must maximize its use
of these energies, not destroying their enormous free sub-
sidies. The necessity of environmental inputs is often not
realized until they are displaced.

When an area first grows, it may add some new energy
sources in fuels and electric power, but when it gets to about
50 percent of the area developed it begins to destroy and
-diminish as much necessary life support work that was free
and unnoticed as it adds. At this point, further growth may
produce a poor ability in economic competition because the
area now has higher energy drains. For example, areas that
grow too dense with urban developments may pave over the
areas that formerly accepted and reprocessed waste waters.
As a consequence, special tertiary waste treatments become
necessary and monetary and energy drains are diverted from
useful works to works that were formerly supplied free.

12. Environmental technology which duplicates the work
available from the ecological sector is an economic handi-
cap.

As growth of urban areas has become concentrated, much
of our energies and research and development work has been
going into developing energy-costing technology to protect
the environment from wastes, whereas most wastes are
themselves rich energy sources for which there are, in most
cases, ecosystems capable of using and recycling wastes as a
partner of the city without drain on the scarce fossil fuels.


AMB10. 1973







23


Soils take up carbon monoxide, forests absorb nutrients,
swamps accept and regulate floodwaters. If growth is so
dense that environmental technology is required, then it is
too dense to be economically vital for the combined system
of man and nature there. The growth needs to be arrested
or it will arrest itself with depressed, poorly competing econ-
omy of man and of his environs. For example, there is rare-
ly excuse for tertiary treatment because there is no excuse
for such dense packing of growth that the natural buffer
lands cannot be a good cheap recycling partner. Man as a
partner of nature must use nature well and this does not
mean crowd it out and pave it over; nor does it mean devel-
oping industries that compete with nature for the waters
and wastes that would be an energy contributor to the
survival of both.

13. Solar energy is very diLte and the inherent energy cost
of solar energy into form for humaman use has
already been mammzed by forests and food producing
plas. Without energy subsidy there is no yield from the sun
posble beyond the familiar yields from forestry and agri-


Advocates of major new energies available from the sun
don't understand that the concentrations quality of solar
energy is very low, being only 10-16 kilocalories per cubic
centimeter. Much of this has to be used up in upgrading to
food quality. Plants build tiny microscopic semiconductor
photon receptors that are the same in principle as the solar
cells advocated at vastly greater expense by some solar
advocates. The plants have already maximized use of sun-
light, by which they support an ecosystem whose diverse
work helps maximize this conversion as shown in Figure 5 A.
If man and his work are substituted for much of the eco-
system so that he and his farm animals do the recycling and
management, higher yield results as in sacred cow agricul-
ture (Figure 5 B). Higher yields require large fossil fuel
subsidies in doing some of the work. For example, making
the solar receiving structures (Figure 5 C), whereas the
plants and ecosystem make their equipment out of the ener-
gy budget they process. Since man has already learned how
to subsidize agriculture and forestry with fossil fuels when
he has them, solar technology becomes a duplication. The
reason major solar technology has not and will not be a major
contributor of substitute for fossil fuels is that it will not
compete without energy subsidy from the fossil fuel econo-
my. Some energy savings are possible in house heating on a
minor scale.


14. Energy is measured by calories, bit's, kilowatt bours, mand
other inlraconverfible units, but energy has a scale of quali-
ty which is not indicated by these measures. The ability to
do work for man depends on the energy quality and quantity,
and this is measureable by the amount of energy of a lower
quality grade required to develop the higher grade. The
scale of enery goes from dilute sunlight up to plant mutter
to coal, from coal to oil to electricity and up to the high qual-
ity efforts of computer and human information processing.


Figure 5. Dimmens of three systms of solar energy use.


Figure 5 A. Man a minor part of the complex forest ecosystem.


(b) Man's Diverse Work
Substituting for
Ecosystem Variety


Figure 5 B. Man major partner in an agricultural system on light alone.


(c) Fuel
Solar


FRur S C. %Wa lubn dldkeMd agrialinrm na aolo in mimr of a
tl mnlooaIn sodM etyof m~ withmaximum pousib st converon.


AMBIO. VOL 2 NO. 6







24


15. Nuclear energy is now mainly subsidized with fossil fuels
and barely yields net energy.
High costs of mining, processing fuels, developing costly
plants, storing wastes, operating complex safety systems,
and operating government agencies make present nuclear
energy one of the marginal sources which add some energy
now, while they are subsidized by a rich economy. A self-
contained, isolated nuclear energy does not now exist. Since
the present nuclear energy is marginal while it uses the
cream of rich fuiels accumulated during times of rich fossil
fuel excess, and because the present rich reserves of nucle-
ar fuel will last no longer than fossil fuels, there may not
be a major long-range effect of present nuclear technology
on economic survival. High energy cost of nuclear construc-
tion may be a factor accelerating the exhaustion of the richer
fuels. Figure 4 illustrates the principle.
Breeder Process: The Breeder Process is now being given
its first tests of economic effectiveness and we don't yet know
how net yielding it will be. The present nuclear plants
are using up the rich fuels that could support the breeder
reactors if these turn out to be net yielders over and be-
yond the expected high energy costs in safety costs, occa-
sional accidents, reprocessing plants, etc. Should we use the
last of our rich fossil fuel wealth for the high research and
development costs and high capital investments of pro-
cesses too late to develop a net ) field?
Fusion: The big question is will fusion be a major net yield?
The feasibility of pilot plants with the fusion process is un-
known. There is no knowledge yet as to the net energy in
fusion or the amounts of energy subsidy fusion may require.
Because of this uncertainty, we cannot be sure about the
otherwise sure-leveling and decline in total energy flows
that may soon be the pattern for our world.
16. Substantial energy storage are required for stability of
an economy against fluctuations of economies, or of natural
causes, and of military threats.
SThe frantic rush to use the last of the rich oils and gas that
are easy to harvest for a little more growth and tourism is
not the way to maintain power stability or political and mili-
tary security for the world community of nations as a whole.
World stability requires a de-energizing of capabilities of
vast war, and an evenly distributed power base for regular
defense etablishmecnts, which need to be evenly balanced
without great power gradients that encourage change of
military boundaries. A two-year storage is required for sta-
bility of a component.


AMBIO. 1973


17. The total tendency for net favorable balance of payments
of a country relative to others depends on the relative net
energy of that country including its natural and fuel-based
energies minus its wastes and nonproductive energy uses.

Countries with their own rich energies can exponrt goods
and services with less requirement for money than those that
have to use their money to buy their fuels. Those countries
with inferior energy flows into useful work become subor-
dinate energy dependents to other countries. A country that
sells oil but does not use it within its boundaries to develop
useful work is equally subordinate since a major flow of
necessary high quality energy in the form of technical goods
and services is external in this case. The country with the
strongest position is the one with a combination of internal
sources of rich energies and internal sources of developed
structure and information based on the energy. The relations
of energy sources to payment balances are given in Figure 6.

18. During periods of expanding energy availabilities, many
kinds of growth-prniming activities my favor economic
vitality and the economy's ability to compete. Institutions,
customs, and economic policies aid by accelerating energy
consumption in an autocatalytic way.

Many pump priming properties of fast growing economies
have been naturally selected and remain in procedures of
government and culture. Urban concentrations, high use of
cars, economic subsidy to growth, oil depletion allowances,
subsidies to population growth, advertising, high-rise build-
ing, etc are costly in energy for their operation and main-
tenance, but favor economic vitality as long as their role as
pump primers is successful in increasing the flow of energy
over and beyond their special cost. Intensely concentrated
densities of power use have been economic in the past be-
cause their activities have accelerated the system's growth
during a period when there were new energy sources to en-
compass.

19. During periods when expansion of energy sources is not
possible, then the many high density and growth promoting
policies and structures become an energy liability because
their high energy cost is no longer accelerating energy yield.

The pattern of urban concentration and the policies of
economic growth simulation that were necessary and success-
ful in energy growth competition periods are soon to shift.
There will be a premium against the use of pump priming

225







25


characteristics since there will be no more unpumped
energy to prime. What did work before will no longer work
and the opposite becomes the pattern that is economicdll%
successful. All this makes sense and is commonplace to those
who study various kinds of ecosystems, but the economic
advisors will be sorely pressed and lose some confidence
until they learn about the steady state and its criteria for
economic success. Countries with great costly invest-
ments in concentrated economic activity, excessive trans-
portation customs, and subsidies to industrial expansion will
have severe stresses. Even now the countries'who have not
gone so far in rapid successional growth are setting out to do
so at the very time when their former more steady state cul-
ture is about to begin to become a more favored economic
state comparatively.

20. Systems in nature are known thal shift from fast growth
to steady state gradually with programmatic substitution,
but other instances are known in which the shift is marked
by total crash and destruction of the growth system before
the emergence of the succeeding steady state regime.

Because energies and monies for research, development,
and think ing are abundant only during growth and not during
energy leveling or decline, there is a great danger that means
for developing the steady state will not be ready when the.
are needed, which may be no more than 5 years away but
probably more like 20 years. (If fusion energy is a large net
energy ) fielder, there may be a later growth period when
the intensity of human p1',er development begins to affect
and reduce the main life support systems of the ceans. at-
mospheres, and general biosphere )
The humanitarian customs of the earth's countries now
in regard to medical aid, famine, and epidemic are such that
no country is allowed to develop major food and other crit-
ical energy shortage because the others rush in their re-
serves. This practice had insured that no country will starve
in a major way until we all starve together when the reserv-
es are no longer there
Chronic disease was evolved with man as his regulator,
being normally as a device for infant mortality and merci-
ful old age death. It provided on the average an impersonal
and accurate energy testing of body vitalities, adjusting the
survival rate to the energy resources. Even in the modern
period of high enc,:ry medical miracles, the energy for total
medical care systems is a function of the total country's
energies, and as energies per capital fall again so will the
energy for medicine per capital, and the role of disease will


Figure 6 A. Diagram showing how energy sources and energy loss path-
ways affect the balance of payments and general economic competition
position of a single country. Better balance results when one's own
energy sources are better, and one's waste less.
Fuels, Goods.,


\
\
Bolonce c
Poymenlt
/


again develop its larger role in the population regulation
,stem. Chronic disease at its best was and is a very energy-
inexpensive regulator.
Epidemic disease is something else. Nature's systems
nornmilly use the principle of diversity to eliminate epidem-
ics. Vice versa, epidemic disease is nature's device to elim-
inate monoculiure. which may be inherently unstable. Man
is precntl) allowed the special high yields of various mono-
cultures including his own high density population, his paper
source in pine trees, and his miracle rice only so long as he
has special energies to protect these .irtil'icidl ways and sub-
stitute them for disease which would restore the high diver-
sity system, ultimately the more stable fltiw of energy.
The terrible possibility that is before us is that there will
be the continued insistence on gr, th with our last energies
by the economic advisors that don't understand, so that there
are no reserves with which to make a change, to hold or-
der, and to cushion a period when populations must drop.
Disease reduction of man and of his plant production sys-
tems could be planetarN and sudden if the ratio of popula-
tion to food and medical systems is pushed to the maximum
at a time of falling net energy. At some point the great
gaunt towers of nuclear energy installations, oil drilling, and
urban cluster will stand empty in the wind for lack of enough
fuel technology to keep them running A new cycle of dino-
saurs % ill have passed its way. Man will survive as he repro-
grams readily to that which the ecosystem needs of him so
long as he does not forget who is >er% ing who. What is done
well for the ecosN st-m is good for man. However, the cul-
tures that aN only what is good tor man is good for nature
may pass and be forgotten like the rest.


AMBIO VOl. 2 NO, 6








26


There was a famous theory in paleoecology called ortho-
genesis which suggested that some of the great animals of
the past were part of systems that vere locked into evolu-
tionary mechanisms by which the larger ones took over from
smaller ones. The mechanisms then became so fixed that they
carried the size trend beyond the point of survival, where-
upon the species went extinct. Perhaps this is the main ques-
tion of ecology, economics, and energy. Has the human system
frozen its direction into an orthogenetic path toward cultural
crash, or is the great creative activity of the current energy-
rich world already sensing the need for change? Are alter-
natives already being tested by our youth so they will be
ready for the gradual transition to a fine steady state that
carries the best of our recent cultural evolution into
new, more miniaturized, more dilute, and more delicate
ways of man-nature?
In looking ahead, the United States and some other coun-
tries may be lucky to be forced by changing energy avail-
abilities to examine themselves, level their growth, and

References and Notes:
1. H T Odum, Environment Power and Society (John Wiley) 336 pp.
2. D H Meadows, D L Meadows, J Randry and W W Behrens 111, The
Limits to Growth (Universe Books, New York, 1972).
3. A J Lotka, Contribution to the energetic of evolution in Proceedings
of the National Academy of Sciences 8,147-188 (1922).
4. I am grateful for stimulation and collaboration of many in our common
effort including especially C Kylstra, Pong Lem, and our keen graduate
student group in the United States, and Jan Zeilon and Bengt-Owe
Jansson in Sweden. Simulation work was supported by the U S Atomic
Energy Commission on Contract At-(40-10-4398).
5. Energy systems symbols used for showing mathematical and ener-
getic relationships between the parts of our system of energy, enonom-
ics and ecology.




Source Passive Heal
Storage Sink
All outside energy sources flow in from sources indicated with the
circular symbol and these sources deliver causal forcing actions. All
storage of energy, structure, money, information, value, etc are rep-
resented by the tank shaped symbol and these tanks are called state
variables. All energies leave systems as dispersed heat that has no
more potential for doing useful work. In the diagrams the dispersal of
unusable heat energy is called a heat sink.





Work Gate Self Maintenance
When two different kinds of flows of energy (or materials, information,
or services that carry energy) interact in processes where both are
necessary, we draw a work gate symbol. The system has an X if the
action of one flow so facilitates the flow of the other and vice versa so
that the process is a multiplier action. As in all processes, useful energy
that drives the processes emerges as degraded, no longer reusable


change their culture towards the steady state early enough
so as to be ready with some tested designs before the world
as a whole is forced to this. A most fearful sight is the be-
havior of Germany and Japan who have little native ener-
gies and rush crazily into boom and bust economy on tem-
porary and borrowed pipelines and tankers, throwing out
what was stable and safe to become rich for a short period;
monkey see, monkey do. Consider also Sweden that once
before boomed and busted in its age of Baltic Ships while
cutting its virgin timber. Later it was completely stable on
water power and agriculture, but now after a few years of
growth became like the rest, another bunch of engines on
another set of oil flows, a culture that may not be long for
this world.
What is the general answer? Eject economic expansionism,
stop growth, use available energies for cultural conversion
to steady state, seek out the condition now that will come
anyway, but by our service be our biosphere's handmaiden
anew.

dispersed energy leaving the earth through the heat sink. (Heiat on
earth ultimately is reradiated out to space from the top of the atmo-
sphere.)
Self maintaining entities such as populations, cities, industries, and
other organizations that feed energy from storage back into multi-
plicative pumping actions are shown with the hexagonal symbol The
energy diperred in maintaining the system, its growth, and its work
services is shown passing out the bottom in a heat sink.


Potnlia Il
Generating
Work


tjI$
Adding
Juncion Troansaction


When new storage are developed, energy laws require that much of
the energy be dispersed into unusable heat in order to make the
process of storing go fast enough to be most competitive. The
symbol for potential generating work shows the necessary heat dis-
persal that is required for any storing process.
When two energy flows may be substituted for each other, we show
their junction as the convergence of lines. This means that the flows
add (in contrast to the work gate where other kinds of interactions
are the result).
Because money flows as a countercurrent to the flow of energy, goods.,
and services (the latter two also carrying energy), we represent path-
ways that involve economic transactions with the diamond shape
symbol and two counter diagrams pathways. The energy cost of doing
economic business is shown as the energy lost into the heat sink.
The diagrams may be examined as if they were a series of water tanks
and pipes with water flowing between the tanks, being driven by the
pressures of the storage or outside pressures and the energy of the
water pressure ultimately leaving the system in the various frictional
heat dispersions. The diagrams can thus be visualized to help see the
complexity of systems and recognize just from the configurations what
kinds of responses might follow proposed manipulations. As further
given in (1) the diagrams are also ways of writing mathematical differ-
ential equations for making precise mathematical descriptions of re-
lationships.


AMBIO, 1973













[From Annals-American Academy of Political and Social Science, No. 410,1973]
AN ENERGY STANDARD OF VALUE

(By Bruce M. Hannon)

Abstract: The United States, as do most advanced industrial nations, generally
measures value in money terms. The utility of employing a common denominator,
such as money, is readily understood. However, within the past ten years there
has been a growing disenchantment with money standards of measurement-
particularly in the evaluation of public sector, nonmarket decisions. Concerns
over distributive effects, regional consequences and environmental impacts have
contributed to the belief among many that evaluative standards other than
money ought to be adopted. Alternative proposals have been made for the estab-
lishment and adoption of better measures for assessing developmental decisions.
One alternative rests upon the assumption that energy is a critical variable in
the post-industrial society of America; energy costs in all areas of the produc-
tive processes could thus be used in both public and private developmental de-
cisions-operating and capital expenditure-to add another dimension to the
traditional money standard of value. Furthermore, developmental matters could
be judged not only in terms of dollar evaluations, but also in terms of BTUs the
project would require. An energy flow model designed to detail the total energy
cost of goods, and services for a given period in the United States-which has
been developed at the University of Illinois---can serve to focus attention upon
energy costs for various developmental undertakings.
The American economy, as do those of other developed nations, generally meas-
ures values in money terms. Gross national product (GNP) is widely under-
stood as a monetary summary of national productivity; until quite recently,
cost-benefit analyses, particularly of public sector decisions sought to balance
economic goods and bads in dollar terms. The utliity of a common denominator,
such as dollars, needs no defense. In the last decade, however, there has been
a growing disenchantment with dollar measures-particularly in the evaluation
of public sector, nonmarket decisions. Concerns over distributive effects, regional
consequences and environmental impacts have contributed to the recognition
that GNP is not a sufficient measure.

INTRODUCTION
Various alternative proposals have been made for the development of better
measures to assess developmental decisions. One approach has sought to identify
social indicators as a statistical aid to program and policy choice.1 Basically,
the social indicator proponents argue that a double entry system of national
accounting should replace the single entry, GNP calculus. More recently, in a
related effort, some economists have attempted to develop methods for measuring
net economic worth (NEW).
This article suggests another approach, one which rests on two assumptions;
(1) that energy is a critical factor in the functioning of the American system
and (2) that currently utilized energy supplies are finite and, in fact, are being
consumed at an ever increasing rate. This approach suggests that public and
private economic development decisions-both operating and capital expendi-
ture decisions-should be assessed not only in dollar terms, but also in energy
consumption terms-BTUs. Thus, where alternatives exist, choice in this sys-
tem would rest on alternate energy requirements, as well as on alternate dollar
costs and benefits.
1 Social Goals and Indicators for American Society, The Annals 371 and 373 (May 1967
and September 1967).
(27)





28

At the University of Illinois Center for Advanced Computation (CAC), we
have formed an energy research group-supported by the National Science and
Ford Foundations-which is investigating the use of energy in the United States.
The group is involved in three basic questions: (1) what is the energy cost of
a good or service; (2) what are the alternatives to various goods or services
which use less energy and; (3) what is the dollar cost of, and what will the im-
p)act on employment and pollution be, if these alternatives are adopted.
We really wish to determine how much energy could be saved throughout the
entire production, delivery, operation and maintenance system if: as consumers,
we switch to substitute products or selectively restrict our consumption; as in-
dustrialists, we switch to alternate processes; and. as government policymakers,
we regulate the flow of energy. Since each of these changes is reflected through
the intricate web of the economic system, it is practically impossible for the in-
dividual to perceive whether a given change increases or decreases overall energy
consumption. Even if we could understand the net energy effects of possible
changes, we would wish to rank them in increasing order of impact on our per-
sonal and business lives.
MODELING ENERGY USE
During the energy research group's first year of existence an energy flow
model-the CAC model-was developed.2 It details the total energy cost of goods
and services for 1963, the latest available data for the United States economy."
The model provides the total, direct and indirect, use of energy by type-that is,
gas, refined petroleum, coal and electricity-eniployment by occupation-165
types-and pollution-10 types-for 362 sectors representing the industrial
and commercial economy. In the CAC model direct energy is that consumed di-
rectly by a particular industry to produce a unit of its goods and services;
indirect energy is that used by the suppliers of materials and services to the in-
dustry and by the suppliers of these suppliers who supply only those materials
which were needed for the unit of goods or services. Indirect energy is the limit
of an infinite sulimni of terms which, although they increase in plurality, decrease
in value. In some cases this process includes the amount of production of a
particular industry used to make a unit of its own production-that is, a feed-
back process which even includes. the consumption of cars used by steel company
executives to make the steel which is consumed in making a car.
For a specified list of expenditures, the direct and indirect energy and em-
ployment requirements and pollution generated in the industrial and commer-
cial sectors can be determined for the technology used in 1963. We are currently
developing data for 1967 to match the Department of Commerce dollar flow data.
which will soon be available. At this point we can begin to understand how
energy use changes with concommitant alterations in demands for goods and
services. Thus, projections for future years become more feasible.

AREAS FOR ENERGY CONSERVATION
Many specific techniques to conserve energy can be imagined. One can discern
three general categories from this plethora of opportunities: efficiency of pro-
duction, efficiency of product use and control of the rate of energy use. In order
to recognize the options for energy conservation, each of these can be thought
of in the context of three broad classes of consumption: personal, government
and industry.
Produtf ion efficiency !
Because energy costs to the user are so low-only 3.6 percent of producers'
price in 1963-it is presumed by many that industries simply do not strive to
use energy efficiently in their production processes. Compelling arguments for this
point of view are made by Berg,4 who claims that about 25 percent of the total
United States energy use could be saved through more efficient use. For example,
savings of up to 39 percent could be realized in the operation of certain equip-
ment in the steel industry.

2R. A. Herendeen. "Use of Input-Output Analysis to Determine the Energy Cost of
Goods nnrl Services." document no. 69 (Urbana, Ill.: Center for Advanced Computation.
University of Illinois. 4 March 1973).
3U.S.. Department of Commerce. Input-Output Structure of the U.S. Economy: I963
(Washington. D.C. : Government Printing Office. 1909), vols. 1. 2 and 3.
4 Charles Berg, "Energy Conservation thru Effective Utilization" (Washington. D.C.:
N.-ational Bureau of Standards. JTune 1972).





29


Railroads have improved their energy use efficiency by a factor of 10 since
the early part of the century through ioth a change to diesel fuel and an im-
provement of hauling techniques.5 Recycling of aluminum, steel, paper, card-
board and plastic offer rich energy saving opportunities.6 However, the most
ubiquitous energy increase in industrial processes is believed to have occurred
via automation-that is, the displacement of labor from the production process.
The ratio of production workers' wages to the cost of electricity increased steadily
by 225 percent from 1951 to 1969.7 During that time the wholesale price index for
electrical machinery increased by 50 percent.8 These factors indicate the pressure
on the industrial decision makers to eliminate the increasingly expensive worker
from the process and to substitute machines, which increase the energy intensity
of the process.
The energy research group has examined the general process of automation
in some detail with the CAC model. If it is specified that each industry requires
a one dollar increase in delivery to final consumption, then figure 1 shows the
direct and indirect energy use and employment arising through the economic
system. While a large proportion of the industries are centrally clustered, there
are clearly some very energy-intensive industries-for example, asphalt coatings.
asphalt paving, cement, primary alumniinum, building paper and chemicals-and
some very labor-intensive industries-for example, hospitals. hotels and credit
agencies. The pattern shown in figure 1 represents the energy and labor require-
ments of an additional dollar delivered to final demandd. It represents, for a con-
sumer, the direct and indirect effect on energy and employment of the expenditure
of one dollar in each industry. It does not include tlhe multiplier effects of the
expenditure and, therefore, is inappropriate for use in an impact analysis.

0
Z

Q pa 3Ang miX
.I 01
zod
_j C14


LI
oK i" *brai Id p.ti
So

I-~
0. I
5o

0 build paper
Q mcisc irint
fl)
CDQ

S' .r..(>lC
Sstrwt clay *bri
z n,

p ul clum to) I
Z1 { plastics
02 ref petrol
-3 chem min
pulp L... I..

ottl
** in > ri-ir 6. A" b tdN~ 'i
*l, > ntlil f, ", "


0 I e N
c 0 h0-









"TOTAt EMPLOYMrN]- .... 's Per. I :.,3i DOLLARS "TQ FINAL. Dr'.idir ( 100,000)

"FIGURE 1.-Total--I)i rect ad Indirect--Energy vs. Employment Intensities for

362 Sectors in 1963.
SoUCE : Energy-Employment Policy Model, CAC, February 1973.
fr Interstate Comnere Commi.sion. pTransportation Statistics in the U.S.," annual
report (WVashington. I ).C. : Government Printing Office k.
SBruce Hannin. "'yt.-t, l.rgv a Ry,.ing Sty of the Container Odustr I








American S(Neity of.M,,chanieaI Engineers. 72-\VA-IENEII l !New York. 1972).
SBureau of I,..ul'or Statistics, Emnploymuent and Earnin7.Qa. U.S.. 1907--70. Bulletin 1312-7.
table 5. Edion Electric Institut, tai.tia Yarbook of th Electtf utility Industry or

IT |New York. 0Septemer 1970)1 53.
il~~~r-,E~ I. 4' o o l.p








s U.S.. Department o)f (ormnwrce(, *qtoti~utiCol Abitrae't of thc U.,S., I!J71, 92nd ed. (Wash-
ingtoi. D.C. Government Printing office), p. 3r 7
cofftersae ComreCmiso."rnpraio ttsfsI h .."ana




IGtabe l.EdionElectrict I anittd KaIndirec-Yearboo ovst. Eilectricftil Intensities for
/.W* ~ ~ ~ ~ ~ 6 Sector York 19G3.ll)^ 9U 3

"5.'., ep~arte ment o Commission "Tffrf!ansportation StatsicsrH. In1 t2he U.S, (annua
report Wshngon D.C. : Government Printing Office). .'~<>







30


Another way to consider the problem is to examine the effects of a 10 percent
proportionate growth in each industry, with an offsetting decrease prorated
among the other industries in proportion to their share of deliveries to final
consumption; thus, the GNP is conserved and the net multiplier effect of this
differential type of growth is assumed to be nonexistent. In figures 2 and 3 first
quadrant industries are primarily agricultural; second quadrant industries are
basic material production-, construction- and fabrication-oriented; third quad-
rant industries are service-oriented, with a high degree of technology and high
wages; and fourth quadrant industries are service-oriented, without a great
degree of special labor saving technology and with low wages. Fifty percent of
the industries fall in quadrant two, indicating that the nature of the structure of
the 1963 economy was to respond to an increase in production by becoming more
energy-intensive and less labor-intensive. Thus, figures 2 and 3 are addressed
primarily to the policymaker concerned with the question of growth. The mag-
nitudes reflect the relative dependence of United States society on each of its in-
dustries in 1963. For example, a 10 percent increase in delivery to final demand
by motor vehicles would have required a direct and indirect energy increase of
34 trillion BTU and a decrease in employment of 104,000 jobs-direct and in-
direct. Furthermore, a 10 percent increase in deliveries of postal services to final
demand would have reduced energy consumption by about 4 trillion BTU and
would have increased employment about 36,000 in 1963. Note that some inter-
mediate products, such as steel and primary aluminum, deliver little to final
demand.

0
gii


o
(d
PeroleLM *z-ining










z CD^
-0 QQ


VW
xChemica..ls

x Gas Util.


Iotor Vehicles
e Highway Constr. a Elec. Util.
Water
t eTr .?Air transport.
Bldg. Constr.,, Tras.
,Alean. 'r-
Util. on-tr.r ).,rtor freight
MiSC. Chem. ew constr. x:".,'-,ay Water & Sanitary
_I'"_ -i. nsP" 1 Non-Fed Enterp.
A uq -tsHotels
Alo.Bev, A -'* o- r
Alcoh. o er.i f C ri -,ers Pers. Serv.
.. v 9 Ar. i o A,
_Auto Fep. e. :Re. -il Apparel (Pur.)
Auto rep. r 4g-, D.l
Baiks. | -Insurahce Carriers
SCour.ni cat iPns


xHospitals


i Doctors


* Wholesale Trade


Real Estate


Own Dwellings (-.42,-194)


-0076 -0038


0.000


Retail Trade (.35,167)
_ i iI -- I


0038


0.076


0.114


CHANGE L. EMPJ.-OYMENT, MILLION JOBS

FIGURE 2.-Changes in Total Energy and Employment Requirements for a 10
Percent Increase in Final Demand from the Noted Industry, Proportionately
Absorbed from All Other Industries, 1963.


o


'-L 0.114


0.152


0.190








31


An inherent problem of this approach is the assumption that the gain in de-
livery to final demand will be absorbed proportionately from all other indus-
tries. Actually, the product of an industry competes with only a few other prod-
ucts-for example, aluminum with steel and wood as structural materials or
steel with glass and plastic as food containers. If one industry gained at the
expense of a few competitors, the configuration of figures 2 and 3 would change.
Suppose, for instance, that a 1 billion dollar gain in the primary aluminum de-
liveries was obtained at the expense of an identical loss in steel deliveries. Then,
from figure 1, energy use would increase about 116 trillion BTU, or by about 0.2
percent of the total, and employment would decrease by 15,000 jobs, or by about
0.03 percent of the total. An identical increase in primary aluminum deliveries at
the proportional expense of all other industries would produce an increased use of
energy of 332 trillion BTU and a loss of 65,000 jobs.9


.,Toil. Prep.
"Farm Mae ,.



GConst. Mach.

Q2 "Sa



M Sugar
SFeed Grain


Plis. cs
SRailroad Cafs


i Oilers


k Syn. Rubber
nri. Paper
xCook. OiIs
xConvert Paper
xPaper Mills
X House. x KPrim. Alum.
Refrig.- X
X x 14
*
p


Flour x
vRefrig. Macf .x a
"Photo Eq. X K '
k X K < .*'e>al Cans
.Food Prep. n.e.c. K Can

Confectionary ,, "-"-.VWX
Products Soft Drinks X a<
oat Bldg. 'Forest Products xx.
% V
X
B oalettd r a li
0r'elephones Instruments
xJewelry xBooks


*Canned Fruits & Veg.


,Fabric Mills -1



x House Purn., n.e.c.


x Evap. -ilk




Hosiery.
Sie Cheese
ice 'ream
Sdaiiy farm prod. x Tobacco
a Tobacco


1.
xUphol. Furu.
a Leather Prod.


xTobac. Dry.


SWood fur niture


xAircraft I.qpt. n.e.c.


x 'Vet. Farrs


Movl es


qT.V. sets


-5.1


I I ---~.--- I -


-3.4


-1.7


CHANGE IN EmPXOYMENT, MILLION JOBS


FIGURE 3.---Changes in Total Energy and Employment Requirements for a 10
Percent Increase in Final Demand from the Noted Industry, Proportionately
Absorbed from All Other Industries, 1963 *
SOURCE : Energy-Employment Policy Model. CAC. February 1973.

Presently, the results of our research indicate that, in general, most United
States industries are trading labor for energy-that is, becoming more energy-

'H. Folk and B. Hannon. "An Energy, Pollution and Employment Policy Model." docu-
ment No. 68 (Urbana, I11. : Center for Advanced Computations, University of Illinois,
February 1973).
*An enlargement of center portion of figure 2.


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32


intensive and less labor-intensive. These industries, as well as their competitors,
can be identified through the use of the CAC model. Thus, if economic growth
is desired, it can be so guided as to minimize the impact on energy use and maxi-
mize employment demands. In any event, the model clearly provides an estimate
of the total energy and employment impact of desired shifts in demands.
Several other process efficiency studies are either underway or have been
completed: Moyers' study on the value of residential insulation ;1o studies by
Stein and by Grot and Socolow2 have shown the value of better heating and
lighting techniques for both public buildings and private residences. However,
these studies include only direct energy use.

PRODUCT USE EFFICIENCY
The variety of goods and services available in the United States today provides,
according to Toffler, overchoice.' When the historical perspective of the develop-
ment of the products is added, the variety of the system is even larger. For
example, beer is currently available in twenty-three different package combina-
tions; at the same time, about five other configurations-including the consumer-
owned container-have become obsolete. Another example of variety is the choice
of intercity passenger transportation : plane, train, bus and car; yet, the intercity
passenger train is almost completely defunct.
One can speculate that certain products are more energy efficient per unit of
service than others. For instance, it has been shown that refillable bottles are
about one-third less energy consumptive per unit of beverage than are paper,
glass, aluminum or steel disposable containers."4 Folk demonstrated that if the
nation were to shift completely to returnable beverage containers, employment
would rise by 130,000 jobs, and annual consumerr costs would decrease by 1.4
billion dollars.' The national energy savings would be about 0.5 percent, half of
which would not be saved if the consumer savings were absorbed by an increase
in average personal consumption.
Several other product comparisons are now being investigated at the center.
In particular, the intracity auto and bus are being compared. Results of the
energy and labor cost studies of the auto in 1963 are presented in table 1. The
auto consumed 12.4 percent of the GNP, required 12.0 percent of total employ-
ment and consumed about 20.7 percent of total United States energy. This amounts
to about 7.900 BTU per passenger mile and 5.5 jobs per 100,000 passenger miles.
Preliminary estimates indicate that the bus is about one-third as energy-intensive
as the auto in intracity operation, and that total United States energy use could
be reduced about 5 percent by a full shift to buses in the cities, which is a signif-
icant savings for a single change. This change is equivalent to a one-third increase
in efficiency of operation of the current fleet of United States cars. An extremely
interesting product alternative is the use of picture phones as a substitute for
physical transportation.'6 Studies by Hirst highlight the energy conservation
potential generally available in the transportat ion sector.'7

o10 John C. Moyers. "The Value of Thermal Insulation in Residential Construction: leu-
nonirics and Conservation of Energy," 37830, Report ORNL NSF EP 9 (Oak Ridge, Tenn.:
Oak Ridge National Laboratory, December 1971).
Richard Stein, "Architecture and Energy" (New York: Stein and Associates, December
1971).
1 Richard Grot and R. H. Socolow, "Energy Utilization in a Residential Community"
(Princpton. N.J.: Center for Environmental Studies, Princeton University. February 1973).
13 Alan Totfflr, Future .Shioek (New York: Random House, 1970), chap. 12.
14 Iannon. "Systemn Energy and Recycling."
1 Huih Folk, "Employment Effects of a Mandatory Deposit Regulation" (Chicago, Ill.
Institute for Environmental Quality, January 1972).
1 A. Goldsmith. "The Relationship of Telecommiunications to Urban Transportation"
(Paper delivered at the Eighth Autumn Meeting of the National Academy of Engineering.
12 October 1972).
1 Eric Hilrst. "Energy Consumption for Transportation in the U.S.." ORNL-NSF-EP-15
'Oak Ridge. Tenn. : Oak Ridge National Laboratory, March 1972).






33


TABLE 1.-ENERGY AND EMPLOYMENT, DIRECT AND INDIRECT, FOR THE PRIVATE AUTOMOBILE IN 1963

Final Energy Employment
Final --------------
demand, Trillion Percent of Thousands Percent of
Category (billions) Btu's total of jobs total

Fuel, produce..----------------------- $5.86 5,860 57.7 278.8 3.9
Refining ....---------------------------------- 1,220 11.8 --------....---------...-...-
Retail.------------------------- 4.05 130 1.3 652.4 9.1
SOilproduce...........................--------------------- 83 50 .5 39.5 .5
Retail----..........-----..---.-------------- .55 20 .2 88.6 1.2
Automobile, produce-------.---------- 14.43 1,010 9.8 1,155.5 16.1
Retail----.....-......-------.....--------------- 10.67 350 3.4 1,718.7 24.0
Tires produce---------.-------------- .83 80 .8 54.6 .8
Retail-....------------------------ .55 20 .2 88.6 1.2
Parking.. --------------------------------------- 390 3.8 ---------------.. -...
Highway construction (fuel taxes)....... 4.96 580 5.6 471.6 6.6
Insurance--------------- ------------ 8.96 280 2.7 803.1 11.2
Total------------------------- 173.4 310,330 100.0 47,149.4 100.0

I Excludes household and government industries employment-10,700,000 jobs.
1 12.4 percent of total GNP.
3 2G.7 percent of total U.S. energy used.
4 12.0 percent of total employment.
Sources: Col. 2, R. A. Herendeen, "Use of Input-Output Analysis to Determine the Energy Cost of Goods and Services,"
document No. 69 (Urbana, Ill.: Center for Advanced Computation, University of Illinois, 4 Mar. 1973). Col. 3, Bruce, Hannon
and S. Nakagama, "The 1963 Direct Employment Intensity Vector," document No. 63, (Urbana: Center for Advanced Com-
putation, University of Illinois, January 1973).

Another interesting application of the concepts of product use efficiency, shown
in table 2, is determining the various total energy and employment demands
needed to supply a pound of protein. Cheese and fish are considerably more protein
efficient-energy standard-than meat or milk in the forms consumed in the
United States in 1963. Other product alternatives, such as food preparation and
packing, clothing fibers and home appliances, are also being investigated for their
unit energy and employment demands. The impact of such shifts on consumer
cost, employment and pollution should be thoroughly understood before policy
recommendations can be made.

RATE OF ENERGY USE
Ultimately, all the product and process energy efficiency gains may be inade-
quate; in this event the rate of energy use would have to be restricted. What are
the priorities of restriction? How does the individual and the family draw upon
the energy resource base? In which areas of use-direct and indirect-will an
energy use restriction be least harmful? How does the direct and indirect
energy use per family vary with socio-economic variables, such as age and income
of the family head?

TABLE 2.-TOTAL ENERGY AND EMPLOYMENT REQUIRED TO DELIVER A POUND OF PROTEIN TO THE CONSUMER
THROUGH VARIOUS FOOD PRODUCTS IN 1963

Total employ-
ment 1161
Producer's Total production Production demands, (jobs
price 1963 energy 16] to energy to per million
(dollars per protein ratio energy content pounds of
Food product pounds) (koal/pound) ratio I protein)

Meat products.............................. ------------------------------ 0.50 32,600 6.3 15
Cheese, natural and processed ----------------............. 30 18,800 2.6 14
Fluid milk.................................--------------------------------- 12 51,200 6.1 1
Fresh or frozen packaged fish ........----------------- .35 17, 700 6.5 10

I Marketing energy not included-add about 10 to 15 percent; total claoric energy used. Note that higher protein foods
are not particularly calorie-rich.
Source: Col. 1, U.S., Department of Commerce, "Statistical Abqtr-- of the United States," 1971, approximate.






34

A study to determine the energy cost of different lifestyles is underway at the
center. The first goal is to establish, through the use of equation (1), the influence
of age, income and family size on the total energy budget of a family; such
studies will reveal the family dependence on total energy for housing, food, cloth-
ing and transportation. If a priority of need is established, energy savings which
would result from rationing could be estimated. Furthermore, the impact of an
increase in energy cost on low income families could be estimated. Finally, studies
such as these could be used to plumb the energy demands of varying degrees of
affluence, leisure, convenience and variety of consumer products.
A preliminary total energy and employment comparison of the average urban
family-of about three persons-in the United States in 1950 and 1960 is made
in table 3. Several interesting, tentative facts emerge: (1) energy use and employ-
inent change are not proportional to change in constant dollar expenditures; (2)
direct energy consumption is about one half of the total energy demand; (3)
each family generates about the expected direct and indirect employment, 1.1 per
family, that the family itself provides-that is, working head of household and
one out of ten spouses.

TABLE 3.-PRELIMINARY TOTAL (DIRECT AND INDIRECT) ENERGY AND EMPLOYMENT GENERATED BY THE AVERAGE
UNITED STATES URBAN FAMILY IN 1950: 3.0 PEOPLE, AND IN 1960: 3.1 PEOPLE

1950 1960
employment employment
1950 energy demand 1960 energy demand
1950 dollar demand thousandth 1960 dollar demand thousandth
Item expenditureI (million Btu 2) of a job2 expenditures (million Btu2) of a job2

Food and beverage---- 1,275 77.0 176.2 1,288 76.5 173.7
Housings --------------- 1,132 262.1 57.8 1, 536 248.8 74.0
Clothing and personal
care. ---------------- 519 30.4 75.0 592 34.3 86.5
Medical care------------ 287 11.1 94.5 362 13.9 118.5
Recreation and education. 287 9.4 39.5 305 10.6 42.4
Automobile and other
transportation ...-- 587 73.6 61.7 779 100.6 80.4
Contributions, insurance
and other expenses.... 565 19.4 65.8 1,071 27.0 88.9
Savings--------------- 99 --------------------------- +158 8.9 17.7
Taxes------------------- 510 9.3 28.6 810 14.9 45.5
Retail margin -- 475 15.2 75.0 500 16.4 80.5
Total.------------------ 5,538 4507.5 674.2 7,090 '551.9 808.5
Corrected total ...---------------------- 527.4 1,080.0 -------------- 566.7 1,140.0

I In 1963 dollars, approximate wholesale and retail margins removed to separate column.
2 ERG=CAC energy-employment policy model (February 1973).
3 Direct energy use if weather-dependent.
4 55.2 percent direct.
8 50.6 percent direct.
SCorrected for difference in energy and labor productivity ratio, for household and government industry employment
and for unemployment
Source: Data taken from Bureau of Labor Statistics, "Handbook of Labor Statistics, 1969" (Washington, D.C 1970,).'
pp. 333, 400.

The effect of family-of four persons-income level on energy demand is
shown in table 4. Because of the preliminary nature of the estimate, the same
energy coefficients were used for the same category in each income class; this
procedure yields a total family energy demand which is roughly proportional
to income. A more detailed estimate, now underway at the Center for Advanced
Computation, will demonstrate how specific buying habits vary in each different
Income class. The data of table 4 do reveal: energy dependency on food declines
with income; energy dependency on housing rises with income; and energy
dependency on transportation peaks with the intermediate income level. These
three categories demand about 75 percent of the total family direct and indirect
energy at each income level. The same three categories require 58 percent of
the low budget income and about 47 percent of the other, higher dollar budgets.
From this information we can infer that a rise in the price of energy would be
preferentially difficult for the low budget family.






35


TABLE 4.-PRELIMINARY DIRECT AND INDIRECT ENERGY BUDGETS OF 3 DIFFERENT INCOME CLASS 4-PERIOD
FAMILIES, 1970

Low budget Intermediate budget High budget
Energy, Energy, Energy,
million million million
Dollars RTV's Dollars Btu's Dollars Btu's
(percent) (percent) (percent) (percent) (percent) (percent)

Total..------------ 6,960 455 10,664 709 15. 511 1,015
Food -.........-.... 22.5 18.5 18.8 14.7 16.3 13.1
Housing I -------------- 19.1 43.0 22.3 48.2 23.1 50.7
Transport....-------------- 16.3 10.8 7.6 12.5 6.8 11.3
Clothing and personal
care--...--..------------- 8.6 6.8 8.1 6.2 8.1 6.3
Medicalcare............ ------------ 7.8 4.1 5.2 2.6 3.7 1.9
Other con umption---- 4.0 3.0 4.9 3.6 5.6 4.1
Other costs... ------------ 4.6 1.6 4.8 1.6 5.6 1.9
Social security 6.4 5.2 3.5 2.7 2.4 1.9
Personal income tax..... 10.0 2.5 14.3 3.4 18.4 4.4
Retail (approximate)..... 10.7 4.7 10.5 4.4 10.3 4.4

1 Proportioned from intermediate income to high and low budget using data from table 3. Energy will vary with climate.
Sources: Cols. 1,3, and 5, U.S. Department of Labor, "Handbook of Labor Statistics," Bulletin 1705, tables 126, 127 and
128 (Washington, D.C., 1971). Cols. 2, 4, and 6, Center for Advanced Computation, Energy-Employment Model (Urbana,
IIl.: University of Illinois, February 1973). Corrected for 1963 to 1970 energy productivity change.
Finally, from the Bureau of Labor Statistics data i one can learn that the cost
of living indices are higher than income indices for two-person families who live
in cities, as opposed to the nonmetropolitan areas, and for those who live in north-
ern, rather than in southern, United States cities. Intermediate values are found
for north-central and western cities. Therefore, one can tentatively speculate
that cooler climates and higher density living patterns stimulate the need for
higher per capital total energy use.

ACHIEVING ENERGY CONSERVATION
The overriding counterforce to conserving energy is the apparently basic human
desire for convenience. As one traces the history of United States industrial and
personal activities, one eventually realizes that the trends indicate a drive for
an easier or more convenient way of life. Such desires seem to have produced
automation, higher physical mobility and diversity of products and services. In
the face of such desires, the question then becomes: if we are truly entering a
period during which energy supply cannot meet demand-an energy crisis-how
do we reduce demand?
Basically, there are two ways: (1) education, or socialization, programs which
present the energy cost of alternative goods and services to the consumer and'
(2) governmental regulation-through such measures as rationing and economic
incentives schemes-of energy use, in addition to control of practices which lead
to higher energy consumption. Education of the consumer can occur in many
ways. The flow of information to consumers needs to be examined and, probably,
to be modified. Education is supposed to occur in schools, but students probably
learn more about consumption from the physical environment at the school than
from classroom lessons. Interpersonal status gradients, insofar as they can be
overcome by conspicuous consumption, exemplify part of the school environment.
The mechanics of operating a school also must have an impact on the young
consumer. For example, it is inconsistent-if not self-defeating-to teach general
ecology in the classroom and to offer the students soft drinks in aluminum cans
at lunch.
Institutions, such as the school system and the government, can directly effect
energy consumption not only by carefully reevaluating their physical plant proce-
dures. but also. as major buyers of goods and services, by favorably influencing
local and national market conditions toward lower energy-consuming practices.
For example, the purchase of goods for the armed forces can be changed: cloth-
ing variety can be reduced: less food packaging can he achieved through an

2U.S.. Department of Labor. Handbook of Labor Statistics (Wnshington. D.C.: Gov-
prnment Printing Office. 1971). p. 302. table 138.






36


increase in the use of fresh foods, larger containers and less paper. The major
institutions can have a signicant demonstration effect on the public at large.
Media advertising-another form of public education-is obviously directed at
increasing consumption. Product diversity is clearly the basis of advertising; the
energy inefficiency of diversity is increased by advertisers who convince the con-
sumer to buy more or to buy a more expensive product or to do both. Yet, little
is apparently known of advertising's effectiveness; however, no major research
effort is needed to determine the energy cost of the current information flow and
the effects of cont rolling it to conserve energy.
Regulation of direct and indirect energy can take five basic forms: energy ra-
tioning, energy taxation and price control, information flow control, public invest-
ment and land use control. Clearly, the federal government has the ability to
ration fuels-as it did during World War II---and to reduce energy consumption
by raising the cost, by adding taxes and/or by assuming control of the basic
energy resource price.
Regulation of the information flow-for example, control of advertising and
product diversity-is perhaps the most benign process through which energy use
can be controlled. If it is not sufficiently successful, other forms of more direct.
regulation-for example, gasoline rationing-would be required. Perhaps, direct
regulation will be less oppressive and more widely understood if it follows an
educa t ion program.
For example, public investment in highways has probably caused a significant
increase in automobile and truck traffic. Passengers and freight were formerly
moved by the more energy efficient railroads-whose share of the intercity freight
market has dropped from about 60 percent to 40 percent of the total in the last
twenty years." Although total freight hauled by railroads has increased in this
same period, apparently, it has not been sufficient to provide enough revenue for
adequate maintenance of equipment. and roadbed. As another example, public
electric utilities are so regulated that promotion of the use of electricity is re-
quired: since the price of electricity is derived from the value of a utility's invest-
ment, these companies opt for capital-intensive operations; since the demand
for eletcricity varies widely on a daily and seasonal basis, these large capital
investments are regularly idled, causing the utilities to promote off peak use of
electricity. Now seasonal peak use of electricity exists where minimum use once
occurred. The phenomenon of air-conditioning was promoted by utilities in the
fifties and early sixties to smooth out the demand curve and to provide efficient
use of capital equipment. The former summer minimum demands' are now the
peak demands, and utilities advertise electric space heating-which is only half
as efficient as direct gas heating-in an effort to fill the winter lows. Night time
street and highway lighting is promoted to fill in the daily minimum periods of
demand.
As a final example, public investment policies might be used to control develop-
ment of cities-thereby controlling total economic growth, or at least producing
less energy-intensive land use patterns. A community could be planned around
total energy systems in which waste heat from small power plants would be
used to heat and cool the community's buildings. Work and home could be so
located as to minimize transportation energy requirements. Intelligent land use
planning is probably the most fundamental, long term key to energy conservation.
Even elementary land use planning is in a juvenile state of development in the
United States; however, if we insist on increasing population and affluence, the
only alternative to land use planning and regulation is the ubiquitous chaos
present even now in and around our cities.

AN ENERGY STANDARD OF VALUE
Conventional energy-except for water power-is one of the nonrecyclable re-
sources. Clearly, it is available in a finite supply, and the adverse environmental
effects of its consumption are potentially great. The adoption of a national-and
consequently a personal-energy budget appears to be necessary. The annual
budget would represent a portion--dictated by our value of the future-of the
proven energy reserves. Individual allocation could be similar to that of our
present economies, which reflect personal value, except that we would have to

19 Hirst. "Energy Consumption for Transpnrtation." p. 6.
2Hnhbbert Risser. "Power and the Environment-A Potential Crisis in Energy Sup-
ply" (Illinois Stat" Geological Survey, December 1970). p. 4.






37


strive for the right to consume energy; the accrued currency would reflect the
degree of success. The flow of the currency would be regulated by the amount
of energy budgeted for a given period. If less energy existed at the end of the
period, then currency flow would have to be reduced proportionately during the
next period; of course, an increase of currency flow would follow an abundance
of energy. Recognition of the value of energy is equivalent to setting energy as
the basis or standard of value. In doing so, society readmits itself into the natural
system in which acknowledgment of energy's importance has never been lost.


IT TAKES ENERGY TO PRODUCE ENERGY: THE NET'S THE THING
(By Edward Flattau and Jeff Stansbury)
Suppose you've found a wondrous goose that lays seven golden eggs a week.
Does this mean you will be able to corner the gold market? Unfortunately, no,
because to keep the bird fat and fluffy-and to keep its production up-you must
feed it six golden egg yolks each week. Net result: only one golden egg for sale.
This yarn may augur a potentially grim tale for the U.S. economy, for it sym-
bolizes our net energy crisis. Not the various rigged shortages and price machina-
tions you've been reading about, but the real thing: our net energy crisis.
If you haven't pondered net energy, the fault's not yours alone. Senator Henry
M. Jackson, Capitol Hill's leading energy warrior, hasn't heard of it either and
William E. Simon, chief of the Federal Energy Office, wouldn't recognize a net
energy ratio if he tripped over one on his way to a liress briefing. Nor would The
Veu, York Timn.c and The Wa.shington Por.4 reporters who have been following
Simon around with almost a religious zeal. President Nixon, a flock of oil com-
pany executives, and most influential economists have yet to discover net energy
let alone apply its implacable logic to their decisions.
Net energy is the energy you start with minus the energy you use up
producing it-in other words, the calories you must spend to find, mine, trans-
port, refine, convert, and deliver it. You must also add in any other energy yields
that you have sacrificed in the sinaleminded pursuit of this one fuel.
Without doubt, net energy may well be the simplest idea ever to have been
ignored by so many acknowledged experts. Corporations would go bankrupt if
they did not understand the distinction between gross income and net profit.
but our thinking about energy has somehow not yet reached this level of soihis-
tication.
It does not matter whether you start with energy in the ground (coal. gas, oil.
uranium oxide, plutonium, steam), in surface waters (hydropower reservoirs.
tides, waves), and the land (timber, food, manure) or in space (sunlight, wind) :
in order to use it, you must first expend almost as much energy just to obtain
it.
Agriculture presents an object lesson in the dynamics of net energy. Despite
America's moderately high per-acre crop yields (up 63 percent in the last 20
years), American farmers use more petroleum than any other economic group.
and, as a result, they consume much more energy than they produce.
California State University professor Michael Perelan has calculated that
the energy value of the food Americans consume roughly equals the energy burned
by tractors-just one fraction of our farm machinery. Of course you can't eat
gasoline, so the equation is somewhat invalid. But what is significant is that
the energy efficiency of U.S. agriculture has been steadily declining. Even ten
ears ago some 150 gallons of gasoline per American flowed into food 1prodil-tion
That was five times as much energy as each of us consumed at the table--and the
ratio has grown even worse in the ensuing decade.
Perelman's statistics also show that most other countries balance this equation
better than we do. In the extremely labor-intensive agriculture of Clhina. :i wet-
rice farmer produces 50 units of food energy for each energy unit lie expends
For a typical American grani farmers, the ratio is drannaiti-ally rever-ed (: 110e
unit of energy harvested for five expended.
The largest portion of our energy deficit in agriculture comes from the use of
nitrogen fertilizer. Since World War II our per-acre yields of corn have tripled.
but mir nitrogen energy inputs lihave risen 16 times. Thaint may be efficient in termn
of man-hours, but it is wasteful of ener.zy. Dr. Georce Borgstrom. a fond scientiOt
nt Michigan State TUniversity, calculates that it takes the calorie equivalents of






38


five tons of coal to make one ton of nitrogen fertilizer. Agriculture Department
officials have stated that, because of the energy squeeze, we will face a nitrogen
fertilizer shortfall of about one million tons this spring. And these shortages
have already raised fertilizer prices by 30 to 60 percent over last year's level.
Meanwhile, the sewage technology employed by our narrowly trained sanitary
engineers has been dumping about 2.4 million tons of perfectly good nitrogen
into our lakes, streams, and estuaries each year. Dr. John R. Sheaffer, until
recently the U.S. Army's top environmental consultant, estimates that this nitro-
gen is worth $1 billion and equals nearly a third of the synthetic fertilizer sold.
By wasting it and forcing us to replace it with manufactured nitrogen, sanitary
engineers make us burn the equivalent of an extra 2.2 billion gallons of fuel oil
each year. Reclaiming most of this sewage will greatly improve the net energy
yield of our agriculture, although it is not the whole answer.
Howard T. Odum, professor of Environmental Engineering Sciences at the
University of Florida, has done some of the most provocative thinking on the
importance of net energy. "Many forms of energy are low-grade because they
have to be concentrated, transported, dug from deep in the earth or pumped from
far at sea," Odum says. "If it takes 10 units of energy to bring 10 units of energy
to the point of use, then there is no net energy. Right now we dig further and
further, deeper and deeper, and we go for energies that are more and more dilute.
We are still expanding our rate of consumption of gross energy, but since we are
feeding a higher and higher percentage back into the energy-seeking process.
we are decreasing our percentage of net energy production."
That single paragraph makes more sense about our energy predicament than
volumes of solemn declarations from the Senate Interior Committee, the Federal
Energy Office, and the oil companies. It puts the spotlight on the steady decline
in the net energy yields of our traditional fossil fuels. Our nearest, least
resistant oil fields have been drained; now we must literally squeeze oil from
marginal ones, or import it from abroad in tankers (which themselves use fuel),
or pump it long distances from offshore rigs to refineries. In the past, when oil
returned a high net energy yield, it handsomely subsidized all our other fuel
and power sources. Oil built hydroelectric dams. Oil and electricity extracted our
coal. Oil grew our wheat. Oil made 20th-century America "work." But today, our
free ride on oil is coming to a halt.

FLUNKING THE NET ENERGY TEST
This means, among other things, that each of our remaining fuels must hence-
forth meet the test of its own intrinsic net energy ratio. Let's look briefly at
three such fuels: coal, uranium oxide, and shale oil.
In a recent interview with The Washington Posf, William Simon declared:
"Today we've got an 800-year supply of coal in this country where we can get
from 25 to 35 percent of our needs . for an infinite period of time." The
kindest phrase we can think of to describe this statement is "whistling in the
dark." Simon has simply commandeered-and inflated-the best prevailing esti-
mates of our gross coal reserves without making any allowance for the energy
cost of extracting this coal.
Unfortunately, common sense suggests that the net yield from our remaining
coal deposits will be low. Unlike oil from wells, coal can be extracted only after
tons of earth have been pushed aside. In the case of strip-mined coal these tons
are literally mountains-mountains which must later be bulldozed back into
shape, covered with topsoil, seeded, and carefully tended for 15 or so years (that
is, unless we're willing to leave the land unreclaimed).
Seven months ago the President's Council on Environmental Quality issued
a booklet on electric power. It contained some serious errors, but one useful fact
can be found in it. Of all the drep or strip-mined coal that ire extract, only 30
percent reache.q the final user. The rest disappears through physical losses in
processing and transportation, heat losses during conversion to electricity, and
electrical leakage from transmission lines. Furthermore, each of these steps.
like the extraction process itself, consumes considerable energy. "Big Muskie," a
giant coal extractor now tearing up Muskingum County, Ohio, gulps enough power
e:ich day for 27,000 all-electric homes. The energy costs of mining coal and
converting it to electric power must then be subtracted from the 30 percent left
after leakage and physical di sappeara nce.
We must also calculate the potential energy we lose when we decide to use
land for strip-mining. Joseph Browder, of Washington's Environmental Policy






39

Center, says, "The energy costs of stripping Northern Great Plains coal must
include the direct loss of agricultural productivity in the Powder River Basin
and other areas where livestock produced on native grasses would be replaced
by livestock produced in a feedlot system dependent on energy-intensive, fertilized,
irrigated crops."
In the West, the energy problems caused by strip-mining are a little different.
Immense amounts of water will have to be set aside to gasify, liquefy, or convert
its costs into electricity. This means new water sources will have to be developed,
at a high energy cost, to replace those consumed by producing coal.
When all these relevant energy costs are deducted, the net yield from strip-
mining our deep coal reserves may drop to three or four percent or less. Simon's
800-year bonanza has shrunk to a few decades.

LOSING ENERGY WITH ATOMIC POWER
Then there's nuclear power, which the Nixon Administration is betting will
eliminate our energy problems forever by the end of the century So. far, how-
ever, 25 years of nuclear fission power has drained off more energy than it lhas
produced. It's easy to see where the problem comes from.
In 1973, the Atomic Energy Commission (AEC) used 25.7 billion kilowatt-hours
of electricity just to produce the uranium needed to fuel nuclear power stations-
stations with a power output of about 50-billion kwh. This was not a fluke. "As
much as half of the gross electrical output of a nuclear plant would have to be
recycled to supply input for fuel processing," says E. J. Hoffman, a University
of Wyoming nuclear energy specialist. If you also include the energy costs of
searching for uranium ore, mining it and transporting it; finding, mining,
refining, and transporting the metals that go into nuclear power plants; manu-
facturing the concrete for these plants; operating them (which includes driving
to and from work) ; and storing or reprocessing the "dirty" wastes from nuclear
fission, you will find the 1972 net energy yield from uranium has probably
sagged to less than 10 percent.
The sober conclusion seems to be that our nuclear energy program would
collapse without its big energy subsidy from oil. Three years ago, after studying
the past, present, and projected yields of U.S. nuclear power plants. Dr. Hoffman
concluded, "The cumulative energy expenditure of the entire atomic energy
program may not be recouped from nuclear fission power plants by the time
the reserves of economically recoverable U-235 are used up."
Shale oil presents us with another statistical no-man's land. There are between
one billion and 10 billion barrels of shale oil buried in the West, according to
official estimates. However, after all the energy requirements of shale oil have
been subtracted, there may be a net yield of only a few hundred million barrels.
This could even drop off close to zero if the land from which the shale is extracted
is to be pushed back into place anw recontoured. In a recent book. The Energy
Crisis. Tawrence E. Rocks and Richard Runyon predict that the net energy yield
from 99 percent of our Rocky Mountain oil shale will be zero.
One reason why almost nobody seems to care about net energy is the tendency
of otherwise knowledgeable people to confuse net energy with mere efficiency
of extraction. When we hear the terminated efficiency," it is easy to think of
extraction rations: for example, that we only suck about 30 per cent of the oil
in an oil field out of the ground, or that solar-energy devices can convert only
about one per cent of the incoming light into useful energy. This may make oil
seem more "efficient" than solar energy. But it doesn't cost us anything to1n )a;s
up that 99 per cent of solar energy or 70 per cent of oil; we get nothing and
we expend nothing, so this loss doesn't really affect our calculations. What
really counts is how much energy we must expend to get the obtainable energy.
Extracting and refining the 30 per cent of the oil may consume so much energy
that the net energy yield is quite low.
Another problem is that the entire debate over fuels is dominated by eco-
nomists, geologists, and capitalists, who have been trained to think only in
terms of dollars. Is oil shale still too costly to develop? Well then, they advise.
wait for conventional fuels to grow scarce (high-priced) and shale oil will be-
come a profitable commodity. The trouble with such incantations is that they
assume the dollar costs of a given fuel will faithfully-and quickly-reflect its
energy costs. This assumption is unwarranted. The dollar costs of new oil wells.
for example, depend on tax write-offs and other accounting decisions which do
not reflect net energy. A fuel can remain artificially underpriced for months, even






40


years, after its net yield drops. And the notion that shale oil will 'become pro-
fitable at the very moment when it can no longer count on a big initial subsidy
from deep-well oil is, in net energy terms, absurd.
"The truth is often stated backwards by economists," says Dr. Oduni. "Often
they propose that marginal energy sources will become economic when the rich
sources are gone. But the ability of marginal sources to yield goes dowu as
the sources of subsidy become poorer."
Three months ago, Brookings Institution President and former Budget Direc-
tor Kermit Gordon admitted to the American Economics Association. "I know
of no neat, theory of inflation that fits the facts of the last five years-neither
aggregate demand, nor money supply, nor labor power, nor oligopoly power, nor
bottlenecks, nor expectations-though I could easily be convinced that they all
played a part."
The "facts" of the last five years boil down to a lickety-split inflation that has
respected neither boom nor bust. Without sounding pompous, it seems quite
plausible that our shrinking net energies provide part of the theory that resolves
this seeming paradox. Professor Odum sees it that way: "If the energy reach-
ing society for its general work is less because so much energy must go into the
energy-getting process, then the real work of society per unit of money circulated
is less. Money then buys less real work.. .and is worth less." This inflationary
bind could exist in a rising or a falling economy, provided that the actual money
supply did not substantially dwindle.
The infamous U.S.-Soviet wheat deal two years ago provides a vivid ex-
ample of the fickle relationship between dollars and net energy. This ex-
change was a financial windfall for a few grain exporting firms, but an energy
disaster for Americans. Wilson Clark, a Washington, D.C. energy specialist,
claims that it costs us 10 units of energy to ship grain worth one unit of energy
to the Russians. In return we were promised Soviet natural gas worth two
energy units. "Financially it worked out fine," Clark says, "but in energy terms
we suffered a 5 to 1 net loss."
BALANCING OUR ENERGY ACCOUNTS
Clearly, before the United 'States invests hundreds of millions and then billions
of dollars in a desperate scramble for miracle fuels, we must devise a system of
national energy accounts. How much of the energy from western coal must be
pumped back into its production? How will the net yield of western strip-
mined coal compare with the midwestemr deep-mined coal? What natural
energy harvests will be sacrified by these alternatives? How heavily must we
subsidize the next 25 years of nuclear fission? To bring one 1,200-calorie loaf
of cracked wheat bread to a suburban table, how many thousands of calories
must we spend on fertilizer, pesticides, cultivation, harvesting, farm overhead,
milling, baking, distribution, sales, and-not least-that luxurious trip to the
supermarket? For our overseas oil, how much energy do we invest in our
Mediterranean fleet, in our farfiung corporate empires, and in their support struc-
tures in the Departments of State, Commerce, and Interior? Will solar con-
verters yield a rich net energy harvest? And (assuming the necessary copper
can be scavenged) will windmills be practical?
A bookkeeping system capable of answering these and a vast number of
related questions will do something for us that mere dollars cannot: it will
test our economic sanity, rationalize our economic planning, and give us a long-
lost sense of proportion vis a ris the natural world we inhabit. We need to
launch this accounting revolution immediately, for the world we face tomorrow
is not the world we know today. Immutable laws of net energy are leading us
toward an economic steady state.
"Our system of man and nature will soon be shifting from rapid growth to
steady state non-growth as the criterion of economic survival." says Dr. Odum.
Ecologists are familiar with both the growth state and the steady state; they
observe both in natural systems." Economists, however, have been schooled dur-
ing. b)y, and for growth. Most of them have never seen a steady state. Except
for the London School's Ezra Mishan and a mere handful of kindred spirits,
they reject the possibility of a steady state even though man lived in something
very close to one during 99 per cent of his evolution.
Why is a new steady state-presumahly at a decent level of health and well-
being in our cards? It is in our cards because the high net-yielding energy
sources we need to survive, with the doubtful exception of nuclear fusion, can-








not match the total daily output we have heretofore enjoyed from the fossil
fuels. Oil, coal, and gas have been a marvelous energy "capital," a 400-million-
year-old bankroll for the Western world. Sunlight is energy "income," however,
we can tap only so much of it each day. Whether we like it or not, we'll have to
live within our means. This is the only way we can reach that redoubtable state
Mr. Nixon calls "energy self-sufficiency."



SYSTEMS OF ENERGY AND THE ENERGY OF SYSTEMS
(By Thomas A. Robertson)
Burmah, the second largest oil company in Britain, falters, threatening the
development of much-needed North Sea oil for that nation's troubled industries.
Texaco, one of the largest U.S. oil companies, drops its plans to develop oil shale,
a highly touted domestic energy alternative. Inflation punches up through 20 per-
cent in Japan and Italy. Elsewhere, it continues to contradict predictions of
lower rates.
In Washington, Senator Mark Hatfield and Congressman Mike McCormick
clash in a committee conference on energy research and development. The dis-
cussion concerned an obsecure concept called "net energy." Few recognize the
relationship of net energy to the problems of oil companies and economies. Even
fewer appreciate the importance of this concept to the stability and well-being of
the industrial society in which we live. Senator Hatfield insisted the concept
of net energy should be one of the criteria in a selection of energy research and
development. Congressman McCormick said he was concerned that the evaluation
of energy technology for its net-energy potential would be restrictive to energy
research. Mr. Hatfield, the Senator from Oregon, held his ground and the section
on net energy was retained in the bill. This brief encounter was a milestone in
the history of industrial society. In those few minutes, for the first time, two
leaders touched on the keystone issue of how this society is powered.
The term net energy first trickled into the consciousness of industrial society
in the fall of 1973, when Howard T. Aodum, Graduate Research, Professor of En-
vironmental Engineering at the University of Florida, was asked to submit a
paper to AMBIO, the publication of the Royal Swedish Academy of Science. The
result, "Energy, Ecology, and Economics," came out in December, 1973. As copies
of the paper were circulated (it was reprinted in some 14 publications through-
out this country and abroad), the concept of net energy made a strong impres-
sion on concerned readers looking for better opportunities in these changing
times. The concept of net energy is a product of Professor Odum's energy sys-
tem analysis. Energy is used by Odum and his associates as a common denom-
inator. Symbols of energy processes and of connecting flows track energy in its
many forms to show the workings of all systems and combinations of systems.
From this whole-system view of energy, environment, and economics, concepts
such as net energy and a host of other significant, insights emerge.
When Paul Samuelson, a Nobel Laureate in economics, says, in a recent Busi-
ness Week article, "I think the greater error in [economic] forecasting is not
realizing the other possibilities," he is making a strong case for questioning our
existing processes of percel)tion. Economists, using symbols called money to
understand the allocation of resources and work, cannot see those things in
the systems of society and nature that money does not immediately track. For
example, money-the symbol-shows little about the services provided by the
environment for which no money payments are made. "If you don't pay for it,
it doesn't exist," is perhaps too harsh a characterization of the economic point
of view, but it does make the point.
The delayed effects through our economy caused by the rippling out and back
of increased primary energy prices for oil, coal. and gas are dynamic properties
of "ur social economic system about which little is known. When our leaders say
a $3.00-per-barrel import tax will cost the consumer only $275 a year, they are
ignoring how the butcher, the baker, and the candlestick maker (candle wax
mnies from paraffin, a derivative of crude oil) pass their costs on to the consumer.
The Qo-called "free market." which economists and others speak of, is so sur-
rounded by confusion that it is hard to final any real meaning in the term. There is
certainly little that is "free" about the flow of money resouiirces and work through


68-391 0 76 4






42


industrial society. Government with its immense regulatory ability, corporations,
unions, and consumer advocates all seek to do what they think is best for them-
selves. By the various means of legislation, lobbying, and associations, they
disturb any "free" flow through the system. Truly beneficial results are increas-
ingly difficult as the system in which they operate becomes more and more com-
plex. Social good, corporate good, and even governmental good, to say nothing
about good government, become more and more elusive. The counterproductive
tendencies of a high-energy industrial system reveal today's profit as tomorrow's
losses.
Energy systems analysis lowers this perceptual barrier by integrating all parts
of the systems under consideration first into conceptual approximations, and then
into accurate simulation of the essence of the problem at hand. The result of this
process of inquiry tends to be forced by the realities of the system and is much
less dependent on the perceptual bias of the observer. For this reason, net energy
appears to be one of these unforeseen systems circumstances.

NET ENERGY AND INFLATION
Net energy begins as a simple concept. It takes energy to get energy. What
counts for use by society is the net energy "profit" from the work we (society)
do to extract the given supply of energy. The accounting must be done in terms
of both energy and money. Money alone as an accounting medium is not working.
In other words, net energy is the amount of energy available from a given resource
for use by society after subtracting the energy required to search for, extract,
process, and transport the energy derived from that resource.
The energy/dollar problem is one involving two different but not separate
functions in our economy, and the best way to understand this subtle distinction
is first to consider energy alone. Our effort as a society to find, process, and use
fossile fuels can be likened to that of a family fueling its members with food. In
our case, the family at first lives next door to a grocery store that is fully stocked
but charges nothing for the food. The family only cost is the energy they burn in
walking to and from the store. As long as the store is nearby and the trip is short,
the family is unaware of any significance "price" and happily assumes either (a)
that the store will never be exhausted, or (b) that another full store will spring
up alongside the first by the time the first runs out of food.
Unhappily, the store runs out, and no new store takes its place. (Several stores,
which we might liken to alternative energy sources such as solar and nuclear
power, appeared, but none had yet proved to contain any appreciable supply of
energy/food.) The family must now go to a store several blocks away-a trip that
begins to exact a noticeable amount of food-energy cost to the family. Eventually,
the only stores that can be found still stocked with food the family must have
are a half-day's trip away. One day, the family realizes that it is spending the
same amount of energy in traveling to and from the distant store as is contained
in the food they pick up during the trin. There is, in other words, no net energy.
Now add dollars to the above story. We start with each unit of energy having an
equivalent unit of money attached to it. The family gets money for all work it
does outside of going to the store. After the family get food/energy from its
nearby store, it is able to use its surplus energy to do nonstore-going work for
which the family receives money. With this money the family can buy still other
kinds of work. (Work, in this sense, means the goods and services available frnm
society.) The non-store-going energy is net energy. It is easy to see that as the
family spends more and more of its energy going to those more distant stores, it
has less and less energy to do its money-making work.
Several variations on this theme occur. In the example above, if we do lees work
we get less money. This is what would happen if we had that "free market" the
economists talk about. However, you and I are part of a representative govern-
ment that would find it hard to accept such a rigorous relationship between energy.
money, and the work we do. Governments, in order to make things look better,
"grow" by adding money to that which is already in the system. This works as
long as there are resources available to back up the money. However, if resources
are diminishing, this only makes us feel as if we have more ability to buy work.
and only delays the time when we must reckon with reality. Understanding the
basic elements of net energy is like learning to ride a bicycle. Once you learn, you
cannot believe how hard it was to get started, at the same time, you will never
forget it.






43


Thec fundamental cause for inflation can be seen as changes in net energy. As
our concentration of resources diminish (the stores are more distant and harder
to ge to), we do more work to bring in less and less net energy. Consequently, the
amount of work done per unit of money diminishes. Three associated causes for
inflation are:
(1) Increased primary energy (crude oil, coal, and gas) prices. An example is
the OPEC price hike in 1973 and the coal-strike settlement in December, 1974.
Crude oil imports, as well as excise taxes, also fit this category.
(2) Increasing the money supply without having the energy to do this addi-
tional work. Examples are dropping the margin on the stock exchange, increases
in credit such as reducing the reserves over which banks loan money, forcing
interest down, and putting money into pump-priming projects without the ability
to power them.
(3) Decreasing productivity: in other words, getting less work from the energy
we have. As economic writer Hazel Henderson says, "We are creating transac-
tional costs faster than we are producing output." Everyone has his pet example
)f this.
ENERGY-INVESTMENT RATIO AND LEVERAGE
The net energy available to an economic system can be seen as an energy return
on the energy invested. This "energy-investment ratio" changes over time as con-
centrated resources become more dilute. A hard point to believe, but that we must
consider, is that a time finally comes when your energy-investment ratio is so
diminished you can no longer do the things you could do in the past. Businessmen
speak of leverage, by which they mean investment ratio. Energy-investment ratio
is the basic leverage that determines the winners and losers (if there ever are
any) between competitors, be they individuals, corporations, or nations. No
businessman would venture into any enterprise without being aware of the
comparative leverage between himself and his competitors.
Where money was working well in a stable economy, it moved energy in all
its forms of resources, goods, and services, and it accurately and effectively
allowed us to account for all the processes of industrial society in which we are
involved. Modifications we now find in the availability of resources, particularly
energy, are symptomized by inflation, which causes a deterioration in the quality
of information we use in business and finance to move resources in our economic
system. The energy-investment ratio and other elements of energy systems anal-
ysis form a new economics. Using energy as an accounting medium along with
money can re-establish the information quality of our economic system so neces-
sary to the best understanding and use of scarce resources by our society.

CHANGING ENERGY-INVESTMENT RATIO
The best indication that a change is taking place in the United States energy-
investment ratio has come from a paper done by M. King Hubbert of the U.S.
Geological Service for Senator Henry Jackson's National Fuels and Energy Policy
Study. In Hubbert's paper, which reviews fossil fuel energy availability for the
future, we find a chapter titled "Discoveries per foot of Exploratory Drilling."
Looking for an indication of work done for energy returned, as an energy-
investment ratio, Hubbert found that, "The rate of discovery [of oil] is subject
to wide fluctuations in response to extraneous conditions such as economic and
political influences. In fact, the rate of discovery may be increased to maximum
or shut down completely in response to managerial or political fiat, or to the
changes in the economic climate." But in pursuing his investigations Hubbert
found that the amount of oil discovered per unit of depth of exploratory drilling
is almost exclusively a technological variable and is highly insensitive to economic
or political influences. For example, while the officials of a large oil company can
authorize its staff to double the amount of exploratory drilling in any given year
and thereby increase the discoveries per year, no oil company management can
successfully order its staff to double the quantity of oil to be found per foot of
exploratory drilling.
Hubbert's figures raise vital questions about our energy return on energy
investment for oil production in this country. His reports suggests an 870-percent
reduction in the return on our energy investment over the past few decades. Here
is a fact that bears directly on the ability of the nation, or the whole of industrial
society, to power itself. For all the discussion of national energy policy and the






44

current economic crisis, how many policy makers do you see touch on the essence
and magnitude of the problem suggested here?
Hubbert touches on the question of net energy almost by accident, but it is a
sound start. The next step is for Odum and others to refine the applications of
systems analysis' to all the existing and proposed energy and economics circum-
stances of our society. From this will come the best opportunity for us to see how
what we want to do differs from what we will have to do. Then, appropriate
choices can be made with a more accurate understanding of their consequences.
Another set of numbers illustrates the differences in petroleum-resource con-
centration and their international implications. Norbert Tiemann, administrator
for the Federal Highway Administration, says in several speeches: "The United
States oil demand is now about 17 million barrels a day-and growing. However,
to meet the need. we are producing only some ten million barrels of oil per day
from half a million wells, an average of about 20 barrels per day per well. In
contrast, Saudi Arabia could easily produce an equal amount of oil, if it chose.
from about 700 wells-an average of more than 15,000 barrels a day per well."
Put another way, the Saudi Arabians can produce with 700 wells what we need
500,000 wells to produce.
ENERGY AND COMPETITION
The conditions of changing and diminishing net energy or energy-investment
ratio is a fundamental element in all competition, particularly among the nations
in this turbulent world. Odum and his colleagues are using energy systems
analysis to ask questions about the competitive position-the leverage-among
nations.. He is concerned that all of the available primary energies available to the
United States will yield less net energy than Arab oil. This means, he says, that
we cannot compete using our own resources.
Odum's analysis, from energy systems studies of net energy done by himself
and colleagues at the University of Florida, looks at several of our "promising"
energy technologies.
For strip mining western coal, we get approximately 3 units of energy back
from each unit of energy invested.
For nuclear energy, if the plants last 40 years, we get back between 2 and 3
units of energy for each unit invested.
For Arab oil at $10.00 per barrel, we get back about 6.5 units of energy for each
unit we invest.
In other words, all the energies readily available to the United States will
yield less net energy than Arab oil. Again the numbers are approximate. They
should be seen not as precise statements, but as accurate indications of ques-
tions we should be asking if, as the numbers portend, we are headed for some
i rleasant surprises in the near future.
Will West Germany and Japan be in a better position to outcompete us by not
having the promised potential of domestic energies to confuse them? They are
forced to use Arab oil and deal with the balance-of-payment problems. We should
not forget-oil is of little value if there is no viable industrial society to burn it.
And what about Russia? What is the net-energy profile of that nation, given
that its vast resources are spread thousands of miles from industrial centers?
What questions about competition are exposed when this nation's administration
makes antique gunboat diplomacy noises in a nuclear missile age? What about
changes in our global military posture since the 1940's and 1950's, when the
United States controlled over half of the world's energy? How well can we
)power our threats when we now use 30 percent of the world's energy, but are
largely dependent on the import of energy and other resources critical to the
health of our industrial nation? These are all critical questions; who is asking
them in context with the larger systems in which we live?

NET ENERGY POLICY
The concept of net energy cannot be found in the final report of the Ford Foun-
(lation Energy Policy Project. Furthermore, its implication that our economy
may be uncoupled from energy as reported in the Conqress.ional Quarterly re-
cently is simply not true. To his credit, David Freeman, director of the Energy
Policy Project, did invent the phrase "Burn America First" to fault administra-
tions for their tendency to strip the nation of its remaining diminishing energy
reserves, thereby potentially threatening even more our future competitiveness.
The l,(int made by Freeman is not addressed in the administration's Project






45


Independence report. Project Independence also failed to recognize the concept
of net energy, even though Federal Energy Administration officials were quoted
last summer in Business Week as saying it was a viable concept.
When Senator Hatfield and Representative McCormick opened the debate on
net energy, it was no longer an academic or philosophical question. "Burn
America First" is the announced policy of the Ford Administration and many
other national leaders.
ENERGY AND THE INDIVIDUAL
We tend to look at articles like this one and view them as though we were
some third party, remote from the reality they attempt to describe. This objec-
tivity is necessary and wise. What is different here and today, more than ever
before, is the topic under discussion. It affects you directly-now and into the
foreseeable future. For example, the question of whether we do or do not get
pay raises thts year or next are very real at this time. This paper ties basic
influences on inflation directly to changes in energy availability. With a 15-per-
cent inflation rate last year, you lost that much purchasing power. Did your
raise cover this loss? Remember, we are talking about energy as it relates to all
prices. The increased electric and gasoline and fuel prices you are paying are
only the beginning of a long chain of events that ultimately affects everything
in our society.
The possibility of a 20-percent inflation rate is too real to ignore. With it, we
lose one half of our purchasing power over the next five years. Even at a rate of
inflation of 15 percent the "half life" of the dollar does not give us too much
longer. Finally, if you did get a pay raise and produced no more than you did
last year, your increase is a direct contribution to inflation.
Individuals must no longer see these questions as separate from themselves.
We are caught right dead in the center. This begs the question what can we
do. To ask questions is only a part of the answer. We must ask better questions,
using processes that allow us to see ourselves in the extended and integrated
systems of man in nature. As Walter Lippman said, "Our conventional wisdom
is no longer working . it was made for a simpler time."
HI. T. Odum would say what wisdom we have made by a simpler time. New
times call for a new wisLdom, one he and others feel is available through energy
systems analysis and a better understanding of man in nature. New perceptual
processes are at hand. not only with Odum at the University of Florida. We also
find Jay Forrester at MIT, Dennis Meadows at Dartmouth. K. E. F. Watt at the
University of California at Davis, and others using new processes to see our
world. These new processes of perception allowed us to raise the questions found
on these pages. The universitie. are exploring new ways to present these proc-
esses and the questions they ask. You can do your part by seeing that these
processes and questions, or better ones if needed, are applied in wvay4 that you
can understand by leaders that we cnan all trust.

FPII.OG1TE
Homer Lea. a political military strategist, said the following at the turn of
the century: "To free a nation from error is to enlighten the individual. and
only to the degree that the individual will lie receptive of truth can a nation lie
free from that vanity w-hich ends with national ruin. . No state is ever
destroyed except through those avertable conditions that mankind dreads to
contemplate. Yet nations prefer to) perish rather than to master the single lesson
taught by tlhe washing away of tho-e that have gone before them. In their
indifference and in the ralor of ignorance, they depart t(ogethler with their mnont-
ments and their const i tutions...."
Past words and actions reflecting "the valor of ignorance" haunt industrial
society at each step along our journey into the future. In spite of this, tlhre is
promise in our society's heritage: The "age of powerr" which began with tlhe
Industrial Revolution and has culminated in the "communica tions revolution,"
has, in its passing, provided us with the tools for transcending our ignorance.
The wisdom of our "simpler times" can be tlie foundation for a new \visdom.
The quality of our new existence will be the result of how well we apply our
potential to be truly wise to the problems (f the great transformation which is
already upon us.






46

Tom Robertson is coordinator of the Energy Center at the University of
Florida. The center's activities are directed toward better understanding the
complex interactions between energy and society. An important aspect of this
goal is the work of Howard Odum and his colleagues, whose energy systems
analysis, or energeticcs" led to the concept of net energy. The purpose of this
work is to facilitate our transition to an age of increasing shortages by showing
how we can best utilize the resources that remain. Tom McCall, former governor
of Oregon, has recently announced that he will join the center staff as head of
its Institute of Applied Energetics. The institute will encourage the increased
use of energetic as a tool for understanding the problems of our age, and will
promote the implementation of policies based on that understanding.


THE OLD ECONOMICS HAS FAILED: A NEW SYSTEM IS NEEDED TO FIND THE
TRUE COST OF ENERGY
(By Wade Rowland)
A photographer friend of mine who works for the Toronto Sun once had a
batch of calling cards printed with the words: 'Colour is a crutch.' I suppose that.
as an expert in the techniques of capturing volumes of meaning in a single
black and white news photo, he meant that, while colour can be effective in am-
plifying the impact of an image, it is an unnecessary frill that at times can get
in the way of the meaning of the photograph.
The card reminded me of a lapel button I used to have (actually, it was kind
of an anti-button button) that went a little further into metaphysics, asserting.
'Reality is a crutch.' I have no idna what the author of that slogan meant by it,
if anything, but I have lately be'in thinking that it is a rather neat way of pointing
out that 'reality' as we have agreed to define it is really just a series of metaphors
for what goes on in the world around us. We employ the metaphor because only
a very few of us are able to understand the workings of the universe in the
more profoundly revealing and truthful way of, say, the mystic. But in the
same way as colour can get in the way of the meaning of a great photograph-
particularly of one that records human activity-'reality' can and does get in
the way of our understanding how the world works.
When my photographer friend forgets that colour is only a crutch and gets
carried away with its inherent power and beauty, nothing much is at risk; the
worst that can happen is that he winds up with a bad photograph. But when an
entire civilization gets carried away by the intrinsic logic and elegance of the
metaphors it has built up to explain a mechnnisni much more profound, when
it becomes so immersed in them that it forgets that they are only metaphors,
then the survival of that civilization can be at risk.
That. it seems to me, is what has happened to the industrial civilization of
the twentieth century, particularly with regard to the metaphor of modern
economic theory.
The history of economics and the elevation of the discipline to the level of a
pseudo-science is revealing. Originally conceived as a way of helping shopkeepers.
traders, and factory owners keep track of their money, this rather simple alle-
gory in dollars and cents has over the past sixty or seventy years groped out to
subsume all of society's accounting, both social and economic. How we live.
where we live, what we eat. how we take our pleasures, how we relate to our
fellow man, are all to a greater rather than lesser extent determined by 'economic'
considerations, and the sanctions agnins-t acting in anti-economic ways are
powerful. The sacrifices one must make to live outside the system, to be a free-
lancer. are not inconsiderable.
At the same time as this invasion of the remotest crannies of the social
system was going on. economists were purposefully expunging from their dis-
cipline every trace of such 'unscientific' concerns as morals and ethics. The
products of one of the more restrictive areas of an education system so involved
with the virtues of specialization that it turned out class after class of superbly
programmed Philistines. few modern economists realized that, in chucking out
moral and ethical knowledge, they were denying their discipline the insights of
history's greatest and most incisive minds-wisdom that resulted not from the
structured thought processes of the scientific method, but from long experience in






47


the world punctuated by flashes of brilliance and insights sometimes staggering
in their profundity.
The results of this systematic avoidance of the richest trove of human under-
standing is evident to anyone who reads a newspaper. Famines, endemic mental
disorders, the squalor of our daily lives, pollution disasters, crumbling cities,
the energy and resource crises, are all symptomatic of a civilization in turmoil
bordering on chaos. If it was not understood before, the events of the past few
years should by now have made it abundantly clear that the moral codes held
in common by the world's great religious philosophies-the insistence that we
live without greed or envy and that we act without rapaciousness or overween-
ing pride-are an accurate scientific description of the means of survival on
this planet.
That modern economic systems are incompatible with these codes, and delib-
erately so, we have as evidence the words of Lord Keynes himself, the father
of modern economic thought. In 1930 he speculated on 'the economic possibilities
for our grandchildren,' concluding that one day everybody would be wealthy.
Perhaps then, he said, people will 'once more value ends above means and prefer
the good to the useful.'
'But beware,' he continued, "the time for all this is not yet. For at least
another hundred years we must pretend to ourselves and to every one that fair is
foul and foul is fair; for foul is useful and fair is not. Avarice and usury and
precaution must be our gods for a little longer still. For only they can lead us
out of the tunnel of economic necessity into daylight.'
That Keynes was a sensitive and educated man is evident from his biographies,
so how he came to make such a stupendous error in judgment is a matter for
conjecture. The fact is, however, that by following his admonition that 'foul
is useful and fair is not' we have reached the point where there is ground for
serious doubt as to whether our civilization will still be intact by the time we
reach his 2060 millennium.
What we are in need of, then, is a replacement for our present system of eco-
nomic thought; a replacement that will not be at odds with our richest fund of
wisdom and so will not lead us into renewed conflict with our natural environ-
ment. In other words, what is needed is a new economic system that will op-
erate within the house rules of the planet as we understand them; in accord-
ance with rather than in opposition to the laws of ecology. We need an 'eco-
ePonqmics.' And if it is to be a practical and useful system, it must have a cur-
rency-a 'dollars and cents' analogue-in which all transactions can be computed
and accounted for.
Once it is understood that current economic doctrine was not handed down to
us on stone tablets, but is simply a metaphorical explanation of our transac-
tions with nature and with each other, and a faulty one at that, the task of
deliberately developing a more honest or appropriate system of accounting-a
new metaphor--seems a less formidable prospect.
It would appear, in fact, that we are already well on the way to having such a
system, thanks mainly to the work in recent years of Howard Odum, an ecolo-
gist and professor at the University of Florida, and Joel Schatz. a systems an-
alyst who was until recently head of the state of Oregon's Office of Energy
Research and Planning and is now a consultant to several governments. They
call the new para-economnic discipline energeticcs' and its currency is energy, the
universal lowest common denominator. Accounting is done in joules or BTUS,
which can later be translated into francs or dollars or pounds if necessary.
At the very core of energetic are the laws of nature that govern the function-
ing of the global ecosystem, the most fundamental of which states that, in terms
of energy, the cost of any biological or economic enterprise is always greater
than the benefits. (In physics, this is known as the second law of thermodynamics
and the 'costs' are measured in terms of increasing entropy.) These processes,
in other words, only transfrom valuable natural resources (low entropy) into
waste (high entropy). A second law is derived from this, and it states that long-
term survival in an ecosystem is possible only for those organisms (man in-
cluded) that stabilize their growth at a level at which energy consumed is no
greater than energy available from incoming, renewable sources. That is, you
won't stay in business long if you live off your capital and throw away your
income.
That there are impliactionsfor energy policy in an accounting system that uses
energy as its currency is obvious. But before we get into those implications, here
is what Dr. Schatz has to say about energetic as a policy-formulating tool
throughout the whole range of economic and social concerns:






48

ENERGY INPUT REQUIREMENTS FOR MAJOR CURRENT AND PROPOSED U.S. ENERGY DELIVERY SYSTEMS, NOR-
MALIZED TO 1,000 BTU DELIVERED ENERGY AND RANKED, WITHIN CLASS, IN ORDER OF EXTERNAL RESOURCE
REQUIRED

Primary External External
Delivered resource subsidy resource
energy I required 2 required required 4
Energy delivery system (Btu) (Btu) (Btu) (Btu)

NONELECTRIC
Domestic natural gas-------------------------------- 1,000 1, 161 17 24
Liquified natural gas from North Slope ---------------- 1,000 1,287 33 48
Coal gasification (strip mined)----------------------- 1,000 2,052 103 138
Solar-space heat--------------- ------------------ 1,000 3,333 109 191
Domestic on-shore petroleum.------------------------ 1, 000 1,093 186 250
Geothermal hot water heating------------------ ---- 1,000 2,065 155 255
Alaska North Slope petroleum -----------------------1,000 1,104 258 345
High grade oil shale.------------------------ ---- 1,000 1,238 359 483
ELECTRIC
Hydro-electric ...------ -- 1,000 1,399 23 32
Geothermal steam-electric ---------- 1,000 7,050 42 57
Nuclear fission-electric (LWR) ------------ ----------- 1,000 7,425 213 451
Coal gasification-electric (strip mined)--.---------- --- 1,000 6,116 384 519
Coal fired-electric (strip mined) ---------------------- 1,000 3,498 426 566
Shale oil-electric --- ----------------------------- 1,000 3,692 1,172 1,576

i Delivered energy: The output energy of a given energy system, e.g., electrical energy at the point and in the form sold
and transmitted to a commercial industrial, or residential customer.
I Primary resource required: the energy potential of the in situ (pre-extraction) primary resource necessary to yield
1,000 Btu delivered.
3 External subsidy required: The total direct and embodied energy required from other energy systems to build, operate,
and maintain a given energy system. This external subsidy does not merge with the primary resource flow; it impels it.
This subsidy is tapped off the output of other energy delivery systems, mostly coal, gas, and oil.
4 External resource required: The energy potential of the in situ (pre-extraction) resource necessary to supply the
external subsidy which impels the primary resource flow at the 1,000 Btu level of delivery.
Source: State of Oregon Office of Energy Research and Planning (1974).

Briefly, energetic is an analytic framework for exploring the role energy plays
in any natural or social system. It is designed to show how information and
energy are related in the real world. (What we call 'information' is simply the
labels and logic that we humans attach to particular patterns of energy in order
to provide ourselves with an organizational scheme and meaning-structure for
our sensory-cognitive impressions.) It is rooted in the assumption that all natu-
ral and social phenomena are fundamental manifestations of energy states and
transformations. Energy, thus, can be viewed as a common denominator of mean-
ing which, like an eternal thread, weaves its way through all levels of reality.
For any specific time period, physical space, and system, there is a unique con-
figuration, or flow, of energy. This flow of energy can be mapped and measured
quantitatively in the special linguistic notation of energetic. Such an energy may
constitute, in effect, a single conceptual lens, or focus, through which substan-
tially different types of information (apples and oranges) can be organized and
interrelated.
A basic computer program or 'energy map' for the state of Oregon has been de-
veloped at the University of Florida and should be functioning by mid-summer
this year. It is so comprehensive that it will account for such energy costs as
food advertising and goods stolen by shoplifters. It should be of enormous value
to policymakers faced with decisions such as whether and to what extent
tourism should be promoted, whether a proposed highway or expressway should
be built, what kind of industry should be encouraged to locate in the state, and so
on.
For if the 'public interest' can be said to lie in living within the house rules of
the planet (or a particular region of it), the value of a system of accounting that
allows us to see clearly and precisely how our social and economic transactions
relate to one another and to those limits is to the policy-maker as the telescope is
to the astronomer and the electron microscope to the biologist.
A brief, freehand energetic analysis of the current fossil fuel situation provides
a good case in point. Conventional economic wisdom has it that the current en-
ergy crisis has resulted not from any ultimate shortage of reserves, but from a
breakdown in the functioning of the market; that if more money is channelled
into exploration and extraction the problem will correct itself. As the price of
fossil fuels rises, economists tell us, it will become feasible to explore for and
open up new sources.






49

The flaw in this logic lies in the fact that energy in the ground isn't of much
use until it has been discovered, extracted, processed, and transported to the
market. It takes energy to do all of these things-energy either from the source
being tapped or, more often, from some other more easily accessible reserve.
As we all know by now, energy reserves are becoming more and more remote
and diffuse, and that means that we are having to funnel more and more energy
into the energy-getting process. For each successive thousand BTUS of usable or
net energy we acquire, we must supply a bigger and bigger energy-getting sub-
sidy, a subsidy that must be derived from increasingly scarce reserves and one
that carries with it its own steadily increasing energy-getting costs.
Figures compiled by the Oregon energy research office show that to deliver
1,000 BTUS of electricity supplied by a thermal generator fuelled by strip-mined
coal, it is necessary to have a reserve of 6,116 BTUS of coal in the ground (much
is lost in the extraction process), and the external subsidy required amounts to
384 BTUS, for which one must have a reserve in the ground of 519 BTUS. If the
generator is to be supplied by oil extracted from high-grade oil shale, the external
subsidy alone is a staggering 1,172 BT'S on each 1,000 BTUS of electricity de-
livered (see chart).
In the light of energetic, then, the energy crisis takes on a different appear-
ance: for one thing, hard-to-get-at reserves like oil shale can no longer be
thought of as an ace in the hole for providing electricity. (It seems probable that
the energy subsidy required of tar sand oil would be only marginally lower.) And
for another, our net energy reserves-the only ones that count-are much smal-
ler than the gross energy reserve figures quoted daily in the news media. And they
are growing smaller each day at a rate even greater than simple increases in
consumption would indicate, since energy-getting costs are steadily increasing.
Exactly how much smaller net reserves really are can and should be determined
immediately.
It also becomes clear from this that so long as we remain in a declining net
energy situation where it is necessary to spend more and more for each thous-
and BTUS delivered, inflation will continue to affect the prices of products in
which energy is a major cost of production and/or distribution. In a highly in-
dustrialized society such as ours, that includes just about everything. (Thie same
logic, incidentally, applies to other scarce resources such as copper or tin, in
cases where more plentiful materials cannot be used as substitutes and where
recycling is not a significant factor.) The only way to eild inflation is to adjust
our continuing energy demands to the point where they can be served mainly
by safe, continuously renewable energy sources-solar, geothermal. wind, or
tidal. That is the only way out of the declining net energy trap. It follows that
the only sane way to be using our conventional fossil fuel reserves at present is
to be investing them in developing technology and infrastructure that will be
necessary for large-scale exploitation of the constantly renewable sources. The
conversion is going to take a lot of energy and it simply won't be available if we
continue to squander what we have. Remember, our reserves of usable fossil
fuel are nowhere near as big as we thought they were.
What is the role of nuclear power in this situation? We have had it drummed
into us that atomic fission will provide us with a virtually inexhausible source
of energy, and that would seem to indicate that it provides an escape from the
declining net energy quandry.
Unfortunately, this is not thle case. Leaving aside the very serious questions of
safety and waste disposal, questions that may very well curb the expansion of
nuclear power unless answers are found quickly, energetic makes it clear that
there is virtually no hope of nuclear energy filling the rising gap between energy
demand and fossil fuel availability. The problem is the lby-niw-faniliar one of
increasing energy-getting costs; the increasing energy costs of building and
fuelling the reactors. While any single reactor produces about ten times as much
energy over its lifetime as is consumed during its construction and initial fuelling
(provided plenty of high-grade uranium ore is available for the fuel), in a rap-
idly expanding reactor system net energy production may well be zero or worse.
The reason for this is that for every newly completed reactor that goes on
stream, several others are still under construction.
A net energy analysis of an expanding reactor system conducted at Open Tni-
versity in Britain shows that net energy lb-omes available only if the growth rate
of the system is kept below about 4 per cent a year: i.e. only if the number of
reactors in the system doubles no more frequently than once every fifteen years.






50

As the quality of uranium ore used in fuelling declines, this growth rate must
also decline if there is to be any net energy production.
The expansion rate for nuclear energy in Canada projected in official govern-
ment publications is about 14 per cent a year, for a doubling time of about five
years. This is clearly a wildly unrealistic expectation, and if it is pursued it will
worsen, not improve, the energy situation in this country.
One could go on almost indefinitely examining various sectors of the economy
from the perspective of energetic (food production and distribution beg for
attention), but the overriding conclusion to be derived is already clear: stability
and not growth must become the primary objective of our economic policy-makers.
This is not to say that all economic growth must come to an end. but rather
that what growth does take place should occur primarily in sectors whose func-
tion it is to ease the transition from an economy based on 'foul' waste and expan-
sion to one based on 'fair' quality and stability.


IT TAKES ENERGY To GET ENERGY; THE LAW OF DIMINISHING RETURNS
IS IN EFFECT
(By Wilson Clark)
In the mid-19th century, a British company launched the Great Eastern, a coal-
fired steamship designed to show the prowess of Britain's industrial might. The
ship, weighing 19,000 tons and equipped with bunkers capable of holding 12,000
tons of coal, was to voyage to Australia and back without refueling. But it was
soon discovered that to make the trip the ship would require 75 percent more
coal than her coal-storage capacity-more coal, in fact, than the weight of the ship
herself.
Today the United States is embarking on an effort to become independent
in energy production, and such a program deserves the kind of analysis that the
British shipbuilders overlooked. Indeed, our civilization appears to have reached
a limit similar to that of the Great Ea.stern: The energy which for so long has
, -iven our economy and altered our way of life is becoming scarce, and a number
of respected experts are suggesting that, without significant changes, our society
will go the way of the ship that needed more fuel than it could carry.
In recent years, energy growth in the United States has expanded at a rate of
nearly four percent per year, resulting in a per capital consumption of all forms
of energy higher than that of any other nation. U.S. energy consumption in 1970
was half again as much as all of Western Europe's, even though Europe's popula-
tion is one-and-a-half times ours.
As energy consumption has increased in this nation, our energy resources have
drastically declined. According to M. King Hubbert, a highly respected energy
and resource expert, the peak for production of all kinds of liquid fossil fuel
resources (oil and natural gas) was reached in this country in 1970 when
almost four billion barrels were produced. "The estimated time required to pro-
duce the middle 80 percent [of the known reserves of this resource]," Hubbert
says, "is the 61-year period from 1939 to the year 2000, well under a human
lifespan."
As available domestic oil and gas resources have declined, we have turned
more and more to foreign imports-but. since 1973, the price of this essential im-
ported oil has quadrupled. Recoiling from the specter of another embargo, federal
officials and industrialists have suggested that the nation develop alternative
energy sources such as nuclear power, and fossil fuels such as coal and oil shale.
to bridge the energy gap and enable the nation to become self-sufficient.
According to John Sawhill. former chief of the Federal Energy Administration.
"the repercussions of Project Independence will be felt throughout our economy.
It will have a dramatic impact on the way 211 million Americans work and live."
The price tag placed on pursuing the energy goals of Project Independence has
been estimated to fall somewhere between $500 billion and $1 trillion. Raising such
capital for energy development may prove to be the greatest financial undertak-
ing in the history of the United States. A crowina number of experts, however, say
the goal of Project Independence may be unreachable.
The central problem is simply that it ftakes energju to produce new energy. Tn
other words, in every process of energy conversion on Earth, some enorv ic in,'--
tably wasted. The laws of thermodynamics. formulated in the last century.






51

might be viewed as describing of sort of "energy gravity" in the universe:
energy constantly moves from hot to cold, from a higher to a lower level. Some
energy is free for Man's use-but it must be of high quality. Once used, it cannot
be recycled to produce more power.
Coal, for example, can be burned in a power plant to produce steam for con-
version into electric power. But the resulting ashes and waste heat cannot be col-
lected and burned to produce yet more electricity. The quality of the energy
in the ashes and heat is not high enough for further such use.
Numerous studies have indicated that the United States has enormous reserves
of fossil fuels which can provide centuries of energy for an expanding economy,
yet few take into account the thermodynamic limitations on mining the fuels left.
Most cheap and accessible fossil fuel deposits have already been exploited, and the
energy required to fully exploit the rest may be equal to the energy contained
in them. What is significant and vital to our future, is the net energy of our fuel
resources, not the gross energy. Net energy is what is left after the processing,
concentrating and transporting of energy to consumers is subtracted from the
gross energy of the resources in the ground.
Consider the drilling of oil wells. America's first oil well was drilled in Penn-
sylvania in 1859. From 1860 to 1870, the average depth at which oil was found
was 300 feet. By 1900, the average find was at 1,000 feet. By 1927, it was 3,000
feet; today, it is 6,000 feet. Drilling deeper and deeper into the earth to find scat-
tered oil deposits requires more and more energy. Think of the energy costs in-
volved in building the trans-Alaska pipeline (see SMITHSONIAN, October 1974).
For natural gas, the story is similar.
Dr. Earl Cook, dean of the College of Geosciences at Texas A. & M. Univer-
sity, points out that drilling a natural gas well doubles in cost each 3,600 feet.
Until 1970, he says, all the natural gas found in Texas was no more than 10,000
feet underground, yet today the gas reserves are found at depths averaging
20,000 feet and deeper. Drilling a typical well less than a decade ago cost
$100,000 but now the deeper wells each cost more than $1,000,000 to drill. As oil-
men move offshore and across the globe in their search for dwindling deposits of
fossil fuels, financial costs increase, as do the basic energy costs of seeking the
less concentrated fuel sources.
Although there is a good deal of oil and natural gas in the ground, the net
energy-our share-is decreasing constantly.
The United States has deposits of coal estimated at 3.2 trillion tons, of which
up to 400 billion tons may be recoverable-enough, some say, to supply this na-
tion with coal for more than 1,000 years at present rates of energy consumption.
And since we are dependent on energy in liquid and gaseous form (for such
work as transportation, home and industrial heating), the energy industries
and the Federal Energy Administration have proposed that our vast coal de-
posits be mixed and then converted into gas and liquid fuels.
Yet the conversion of coal into other forms of energy, such as synthetic natural
gas, requires not only energy but large quantities of water. In fact, a panel of
the National Academy of Sciences recently reported that a critical water short-
age exists in the Western states, where extensive coal deposits are located.
"Although we conclude that enough water is available for mining and rehabilita-
tion at most sites," said the scientists, "not enough water exists for large-scale
conversion of coal to other energy forms (e.g., gasification or steam electric
power). The potential environmental and social impacts of the use of this water
for large-scale energy conversion project would exceed by far the anticipated
impact of mining alone." In fact, the energy and water limitations in the West-
ern states preclude more than a fraction of the seemingly great U.S. coal deposits
from ever being put to use for gasification or liquefaction.
The prospects for oil shale development are not as optimistic as some official
predictions portend. Unlike oil, which can be pumped from the ground relatively
easily and refined into useful products, oil shale is a sedimentary rock which
contains kerogen. a solid, tarlike organic material. Shale rock must be mined
and heated in order to release oil from kerogen. The process of mining, heating.
and processing the oil shale requires so much energy that many experts believe
that the net energy yield from shale will be negligible. According to BusineRss
Week, at least one major oil company has decided that the net energy yield from
oil shale is so small that they will refuse to bid on federal lands containing
deposits. And even if a major oil-shale industry were to develop, water supplies
would be as great a problem as for coal conversion, since the deposits are in






52

water-starved Western regions. The twin limiting factors of water and energy
will preclude the substantial development of these industries.
Nuclear power is seen as the key to the future, yet an energy assessment of
the nuclear fuel cycle indicates that the net energy from nuclear power may
be more limited than the theoretically prodigious energy of the atom has promised.
Conventional nuclear fission powered plants, which are fueled by uranium, con-
tribute little more than four percent of the U.S. electricity requirements at pres-
ent, but according to the Atomic Energy Commission, fission will provide more
than half of the nation's electricity by the end of the century. Several limitations
may prevent this from occurring. One is the availability or uranium ore in this
country for conversion to nuclear fuel. According to the U.S. Geological Survey,
recoverable uranium resources amount to about 273,000 tons, which will supply
the nuclear industry only up to the early 1980s. After that, we may well find
ourselves bargaining for foreign uranium, much as we bargain for foreign
oil today.
According to energy consultant E. J. Hoffman, however, an even greater problem
with nuclear power is that the fuel production process is highly energy-inten-
sive. "When all energy inputs are considered," he says, such as mining uranium
ore, enriching nuclear fuel, and fabricating and operating power plants and re-
processing facilities, "the net electrical yield from fission is very low." Optimistic
estimates from such sources as the President's Council on Environmental
Quality say that nuclear fission yields about 12 percent of the energy value of
the fuel as electricity: Hoffman's estimate is that it yields only 3 percent. That
advanced reactors might have a higher net yield is one potential, but largely
unknown at present, since such reactors have not yet been built and operated
commercially. Other nuclear power processes, such as nuclear fusion, have
simply not yet been shown to produce electricity, and so they cannot be counted
upon. Even the more "natural" alternative energy sources, such as solar power,
wind power and geothermal power, have not been evaluated from the net energy
standpoint. They hold out great promise-especially from a localized, small-
scale standpoint. Solar energy, for example, is enormous on a global scale but
its effect varies from one place to another. However, the net energy yield from
solar power overall might be low, requiring much energy to build elaborate
concentrators and heat storage devices necessary.
What about hydrogen as a replacement fuel? By itself, hydrogen is not at all
abundant in nature, and other energy sources must first be developed to power
electrolyzers in order to break down water into hydrogen and oxygen. The energy
losses inherent in such processes may result in a negligible overall energy yield
by the time hydrogen is captured, stored and then burned as fuel. An indication
of the magnitude of this problem has been given by Dr. Derek Gregory of the
Institute of Gas Technology in Chicago. who points out that to substitute hydro-
gen fuel fully for the natural gas currently produced would require the con-
struction of 1,000 enormous one-million-kilowatt capacity electric power plants
to power electrolyzers-more than twice the present entire installed leectrical
plant capacity of the nation.
While much of this kind of analysis is apparently new to most energy planners.
it also represents more than an analogy to the cost-accounting that is familiar
to businessmen investing dollars to achieve a net profit. The net energy approach
might provide a new way of looking at subjects so seemingly disparate as the
natural world and the eccpnomy.

DOLLAR VALUES OF NATURAL SYSTEMS
An outspoken proponent of the net energy approach is Dr. Howard T. Odum.
a systems ecologlst at the University of Florida. In the 1950s, Odum analyzed
the work of researchers trying to grow algae as a cheap source of fuel, and found
that the energy required to build elaborate facilities and maintain algae cultures
was greater than the energy yield of the algae when harvested for dry organic
material. The laboratory experiment was subsidized, not by algae feeding on free
solarr energy-which might have yielded a net energy return-but by "the fossil
fuel culture through hundreds of dollars spent annually on laboratory equipment
and services to keep a small number of algae in net yields."
With his associates at the University of Florida, Odum began to develop a
symbolic energy language, using computer-modeling techniques, which relates
energy flows in the natural environment to the energy flows of human technology.






53


Odumn points out that natural sources of energy-solar radiation, the winds,
flowing water and energy stored in plants and trees-have been treated as free
"gifts" rather than physical energy resources which we can incorporate into our
economic and environmental thinking. In his energy language, however, a dollar
value is placed on all sources of energy-whetlier from the sun or petroleum.
To produce each dollar in the economy requires energy-for example, to power
industries. The buying power of the dollar, therefore, can be given an energy
value. On the average, Odum calculates, the dollar is worth 25.000 calories (kilo-
calories, or large calories) of energy-the familiar energy equivalent dieters know
well as food values. Of this figure, 17,000 calories is high-quality energy from
fossil fuels and 8,000 calories low-quality energy from "natural" sources. In
other words, the dollar will buy work equal to some-mechanical labor, represented
by fossil fuel calories, and work done by natural systems and solar energy.
Odum's concept of energy as the basis of money is not new; a number of
19th-century economists thought of money or wealth as deriving from energy
in nature. The philosophy was expounded earlier in this century by Sir Frederick
Soddy, the British scientist and Noblel Laureate, who wrote that energy was the
basis of wealth. "Men in the economic sense." lie said, "exist solely by virtue of
being able to draw on the energy of nature .. Wealth, in the economic sense
of the physical requisites that enable and empower life, is still quite as much
as of yore the product of the expenditure of energy or work."
Odum views natural systems as valuable converters and storage devices for
the solar energy which triggers the life-creating process of photosynthesis.. Even
trees can be given a monetary value for the work they perform, such as air
purification, prevention of soil erosion, cooling properties. holding groniid water,
and so on. In certain locations, he says, an acre of trees left in the natural state
is worth more than $10,000 per year or more than $1 million over a hundred-year
period, not counting inflation. Last year, hlie calculated that solar energy, in
conjunction with winds, tides and natural ecological systems in the state of
Florida, contributed a value of $3 billion to the state, comipared to fossil fuel
purchases by the state's citizens of $18 billion per year.
The value of the natural systems to the state hlad never before been calculated.
"These parts of the basis of our life," says Oduir, "continue year after year,
diminished however, when ecological lands that receive sun, winds, waves and
rain are diverted to other use." He is now developing a "carrying capw.ity" pl;1n
for the future development of the state which has attracted the interest of the
state legislature.
Odum's work may lead to eminently practical applications, by indicating direc-
tions in which our society can make the bIest .use of energy sources and environ-
mental planning. One application is to use natural systems for treating wastes,
rather than using fossil fuels to run conventional waste-treatment plants. "There
are," he says, "ecosystems capable of nsinz and recycling wanted Is- a partner
of the city without drain on the scarce fossil fuels. Soils take up carbon lown-
oxide, forests absorb nutrients, swamps accept and regulate floodwaten's." He
is currently involved in a three-year program in southern Florida to test the
capability of swamps to treat wastes, and demonstrate their value to human
civilization as a natural "power plant." The work, supported by the Roctkefeller
Foundation and the National Science Foundation, has drawn tlhe attention anid
interest of many community and state governments.
According to Odum's energy concepts, a primary cause of initlitionl inll this
country and others is the pursuit of high econon nic growth with ever-io(re c('..sly
fossil fuels and other energy sources. As we dig deeper in our scairch for less-
concentrated energy supplies to fuel our economy, the actunl 'nl',. of our cur-
rency is lessening. "Because ,so mucil energy lias to go iniimediitelvy into,, the
energy-getting process." he notes, thenn the real work to society p. uinnit of
money is less."
Economists, who generally resent intruders in their turf, hlave it 1ii,1 'rAlt'cel
this equation of energy and money with mlluch ellnth insqinii. lint it i-s ginilim
adherents in several quarterss. Ac(ordiingt to J(' ie Scliatz )f Ore gin's 41iiirgx lpiln-
ning office, Odumn's work lends the way tow;i:rd effective gctivrunnxt i it in mu ini
this age of economic uncertainty. "Tie mire nzi. cessful til 'cnifted Slt as is in
maintaining or increasing its total energy ('01. oumltion," le s;iy. "1 nler .con-
ditions of declining net energy, tlie' m'ore miiirfl(1y inflantioIn, unierilj!,lp\lnit iani7 l
general economic instability will increase(,." M.:lny peld ci urrinthy co',inidr this
disruption only an economic crisis, snys Selltz'. rather than what lie l,(ieves
it really is: a sy5nptomni of a continuing and dleeiwening energy vri is.






54

There are signs that the net energy approach is being taken seriously even by
the architects of Project Independence. Eric Zausner of the Federal Energy
Administration says that net energy is a "useful concept" which is under investi-
gation. "Net energy flows," he adds, "have practical implications in the new
and exotic fuels, such as oil shale. With coal, there is no issue, since there is a
net output of energy. But some of the new processes, such as shale oil processing
in situ, net energy flow is a very important consideration in whether we should
do it or not."
TO THE CREDIT OF LIVE TREE POSTS
Present-day ecologists are by no means the first to see the value-the dollar
value-in employing natural systems to do work for Man. Discussing the intro-
duction of wire for fencing into the United States, Eric Sloane, in his book
Recerence for Wood, mentions an address that was read before the Philadelphia
Agricultural Society on January 2, 1816.
The 1816 account spoke of 'living trees connected with rails of wire,' and true
to the early American philosophy of looking far ahead, it compared the cost of
wire fencing with wood fencing over a period of fifty years. It came to the
conclusion that there was a cash saving of $1,329 per hundred acres enclosed.
The plan, however, was indeed unique for it enabled the fence to earn money!
Why plant dead posts in the ground and wait for them to rot? Why not plant
live trees instead and let them bear fruit and nuts and firewood which would
then give profit to the farmer? Using a hundred acres as an example, the Society
suggested the following plan of live tree posts and showed what they might earn
a farmer within fifty years (allowing no harvest for the first ten years of
growth) :
244 apple trees producing $1 per year--------------------------------- $244
30 cherry trees producing 500 per year--------------------------------- 15
20 pear trees producing 500 per year---------------------------- ------ 10
10 plum trees producing-------------------------------------------- 3
10 shellbark trees producing------------------------------------------ 10
50 chestnut trees producing------------------------------------------- 12
5 butternut trees producing------------------------------------------ 20
5 English walnuts producing---------- -------------------------------5
20 walnut trees producing------------------------------------------- 5
250 buttonwood trees (24 cords firewood taken from tops)--------------- 72

Multiplied by 40 years' harvests-------------------------------- 15, 840,396
Deduct the cost of wire rails-------------------------------------- 1, 751

To the credit of live tree posts and wire fence in 50 years--------------- 14,089
Congressman George Brown, Jr., a physicist from Southern California and
one of a bare handful of scientifically trained members of Congress, goes much
further. He believes that the new Office of Technology Assessment in the Congress
should undertake a broad energy analysis, encompassing the net energy approach,
of the widespread implications of the administration's plans for Project Inde-
pendence. "We must start with the assumption that the energy available to do
work is declining. This one assumption, which is firmly based on the laws of
physics, will revolutionize economic policy once its truth becomes known . .
The implications of the limit's to growth of our economic systems are just begin-
ning to be understood," says Congressman Brown, pointing out that the net
energy approach indicates the inevitability of a national shift of emphasis toward
a steady-state economy. "While this view is not yet widely held in Congress,
the ranks of advocates are growing."
Since the Industrial Revolution, the Western world has been engaged in a
great enterprise-the building of a highly complicated technological civilization.
The Western "growth" economy (which today also characterizes Japan) has
been made possible by seemingly endless supplies of inexpensive energy. One im-
plication of the net energy approach is that a vigorous and wide-reaching con-
servation program may be the only palliative for inflation.
Another implication is that the days of high growth may be over sooner than
most observers have previously thought. For it is increasingly apparent that
today's energy crisis is pushing us toward a "steady-state" economy: No one
yet knows what such an economy will look like or what social changes will result.
But it would seem to be about time to start thinking seriously about it.






55

ENERGY ANALYSIS AND PUBLIC POLICY
THE ENERGY UNIT MEASURES ENVIRONMENTAL CONSEQUENCES, ECONOMIC COSTS,
MATERIAL NEEDS, AND RESOURCE AVAILABILITY
[By Martha W. Gilliland]
Responsible development of energy resources and allocation of energy research
and development monies requires an analysis of many social, economic, and
environmental options. Technology assessment and the environmental impact
statement have evolved as mechanisms through which options can be identified,
analyzed, compared, and subjected to public scrutiny. Both mechanisms require
the analyst to consider potential impacts ranging from those which can be
rigorously quantified to those which are inherently nouquantifiable.
A major difficulty, one that exacerbates the uncertainty with which decision-
makers are almost always confronted, is that different units are commonly used
in measuring impacts. One of the most commonly used units is dollars. Economists
often use sophisticated techniques to convert a broad range of "apples and
oranges" impacts into dollars. Environmental impacts are typically treated as
externalities and stated in dollar amounts. But this attempt to evaluate all, or
even most, impacts in terms of dollars is being challenged. A growing number
of ecologists and environmental interest groups argue that dollars are an inappro-
priate measure for some impacts and that economic estimates of impacts repre-
sent, at best, only a fraction of the true environmental costs or benefits.
An example of the inadequacy of dollars as an assessment measure is the
mineral resource classification system, utilized within the Department of the
Interior by the Bureau of Mines and the U.S. Geological Survey. In an attempt
to provide realistic energy estimates, Interior's classification system subdivides
resources according to two criteria: the extent of geological knowledge about
the resource, and the economic feasibility of its recovery. Reserves generally
refer to economically recoverable material in identified deposits, whereas
resources include deposits that cannot be recovered due to economic and legal
constraints (1). However, definition of reserves using an economic criterion
carries an implicit bias. At best the criterion provides information on whether
or not the costs of bringing the resource to the consumer are competitive with
the costs for resources already in production; thus, the reserve estimates change
every year and yield little insight into quantities available for the long term.
What is needed to improve the analysis of interrelations and trade offs among
environmental consequences, economic costs, material requirements, and resource
availability is a comprehensive but simplified set of consistent measures drawn
from a single external conceptual system. The energy accounting procedures
or net energy analysis utilized by Odum (2), Berry and Fels (3), Chapman (4),
and Slesser (5) provide such a mechanism.
The remainder of this article is divided into three parts. (i) The concept of
net energy is discussed, including a description of the means by which net
energy is measured, its relationship to energy demand, material shortages, dollar
costs, environmental stress, and reserve estimates; (ii) net energy analysis is
demonstrated through an evaluation of geothermnial energy development; and
(iii) some observations are made concerning the uses and limitations of the
technique in the public policy-making process.

NET ENERGY AND ENERGY SUBSIDY
Net energy has been defined as the amount of energy that remains for con-
sumer use after the costs of finding, producing, upgrading. and delivering the
energy have been paid (2). In Fig. 1, these energy costs are conceptualized and
illustrated as energy subsidies, or feedbacks of high-qu4iality energy which serve
to "open the valves" for development of more energy. Indications are that. as
we extract more dilute, deeper, and dirtier energy sources, the energy subsidy
required to extract and upgrade the new sources increases. Some portion of each
year's new energy demand represents additional subsidies to energy extraction.
Consequently, an increase in energy demand or consumption may not represent
an increase in the amount of energy available to do work in the consuming
sectors of society. The entire increase may he required to get the new energy. Note
that this has not always been true, since technological advances sometimes
compensate for any decrease in the quality of the resource. The introduction





56


of solid state electronics into the electronics industry is a case in point. Electric
power generation is another example. When efficiencies increased and fuel oil
costs decreased (due to advances in drilling technology), there was a net energy
increase. Whenever new technological capabilities increase the efficiency of
wperfoirming the same task. net energy increases. These technological advances
themselves require energy (for research and development) ; however, this energy
investment has traditionally made large energy savings possible.
In Fig. 2, the relation between money and energy is illustrated in more detail
and the external inpul)tts or subsidies are divided into three types; direct energy,


Subsidies (S)





E nerg N ot
So interactionn nd t Energy(N)
CResources Demrad for Demand farEnergy(N)


Row


Processed Energy(D)


R=D+T
N=D-S


Fig. 1. Functional relationship among net energy, energy demand, and energy subsidy.


Information (S2)


Demand for
Raw Energy


Net Energy O- (SS+ 2 S3)
D
Net Energy Ratio= a D
YSI2 S35


PhysIcl and
Thermodynamic
Losses


Fi tion of dollar fl(w to energy flow. Solid li.es represent energy flow and dashed
lines relr.selt dollar flow.


The environment: Absorption and
degradation of air and water pol-
lutants, noise control, water
management, microclimate, waste
management, recreation.....






57

material, and environmental subsidies. The processed energy used for process
heat, in transportation and in manufacturing materials, is a direct energy
subsidy.
Material subsidies are less straightforward. They may include goods, services,
capital, labor, and information. Material, labor, and capital requirements are
most often measured in terms of economic costs. However, estimates of the energy
values of these inputs can be made by evaluating the fuels needed for resource
extraction, transportation, manufacturing, labor, services, and capital expendi-
tures. From am analysis of the network of processes which contribute materials
to manufacture a commodity, the inputs of the suppliers and of their suppliers
can be identified. The energy required to manufacture each input can be obtained
from a number of sources. Data in raw form are given in the Imput-Output
SStructure of the U.S. Economy, and in the Census of Manufacuturers (6). In
addition, several documents now give energy cost data in a more usable form
for selected materials (3, 7, 8).
It should be noted, however, that procedures for energy accounting are cur-
rently not consistent, consequently the actual analysis is not as straightforward
as my description might suggest. For example, some investigators do not give
labor an energy value at all, others assign it the energy conteait of the food the
worker eats, and still others assign to it the total energy consumed by each worker
(as measured by the goods, services, and food hlie consumes). Capital depreciation
is often not included, but some authors assign to it the energy cost of replacing
the capital goods. Some of the procedures now in use for energy accounting are
compared and demonstrated in a series of articles in Energy Policy (4, 8).
When all input requirements are analyzed, it becomes clear that energy limits
the ability to obtain any input. This had led to the concept of energy as the
ultimate limiting factor, which is to gay: (i) that energy is the only commodity
for which a substitute cannot be found, (ii) that potential energy is required to
run every type of system, and (iii) that energy cannot be recycled without violat-
ing the second law of thermodyamics.
Project independence identified many kinds of constraints or limiting factors
on development of energy resources-shortages of steel, draglines, drilling rigs,
certain catalysts, water, and certain types of manpower were discussed. In fact,
however, all of these have a common denominator, energy. With ample energy,
all materials can be produced or substitute materials found. For example, sea-
water can be desalinated and pumped to the arid West for oil shale and coal
development, synthetic substitutes for catalysts can be made, and ash and
radioactive waste can be rocketed into the solar system. The sulfur can be taken
out of the coal either before combustion, during combustion, or with stack gas
cleaning technologies; we can drill to 30,000 feet (0000 meters) for natural gas,
extract the oil from oil shale and reclaim the land, and recover additional oil from
oil reservoirs using advanced recovery techniques. However, all of these material
needs and advanced processes require energy; thus energy itself is an important
limiting factor to increasing energy supply.
The environment also subsidizes energy development, because it provides direct
services to man. Woodwell (9) refers to these as the "public service functions
of nature." For example, terrestrial ecosystems purify the air by absorbing and
recycling air polutants; similarly, aquatic ecosystems purify the water. Through
soil stabilization and evalpotranspiration ecosystems maintain the hydrologic
cycle and the quantity of water supplies. They also control the diversity of plant
and animal populations, provide recreational opportunity, and produce useful
products such as food and lumber. Recently, pollution has increased to levels
beyond the absorptive capability of the ecosystem, thereby causing changes in the
ecosystem (usually toward less productivity). When changes are significant.
society pays to mitigate the ecosystem damage through environmentall tech-
nology," that is, stack gas" cleaners and advanced waste water treatment plants.
Dollar evaluations of impacts may account for the cost of the e'ivirnninental
technology or the cost of crop damage. but the energy value of the environmental
subsidy is much larger since the ecosystems deal with lower levels of pollution
and provide many other services without cost. Scliumancher (10) argues that
"production depends heavily on the capital provided hy nature in the form of air,
water, amd resources," and that "we treat this capital as income, and value it at
nothing." A dollar evaluation based on the cost of controlling polttion. providing
water, recreation, and other services where no ecosystems exist at all might come
closer to measuring the total environmental subsidy.


68-391 0 76 5






58

Thus purely natural ecosystems, as well as agricultural systems such as North
Dakota's wheatlands and Montana's cattlelands, have high energy value for
man. Their value will be lost for some time while coal is stripped from the sub-
surface. Western oil shale and coal resources are located in water-scarce regions
and their exploitation consumes large quantities of water. If a decision is made
to allocate water to western energy development, many agricultural users may
not only be denied water but the quality of what is available many be reduced.
Until vegetation is reestablished, runoff will be much greater than on grass-
covered soils. These losses in natural value must be included as lost subsidies in
net energy calculations. They represent losses to society that are partially paid
for with expensive technology and sometimes compensated for by direct payment
to those receiving the damages, as is now being considered for the coastal
states adjacent to outer continental shelf oil and gas development.
The energy value of environmental subsidies is generally evaluated by cal-
culating the losses in photosynthetic activity (as reflected in reduced gross pri-
mary productivity) caused by land disruption or ecosystem change (11). Gross
primary productivity is a measure of the amount of sunlight captured and
concentrated by plants and, consequently, is a measure of the work the ecosystem
does. Additional measures may also be important, such as the work the sun does
by inducing a heat gradient within the ecosystem (measured by the Carnot
ratio), and the work done by the kinetic energy of the wind or tides (in the
case of a coastal system) coming from outside the system. If the heat gradient
within the ecosystem or wind flow through it were changed by the development.
these changes would also affect the net energy calculation.
In summing the various types of energy subsidies, all energy measures must be
of the same quality. Energy forms are the same quality if they are equivalent in
their ability to do work. For example, a calorie of electricity can do more work
than a calorie of coal or oil and both can do more work than a calorie of sunlight.
Energy quality is calculated by evaluating the energy used in converting from one
energy form to another, that is, by evaluating the amount of one type of energy re-
quired to develop another. In the conversion of coal to electricity, physical and
thermo-dynamic losses occur and auxiliary energy is used within the process and
in maintaining the industry structure. The ratio of energy delivered to the sum of
the losses plus the auxiliary energy is the quality conversion factor for coal to elec-
tricity. As such, 3 units of energy in the form of coal are equivalent to 1 unit of
electricity in their potential to do work (12). Most people are familiar with
quality differences between electricity and coal, but there are similar differences
among other energy forms. For example, petroleum is approximately 2000
times more concentrated than the sun's energy, 20 times more concentrated than
photosynthetic energy (sugar), and 40 times more concentrated than wind energy
(12). Since electricity is 3.5 times more concentrated than petroleum, it requires
7000 calories of sunlight to produce 1 calorie of electricity (2000X3.5). Higher
quality energy can do work that was not possible at all with the original energy
forms; electronic communication is not possible without electricity; and, as
defined here, information is the highest quality energy form, since it requires.q
large amounts of time and energy (for research teams, educational institu-
tions, and libraries) to develop. In order to obtain the total energy subsidy for
a process, all types of subsidies must first be converted to the same quality.

MONEY AND ENERGY
Figure 2 shows the flow of money in the opposite direction to the flow of
en',rgy, indicating that the mining and processing sectors pay society for material
and information, and society pays the processing sector for high-quality energy.
The ratio of the two countercurrent flows (money and energy) is the price of the
material (dollars per kilocalorie) or energy expended per dollar cost kilocaloriess
per dollar). The average price, or energy expended per dollar, for any given year
is the ratio of total U.S. energy consumption to gross national product (GNP) for
that year. In real dollars, this ratio was 21,200 in 1963; in 1970 it was 17,300 and
in 1972 it was 15,800 (13). With the use of this ratio it is possible to convert dollar
cost into energy subsidy. However, this represents average dollar to energy con-
versions for the entire economy, so that only an approximate energy value for
a wide mixture of goods and services can be obtained. In addition, the dollar
costs may include hidden institutional subsidies (that is, tax depletion allowance),
or represent some regulated price rather than true costs. For specific sectors of the
economy such as primary metals, mining, and petroleum refining, more accurate






59


dollar to energy conversions can be estimated. Kylstra (13) calculated that in 1963
the primary metal sector used 28,665 kilocalories per dollar while the mining sec-
tor used 22,050 kilocalories per dollar. Up to date, dollar to energy conversions are
needed if net energy analyses rely on costs. In principle, however, it is possible to
account for all the energy subsidies directly without relying on cost and dollar to
energy conversions. The important point is that a conversion and functional rela-
tion between the flow of money and the flow of energy exists, with the ratio of
energy to money decreasing as one progresses within the economy from the fuel
processing and primary raw materials processing sectors through manufacturing
and energy conversion processes and finally to the consumer, who receives the
smallest amount of energy for his dollar.
Figure 2 indicates that there is no money flow associated with either environ-
mental subsidies or raw energy flow. We do not pay nature for each acre of land
taken out of biological production, nor do we pay nature for the millions of years
of work it did in making coal or oil. We pay industry to mitigate the enviroai-
mental losses through environmental technology and to extract and upgrade the
coal and oil. As indicated in Fig. 2, money circulates in the economy, but the sun
and the raw coal, oil, gas, and uranium drive that circulation.

ECONOMIC FEASIBILITY VERSUS ENERGY FEASIBILITY
Economic feasibility studies done in the past for extraction of oil from oil shale
concluded that it was economically unsound, that. is, large monetary expenditures
were required. In terms of Fig. 2, this also means that large energy expenditures
(labor, materials, water, and capital structure) were required. The amount of
energy in the feedback loops for oil shale developimeint was larger than for other
energy sources, and that is what made it uneconomic. Recent economic studies
concluded that extraction of oil from oil shale may be economically feasible,
although the amniount of energy in the feedback loops has not changed. The change
is in the fact that other energy sources now require the same amount of subsidy;
thus. oil shale now appears to be competitive. The net amount of energy which
will go to society has not changed either, but where U.S. Geological Survey
reserve estimates previously indicated zero, they now will show some eco-
nomically feasible quantity. The true reserve to society is probably neither
number. Net energy estimates will not change with changing dollar values. They
will, in fact, remain constant with time unless technological advances in conver-
sion efficiencies occur. Thus, the economic costs may measure the relative amount
of energy in the subsidy (assuming hidden dollars in the form of depletion
allowances are somehow negated), but they do not provide information on when
the subsidy exceeds the output.

TABLE 1.-ENERGY FLOW FROM THE WELLHEAD TO THE CONSUMER FOR A 100 MW GEOTHERMAL POWERPLANT
AT 80 PERCENT LOAD FACTOR FOR 30 YR

Steam-driven turbines
Dry steam Wet steam reser-
reservoir* voir-two-stage
Resource flow (1012 kcal) flashedt(1012 kcal)

At wellhead............................................................ -----------------------------------------------------116.0 164.2
Input to powerplant ------------------------------------------------................................................... 115.0 154.4
Steam ejector use.--...-------------------........----------.............--------------------..... 4.7 **
Total generated as electricity............................................. -------------------------------------------18.7 19.0
Auxiliary power use........................................ .......-------------------------------------------------- .6 .9
Net output of electricity ----------------------------------------------................................................ 18.1 18.1
Delivered to consumer as electricity ..--------------------------------------.......................... 16.5 16.5

*Based on the Geysers, California (20).
tBased on a 6 percent energy loss from the wellhead to the powerplant and 11 percent efficiency from the wellhead to
the transmission line (21).
:Transmission and distribution loss of 9 percent.
"*Unknown.

Economically, geothermal energy development now a;lpears to be a viable
option. Present average investment costs for geothernial power as ,$250 per
installed kilowatt. HowNever, as high salinity lIrines, lower temperature fluids,
and hot dry rock sources are exploited, these investment costs are expected
to rise to $500 per kilowatt in constant 1973 dollars. The 'cost rise is a result






60

of the low quality (that is, deeper, more dilute, dirtier) nature of these new
geothermal reservoirs. They will yield no more energy to society in the future
than they would now. The reason we are not exploiting them now is that they
require more subsidy (energy feedback) than competing sources do.
These examples emphasize the importance of answering the question: how
much of the projected new energy demand for 1985, 1990, and later will be
expended to increase or maintain net amounts of energy and thus the real
GNP, and how much is simply the energy subsidy required to obtain and
upgrade the new dilute energy sources? Estimates of net reserves require
answers to questions such as at what combination of depth, energy content, and
sulfur content does coal cost more energy to extract, clean up, and process than it
yields? Any coal with better characteristics than his "cutoff" combination is
part of the reserve. At what depth onshore and offshore will oil and natural gas
be net yielders? How much heat or chemicals can be pumped into an oil reservoir
for secondary or tertiary recovery before more energy is being pumped in than is
in the oil when it gets to the consumer? What is the "cutoff" combination of heat
content, mineral content, and depth which makes a geothermal reservoir
a net yielder? The reserve is the amount that exists with better characteristics
than the cutoff characteristics. It is this net amount which will allow the United
States to grow economically. Any amount below the net amount will be reqiured
just to maintain the present state. Within the net reserve category, some energy
development will require less subsidy than others, thus some will be more
economic to extract and process than others.

GEOTHERMAL ENERGY RESERVES
It has been argued that. since geothermal energy is the natural heat of the
earth, the geothermal resource is all of the heat in the earth's crust above
the mean surface temperature or above 150C. Since this heat is diffuse, a geo-
thermal reservoir is said to occur whenever the heat flow from depth is
one and one-half to five times the world-wide average of 1.5 X 10' calories per
square centimeter per second. In addition, it has been postulated that geo-
thermal energy from dry hot rocks systems is almost limitless, since drilling
5.5 to 7.5 kilometers under a typical earth temperature gradient of 25C per
kilometer would yield the required 150C to 200C for geothermal power. On
this basis, Rex and Howell (14) estimate that 40,000,000 megawatt centuries
of electricity (megawatts of capacity with a projected life of a century)
are available by exploiting hot dry rock at less than 10.5 kilometers.
On the other hand, the volcanic area being investigated for hot dry rock
in the Jemez Mountains in New Mexico has a temperature gradient of 180 C
per kilometer, which is 7.2 times the normal temperature gradient of the earth.
A temperature of 200C can be reached within 1.2 kilometers. This system could
b)e a net energy producer.
Ideally, the question which should be addressed is: What combination of
technological efficiencies, heat flow, and depth yields net energy? Unfortunately,
data are not yet available to do accurate total net reserve calculations. Systematic
and consistent compilations of the energy per kilogram required for all types
of goods and services, and the kilograms of raw and manufactured materials
required for every major piece of equipment are needed. Thus, the analysis
below is presented both as a methodology for others to use and develop, and
as a preliminary step in the evaluation of geothermal net energy reserves.
Two power cycles using energy from two types of geothermal reservoirs were
considered: a dry steam reservoir with steam driving the turbine, and a wet
steamn reservoir with two-stage flashed steam driving the turbine. As more data
become available, the comparison will be extended to include binary systems
and total flow impulse turbines using heat from wet steam reservoirs and from
hot dry rock reservoirs.
Table 1 gives the physical and thermodynamic losses of energy as it is trans-
formed from the enthalpy (heat content) in the steam or hot water at the well-






61

head to electricity delivered to the consumer. Output is based on a 100-megawatt
(net) capacity power plant operating at 80 percent load factor for 30 years.
Each system delivers 16.5 X 10" kilocalories (electric) to the consumer in 30
years. Wellhead-to-consumer efficiency including electric transmission losses
for the dry steam system was 14.2 percent, and for the wet steam system was
10 percent.
Table 2 lists energy, material, and environmental subsidies for developing and
operating a 100-megawatt geothermal power system for 30 years. Details of the
calculations are given in the notes. The exploration value assumes that one
out of four land areas acquired will be drilled, that one out of four exploratory
wells drilled will be completed for testing, and that one out of four of these
completed wells will locate a field of commercial size (15). As geothermal sites
become more difficult to locate, the exploration subsidy will increase, reducing the
overall net energy. The extraction subsidy is based on a drilling time of 40
days per well and 20 days for cementing. It would increase as deeper reservoirs
are tapped. The subsidy from the environment (measured as a stress on it)
includes the reduction in gross primary productivity caused by the land require-
ments of the geothermal field. The geothermal field is assumed to be located in a
forested area such as northern California where the Geysers field occurs.
The sum of all subsidies is about 4600 X 10' kilocalories for a dry steam
field and 5400 X 109 kilocalories for a blue-type field using a two-stage flashed
steam-driven turbine. The total delivered energy from the 100-megawatt power
plant was 16,500 X 10' kilocalories (electric) or 57,750 X 109 kilocalories
(equivalent to petroleum in quality) over 30 years at 80 percent loud factor.
Thus, the ratio of energy delivered to energy subsidy was about 12.6:1 for the
dry steam field and 10.7:1 for the brine system. The environmental subsidy
was low in each case. However, neither the health effects of sulfur emissions
nor the biogeological effect of subsidence or induced earthquakes on the land-
scape have been evaluated. In addition, one could argue that indirect environ-
mental subsidies for extracting the metals used in the materials and for manu-
facturing those materials should also be included. If we view our economic
system as one driven by the sun and raw fuels as in Fig. 2, then we should
include these indirect environmental subsidies just as we have included the
indirect energy and material subsidies. Calculating from data given by Kylstra
(18), I estimate that, for every kilocalorie of fossil fuel subsidy, there is an
additional 0.3 kilocalorie (equivalent to petroleum in quality) of subsidy from
nature. To my knowledge, no investigators have included this indirect environ-
mental subsidy in net energy calculations.
The largest uncertainty in the nuniercial values given in Table 2 occurs where
dollar costs were converted to energy units. These were the energy for explora-
tion, for maintenance materials in the power plant, and for operating the field,
power plant, and distribution system. These values (could vary as much as 25
percent and that variance would cause the total energy subsidy to vary by 17
percent.
There are a number of configurations for geothermal power systems, each
of which would result in a different ratio. For example, the electric power
generation step requires the highest subsidy; thus it iniy be more net energy
efficient to produce and( utilize steamni directly for space heating or imiidstrial
process heat. However, this requires that the users be located in close proximity
to the geothermal field. Electricity is high-quality energy so that the price of
producing it as measured by the energy subsidies will alwAys be high. Si combination of delptli and enthalpy of the geothermmil fluid represents the point
where as much energy is required to extract it as is produced. This will vary
slightly for each type of proposed electric power generation fac(.ility (ste;imn tur-
bines, impulse turbines, and lePat exchangers). The geotlerniml reserve's should
be defined in terms of their net energy ratios, that, is, the ratio of delivered
energy to energy subsidy.






62

TABLE 2.-ENERGY STUDIES REQUIRED FOR THE DEVELOPMENT AND OPERATION OF A 100-MW GEOTHERMAL
POWER SYSTEM FOR 30 YR, ALL VALUES ARE EQUIVALENT TO PETROLEUM IN ENERGY QUALITY

Dry steam Wet steam
Subsidy types reservoir* (10g kcal) reservoirt (l00kcal)

Exploration (22)------------------------------------------------------ 50 50
Extraction and separation (23):
Fuel .----------.----------------------------------------------.... 135 150
Construction and maintenance materials ------------------------.. --.--- 135 150
Transport of materials------.---------------------------------------. 5 6
Steam transport (24):
Construction and maintenance materials- ----..---------------------.------ 25 35
Transport of materials-------------.-------------------------------- 3 4
Construction and operation of the steam field (25)-..------------------------- 140 185
Conversion to electricity:
Construction materials (26) ----------------------------------------- 570 1,140
Maintenance materials (27)---.----------------------------.-----------. 25 35
Transport of materials (28) -------------------------------..----------- 70 140
ConstructionI and operation of the power plant (29)--...------------------- 160 215
Transmission and distribution (30):
Construction and maintenance materials------------------------------- 2,800 2,800
Construction and operation of the transmission lines-------------------- 400 400
Environment (31):
Field site ---------------------------------------------------- 35 50
Transmission corridor-----------.............---------------------------------- 35 35
Total subsidy ---------------------------------------------------- 4,588 5,395
Total energy delivered to consumer ------------------------------------ 57 750 57, 750
Net energy ratio-delivered energy to subsidy------------------------------ 12.6:1 10.7:1

Steam-driven turbine.
t 2-stage flashed steam-driven turbine.
t Excluding materials.
** 16,500 kilo-calories (electric) X 3.5 is 57,750 kilocalories of petroleum equivalents.

NET ENERGY RATIOS

The net energy ratio, as defined above and in Fig. 2, does not include physical
and thermodynamic losses directly, but is the ratio of delivered energy to the
energy value of material, environmental, and processed energy subsidies. The
physical and thermodynamic losses are included only in the sense that increased
efficiences would reduce the losses and increases the delivered energy value. There
have been several attempts to calculate these net energy ratios for other energy
systems. Ballantine (16) calculated that the ratio of energy delivered as elec-
tricity from Northern Great Plains coal (based on 4700 kilocalories per kilo-
gram) to energy subsidy is 4:1. Based on a 1000-megawatt light water nuclear
reactor, Lem (17) calculated the maximum ratio of delivered electricity to energy
subsidy as 9:1. Oregon's Office of Energy Planning (18) calculated ratios of 60:1
for domestic natural gas, 7:1 for high-Btu (British thermal unit) gas from coal,
and 2.8:1 for oil from ol shale (all nonelectrc uses). Although all of these
ratios represent delivered energy to subsidy and all are expressed in equivalent
energy qualities, in each case data were incomplete, so that precise comparisons
are not possible.
When the price of oil increased, its net energy ratio decreased, resulting in
inflation. Imported oil at $2 per barrel has a net energy ratio of 30 to 1, while at
$11 per barrel the ratio is 6 to 1 (16). The real GNP cannot increase unless the
economy is driven by energy sources that require little energy to extract. The
purely economic calculations obscure this fact since they include the effects of
government policy in subsidizing some resources (that is. nuclear) and not
others. Government energy policy in areas such as outer continental shlielf leases
for oil, onshore leases for coal and geothermal sources, and tax depletion allow-
ances could lie made on the basis of which resources have the highest ratio of
delivered energy to energy subsidy. And the U.S. Geological Survey could aid
policymakers by calculating reserves on this basis as well as their economical
recovery. The economics of the reserve estimate will track the net energy ratio.

NET ENERGY AND PUBLIC POLICY DECISIONS
Energy analysis has already captured the attention of persons searching for
better policy analysis tools. Section 5 of the Non-Nuclear Energy Research and
Development Act of 1974 (PL 93-577) states, as one of the governing principles
for researching and demonstrating new energy resources, that "the potential for






63

production of net energy by the proposed technology at the stage of commercial
application shall be analyzed and considered in evaluating proposals." In response
to this legislation, there are several government agencies involved in standa rdizing
energy analysis procedures, and in performing some calculations. The Office of
Energy Policy of the National Science Foundation (NSF) brought together
energy accounting researchers at a workshop in August 1975. The objective of
that workshop was to compare and standardize procedures and determinee specific
policy applications for the analyses. The Energy Research and Development
Administration (ERDA) has stated that it plans to integrate evaluations of the
net energy contribution of technologies into the national plan for setting energy
research needs and priorities (19). ERDA's Office of Planning and Analysis is
expected to have funding responsibility for these studies. In addition, the De-
partment of the Interior's Office of Research and Development has contracted
for energy analysis of several technologies. As a result of the legislation and
agency interest, there is a probability that net energy analysis may come into
widespread use. It has the potential to improve the input into the decision-
making process.
The data and information provided to policy-makers are almost always in-
complete and conflicting. Energy analysis may not eliminate the incompleteness,
but it can reduce the conflicting nature of the inputs. I have shown the special role
that energy plays in driving the flow of money, in allowing for the extraction,
manufacture, and transportation of materials, and in allowing for substitution of
different materials for ones in short supply. Since energy is the one commodity
present in all processes and since there is no substitute for it, using energy as
the physical measure of environmental and social impacts, of material, capital,
and manpower requirements, and of reserve quantities reduces the need to com-
pare or add "apples and oranges." In energy analysis, many environmental and
social costs and benefits are internalized directly. For example, the energy value of
the environment is the amount of the sun's energy used by the ecosystem in
providing services and products, just as the value of a manufactured commodity
is the amount of fossil fuel used by the machines in making the product. The use
of the energy unit makes the two comparable.
Dollar evaluations do not usually internalize environmental costs, such as air
pollution, or social costs, such as government subsidies in the form of regula-
tions, taxes, or research. In addition, dollar evaluations often obscure the larger
scale effects of an action because the dollar costs and benefits accrue to different
people at different times. Dollar evaluations also change with time due to the
changing value of money and assumptions concerning, for example, the discount
rate. For a specific technology, such as the present nuclear fuel cycle and its
supporting techniques, the energy evaluation will not change with time.
Energy analysis of alternative energy supply technologies can provide more
information of a less conflicting nature to policy-makers. Assuming that more and
better information improves the quality of decisions, then energy analysis can im-
prove government policies in areas such as managing public energy lands, regu-
lating gas, oil, and utility rates, providing tax incentives, and establishing re-
search emphasis.
REFERENCES AND NOTES
1. V. E. McKelvey. Am. Sci. 60, 32 (1972).
2. H.T. Od u m, A mn b io2, 220 (1973).
3. R. S. Berry and M. F. Fels, Bull. At. Sci. 29, 11 (1973).
4. P. F. Chapman, Energy Policy 2,91 (1974).
5. M. Slesser, Tech. Assc.fs. 2, 201 (1974).
6. Department of Commerce, Input-Output Structure of the U.S. Economy: 1963
(Government Printing Office, Washington, D.C., 1969) ; 1967 Census of Manlufac-
turers (Government Printing Office, Washington, D.C., 1971).
7. A. B. Makhijani and A. J. Lichtenberg, Enviroitnment 14, 10 (1972).
8. P. F. Chapman, G. Leach. M. Slesser, Energy Policy 2, 231 (1974) ; D. J.
Wright, ibid. 2, 307 (1974) ; P. F. Chapman, ibid. 3, 47 (1975).
9. G. M. Woodwell, Nat. Hist. 83. 16 (1974).
10. E. F. Schumacher, Small Is Beautiful (Harper, New York. 1973), from
N. Wade, in Science 189, 199 (1975).
11. H. T. Odum, in Thermal Ecology, J. W. Gibbons and R. R. Sharits, Eds.
(Technical Information Center, Springfield, Virginia, 1974), p. 62S.






64

12. H. T. Odum, in Simulation of Macroenergetic Models of Environmnient, Pow-
er, and Society, H. T. Odum, Ed. (Energy Center, Univ. of Florida, Gainesville,
1974), p. 5.
13. C. D. Kylstra, Energy Analysis as a Common Basis for Optimally Combining
Man's Activities and Nature (Energy Center, Univ. of Florida, Gainesville, 1974),
pp. 16, 20.
14. R. W. Rex and D. J. Howell, in Geothermal Energy: Resources, Production,
Stimulation, P. Kruger and C. Otte, Eds. (Standard Univ. Press. Stanford, Cali-
fornia, 1973), p. 63.
15. R. Greider, Geothermal Resources Council Bull. 3, 2 (1974).
16. T. Ballantine, Net Energy Calculations of Northern Great Plains Coal in
Power Plants, unpublished paper (Environmental Engineering Sciences, Univ. of
Florida, Gainesville, 1974), pp. 20, 25.
17. P. N. Lem, thesis, University of Florida (1973), pp. 150-190.
18. Oregon Office of Energy Research and Planning, Energy Study (Office of
the Governor, State of Oregon, Salem, 1974), pp. 150-180.
19. Energy Research and Development Administration. A National Plan for
Energy Research, Development, and Demonstration: Creating Energy Choices for
the Future (Government Printing Office, Washington, D.'C., 1975), p. X 3.
20. C. F. Budd, in Geothermal Energy: Res.ources, Production, Stimulation, P.
Kruger and C. Otte, Eds. (Stanford Univer. Press, Stanford, California, 1973),
pp. 129-144; J. P. Finney, ibid., pp. 145-162.
21. A. L. Austin, G. H. Higgens, J. H. Howard, The Total Flow Concept for
Recovery of Energy from Geothermal Hot Brine Deposits (Lawrence Livermore
Laboratory, Livermore, California, 1973), pp. 1-37; Federal Administration,
Project Independence Blueprint-Gcothermial Energy (U.S. Government Printing
Office, Washington, D.C., 1974), p. E1-ES.
22. Cost is estimated at $32 per kilowatt; 15,800 kilocalories per dollars.
100,000 kilowatts.
23. Fuel includes that for drill engines, mud pumps, cement pumps, and
chemical injection; drilling depth in dry steam field of 1.8 kilometers and in the
brine field of 1.4 kilometers for production wells and 0.45 kilometers for reinjec-
tion wells; 20 wells per 100 megawatt dry steam plant and 26 production wells,
plus 13 reinjection wells per 100 megawatt brine plant; each production well
lasts 10 years; drill engines operate 530 hours per kilometer drilled, cement pumps
operate 270 hours per kilometer drilled, mud pumps operate 280 hours per kilo-
ieter drilled; all engines are 450 kilowatts and require 2030 kilocalories per kilo-
watt hour. Construction and maintenance materials include well completion
materials and drilling equipment. For the dry steam field: 60 wells; 103,500 kilo-
grams casing per well; 78,800 kilograms of cement per well; 2 valves per well;
one steam separator. For the brine system; 78 production wells; 26 reinjection
wells; 85,300 kilograms of casing per production well, 33,300 kilograms of casing
per reinjection well; 59,000 kilograms of cement per production well; 18,200
kilograms of cement per reinjection well; three valves and three separators per
production well; 16,600 kilocalories per kilogram of steel; 3400 kilocalories per
kilogram of cement. Over the 30-year life, 4 derricks, 8 drill engines, 16 mud
pumps, 8 cement pumps, 2 blowout preventers, 8 chemical injection pumps, and 20
drill bits per well are consumed. Transport: 3200 kilometers from the Midwest to
California; 0.7 kilocalories per kilogram per kilometer.
24. All wells are located 0.8 kilometer from the power plant; for the dry steam
system. 700,000 kilograms of steel for steam lines; for the brine system, 950,000
kilograms of steel for production and reinjection well steam lines, all replaced 100
percent in 30 years; 16,000 kilocalories per kilogram of steel. Transport: 3200
kilometers from the Midwest to California; 0.7 kilocalories per kilogram per
kilometer.
25. For labor, taxes, rents, interest, in constructing and operating the field over
30 years: $22 million at the dry steam field; $29 million at the brine field; 6400
lilocalories per dollars.
26. Construction materials for dry steam turbine-generator, in 10' kilograms;
aluminum, 45.4; copper, 91; concrete, 22,700; steel, 8720; stainless steel, 118;
steel forgings, 76.3; other nonferrous metals. 54.5. Energy content: in 108 kilo-
calories per kilogram: Al, 21; Cu 31; concrete 3.4 ;steel, 16.6; stainless steel, 22;
steel forgeing.s, 76.3; other nonferrous metals, 54.5. Energy content in 103 kilo-
calories per kilogram: Al, 21; Cu. 31; concrete 3.4; steel, 16.6; stainless steel, 22;
steel foregoings, 28; other nonferrous metals, 20. Fabrication of the turbine-






65

generator. 31.8 X 10' kilogram materials; 9500 kilocalories per kilogram. For a
brine power plant, the turbine is twice as large to accommodate lower pressure
and temperature steam.
27. Over 30 years, $2.5 million for materials is needed for repairs at dry steam
field power plant; $3.3 million at the brine field; 10.000 kilocalories per dollar.
28. Dry steam, 31.8 X 10' kilograms, brine, 63.6 X 10' kilograms; 3200 kilo-
meters; 0.7 kilocalories per kilogram kilometer.
29. For labor, taxes, rents, interest: $2.5 million for construction, $23 million for
operation over 30 years at the dry steam power plant ; $3.3 million for construction.
$30 million for operation over 30 years at the brine power plant; 6400 kilocalories
per dollar.
30. For transmission and distribution, 7.7 mills per kilowatt hour cost; 55
percent for materials at 10,000 kilocalories per dollar. 5 percent for fuel at 240.(000)
kilocalories per dollar, and 40 percent for operating at 64(00 kilocalories per
dollar.
31. Dry steam field; 40 hectares for direct use for well site l)ads. work areas.
steam lines, and power plant plus 360 hectares indirect use. Brine field : m) hec-
tares for direct use plus 540 hectares for indirect use. In 1970, 400.000 megawatts
of capacity withdrew 1.6 million hectares of land for transmission lilies ; therefore
100 megawatts withdraws 400 hectares, of which 20 per,-ent is direct use. Forest
productivity in northern California is 5000 kilocalories per square meter per year.
Direct use eliminates productivity; indirect use reduces it by half for 60 years,
30 years during field use and 30 years for ecosystem recovery. Energy quality con-
version factor is 1/20.
32. I thank I. White, D. Kash, and R. Rycroft for evaluating the manuscript.
This article is the result of research carried out within the Science and Public
Policy Program under NSF grant No. SIA 74-17866.


NET ENERGY ANALYSIS CAN BE ILLUMINATING

(By Rice Odell)
SUM MARY
Energy analysis is an emerging methodology used to better understand our
current energy and economic problems and to facilitate the discovery of solu-
tions. It involves computations of "net energy" derived from a system-the
amount of energy remaining when energy inputs have been sulbtracte(d from
energy outputs. It is particularly relevant since we have grown into an indus-
trial society based on intensive use of energy-and since it is taking more and
more energy to produce energy. Analytical techniques miust be used carefully,
however. Different forms of energy have different uses and values to society.
They cannot always be massaged together. It is also difficult to establish the
boundaries of energy analysis. Energy analysis can be a useful supplement to
economic analysis. In the long run, however, social constraints may I*- the most
obstinate of all.
For a long time, the chief criteria for decision-making in our society have been
economic-values defined in dollars, cost-price mechanisms, profits. But now aln-
other measure of value has taken on great importance: energy.
We are accustomed to asking: How much will it cost, and how great will the
profit be? Now there are other relevant questions: How much energy does it use,
and how much energy will be saved or returned?
Spaking of nuclear power projects. W. Kenneth Davis, a vice president of
Bechtel Power Corp., has said there is "an energy investment just as there is a
financial investment and there is a necessity to show an energy profit." "
There is now emerging a rather specialized methodology for measuring and
understanding the energy flows in a given project, process or product. It is
energy analysis. It is used, for example, to calculate the energy inputs and out-
puts, or the "net energy" derived in a system. It has been called energy account-
ing, energy cost evaluation, net energy analysis and other labels. (Last year, at
a meeting in Sweden. an international group of pioneers in the field agreed to
stick to the term energy analysis.)
It is not viewed as a substitute for economic analysis, but as a complement to
it. In some respects, to be sure, energy aind economic costs are insepar:ibly fused.


1 Atomic Industrial Forum. "Info." March 1975.






66

Rising energy costs have been permeating the system, generating higher eco-
nomic costs and inflation. This is one reason why many companies recently have
balked at going ahead with grandiose energy projects they planned-oil shale
development, coal gasification, nuclear power plant construction and the like. And
why some pollution control projects are in trouble as well.
How did we drift into our present energy dilemma? In large part because we
took for granted an endless supply of cheap fossil fuel ejpergy. As Dr. Howard T.
Odum, a professor of environmental engineering at the University of Florida,
has noted: "Only the last two centuries have seen a burst of temporary growth
made possible by the one-time use of special energy supplies that accumulated
over long periods of geological time." 2
These bountiful energy supplies offered a means to boost labor productivity
and profitability. So industries were seduced into squandering energy and shift-
ing to capital and energy-intensive processes at the expense of labor.
The United States' highly mechanized agriculture is a conspicuous example.
(It has been estimated that the agriculture industry consumes more than five
times the energy content of the food it produces. 3)
So we have locked ourselves into an economy heavily dependent on intensive
use of energy, and we can expect to have considerable trouble making necessary
adjustments.
To understand how energy analysis can aid public and private decision-making
in these days of energy constriction and rocketing costs, it is important to ex-
amine some basic facts about enegy. In the first place, an energy transaction can
seldom be measured with the same neat precision as an economic transaction
expressed in dollars. There are different kinds of energy, different sources, differ-
ent uses and different ways of measuring.
For one thing, we have energy stored in structural states-in the chemical
structure of a lump of coal, in the cellulose of a piece of wood, in the hydrogen
atom, in the water in a reservoir. And we also have energy in kinetic states-
such as electricity, heat and motion.
Energy is constantly being -transformed from structural to kinetic states (coal
changed into electricity) or vice versa (sunlight embodied in a plant). So energy
in a system can be tracked in the form of materials as well as pure energy forms.
Under the First Law of Thermodynamics, the law of conservation, the total
amount of energy is constant. But its forms change, and there are differences in
the amount of work and types of work that can be done by various forms. Oil
is a highly valued energy species. You can run cars on it. Natural gas is even
more desirable. It can be easily piped back and forth and can be used for many
purposes, including electricity generation, home heating and industrial processes.
Elect ricity can run computers.
So there are major differences in the value per Btu of energy forms. And
under the Second Law of Thermodynamics, the law of entropy, there will always
be, in any energy transaction or transformation, a net overall loss in the quality
of the energy (even though part of the output, such as electricity generated from
coal, may be of higher quality). Entropy can be defined as an increase in the
Inability to do work.
There is zero entropy in gravitation. But terrestrial waste heat has lost almost
all its ability to do work. As changes occur in the universe, energy continually
slides down the scale, and entropy increases.'
The most frequent and well-known use of energy analysis is to calculate the
total cost of producing and operating something, and then compare it with alter-
natives. This has been done in analyses of manufacturing,' agriculture,' trans-

2Not Man Apart. mid-August 1974.
3 The Sciences. New York Academy of Sciences. October 1973.
4Entropy is discussed by Nicholas Georgescu-Roegen at length in the magazine Ecologist,
June 1975. and at greater length in The Entropy Law and the Economic Process, Har-
vard University Press. 1971.
5 Energy Consumption in Manufacturing, by The Conference Board, a report of the
Ford Foundation's Energy Policy Project. Ballinger. 1974.
OFor example. "Energy Use in the U.S. Food System," by John S. Steinhart and
Carol E. Steinhart, Science, April 19, 1974: "Food Production and the Energy Crisis."
by David Piniental. et al. Science. November 2. 1973; "Energy Subsidy as a Criterion
in Food Policy Planning," by Malcolm Slesser, Journal of the Science of Food and Agri-
culture, November 1973.






67

portation 7 and energy production itself, as well as in studies of materialss9 ap-
pliances,'10 bottles (returnable vs. throw-away)11 and other products.'2
"In general, a more efficient device will cost more energy to produce." says
Milton D. Rubin, of the Raytheon Co. "However, usually it will be found that
the extra energy necessary to produce the more efficient device will be paid for
very rapidly in the operating savings." 1
The air conditioner provides a theoretical example: to double the energy effi-
ciency it would perhaps be necessary to double tlhe weight and thus the energy
needed for manufacture; but the extra energy cost might lie saved by six months
of operation. (The monetary cost could be another matter.) But in the case of the
automobile, as Rubin points out, a smaller, lighter car will not only consume
less energy in operation, but require much less to manufacture. (And cost less
as well.)
Energy analysis has often been used to quantify in energy units tlhe value of
natural systems. For example, the calories of sunlight that fall on an area. or
that are captured by plants through photosynthesis. But analysts mu"t beware
of gross calculations of energy that is not really available or usablel. and there
is some disagreement among them over methodology. Dwain Winters, a program
analyst with the Environmental Protection Agency, explains a widely accepted
technique, using solar energy and wind as examples:
"Although nature provides us with vast quantities of solar energy ue-ry
day, this does not necessarily make it an abundant energy s:wuirce. For thi.
energy to serve the needs of a technological society, it must be subject to ,nir-
centration and storage. Therefore, the measure of solar energy's availability
lies in the relationship between the energy cost of the equipment used to con-
centrate and store the energy and the gross energy output of that equipmentt"
He adds that analysis now in progress suggests that a significant amount of
net solar energy probably will be available.
"For people who dry clothes on a line. the wind is an important source of
energy," says Winters. "You could figure out the total kinetic energy of the
wind. But that would-not be its energy value to society. What we need to know
is its energy opportunity cost. That is the amount of energy that would be
needed to do the same work by a substitute method, such as a clothes dryer. So
the value of the wind is not fixed, but varies with the energy cost of the tech-
nology that is used to replace the wind's function.
"The methodology applies equally well to any energy ,sources."
It has been noted that different energies have different values. One indication
of value is the kind and amount of work the energy can do. Another is its rela-
tive availability-how abundant is the energy, and how easy to extract.
This points to one of the problems which must lie considered in an energy
analysis-the "mixed fuels problem." Says Winters: "If we take 1.000 Btu's of
natural gas and compare it with 1,000 Btu's of oil or coal, we can see that tliey
are not of equal value to society. They are not interchangeable in their work
tasks, nor does their use create equal environmental or ,social costs. In .sonme
eases, adding different energy species together raises serious questions about
what the results really mean."
The search for higher quality energy can lead to perfectly rational decisions
to accept a very small net energy gain or even "negative net energy." For an
example, Winters takes an imaginary energy analysis of oil shale. "'Supiose it
showed oil shale to be a negative net producer. Ignoring for the moment the
environmental and economic aspects, we still might want to go alead with

T "Conservation and Efficient Use of Energy." joint hearings of House Government
Operations subcommittee on conservation and natural resources and Sclene and Astro-
nautics subcommittee on energy. Part 2. July 10. 1973: and The Energif 'onscrration
Papers, edited by Robert H. Williams. a report of the Energy Policy Project Banllinhrr.
19T75.
8"Systems of Energy and the Energy of Systems." by Thomas A. Robertson. Sierra
Club Bulletin. March 1975; "The Energy Cost of Fuel." by P. F. Chainiman et al, En.rgv
Policy. September 1974.
9"The Energy Costs of Materials." by P. F. Chfinian. Energy Policy. March 1975.
10 Hidden Waste." by David B. LTarare. Thle ronservation Foundation. 197..,
1" Reduce." a booklet of the Leagui- t f WVomen Voters Ediiucitionail Fund. 1975;
"Bottles. Cans. Energy." by Bruce M. Hannmimi. Environment. March 1972.
12For example. "Goods and Services." by David J. Wright. Energy Policy December
1974.
12American Association for the Advancement of Sclence. annual meeting. January 30.
1975.






68


oil shale production if society places a high enough value on the resulting liquid
hydrocarbon fuel.
"In such a case, oil shale might be particularly attractive if it could be
subsidized by an abundant energy source such as coal, and if it represented a
more efficient way to convert coal to synthetic oil than direct coal liquification."
It should be remembered, however, that while it may be practical to have
a significant net energy loser in an energy system, the system as a whole must
deliver a high net yield.
There can be reasons other than energy quality to accept less net energy. One
is geographic. Society may justify a heavy expenditure of energy to extract and
transport fuel to a distant city whliere it is most needed. Another consideration
is time. Society could condone a net energy loss to gain time to develop a promis-
ing new source. Thus the United States can be viewed as encouraging nuclear
l)power in the hope that it will tide us over until fusion, solar energy or some
other technique is readily available.


From the start of planning to the completion of construction (at line A), an
energy production plant takes a certain amount of energy from society. At
some point after the plant has begun operation, it will have paid back an
amount equal to what it borrowed. That point is at Line B. Thereafter, the
net energy gain to society depends on how long the plant is kept in operation.
Much energy analysis, in fact, is focused on the costs of obtaining energy it-
self. One study concluded that in the United Kingdom, five energy industries
(coal mining, oil refining, coke, gas and electricity generation) jointly consume
more than 30% of the UK's total energy input."'
Of course the problem is exacerbated in the U.S. as reserves such as oil and
gas become increasingly unyielding and costly to extract (not the case with
coal stripped from land in the West, to be sure), and as more primary fuels
are converted to secondary energy sources (gasification of coal, for example).
"Many proposed alternative energy sources would take even more energy feed-
back than is required in present processes," says Odum.
Winters lp)ints out that if we are planning on shifting to a solar or nuclear
economy, "we need to know to what extent such an economy is self-sustaining
and where it is dependent on fossil fuels. If we're going to make these tran-

"The Eiinrgy.v Cost of Fuels." by P. F. Chapman et al, Energy Policy, September
1974.


ZO
Si-t- lll











A B




69

sitions. we want to make sure we've minade the appropriate use of our fossil
fuels to get us from here to there."
Winters notes that during the planning anid construction of any energy pro-
duction facility, the project is borrowing energy from society. "When the plant
begins operation it starts paying back this debt. If the plant is a net energy
producer, eventually it will pay back this debt and then contribute a net energy
gain to society until the plant wears out. For any energy process, there is this
period during which it is a net energy sink. Just how- long the period lasts
should be of considerable interest."
The chart on page 3 illustrates a theoretical energy .sink. lpaylback period, and
net gain in energy. "We need to know the payback lieri(od relative to different
energy species," says Winters.
The length should be of particular interest with regard to nuclear power tech-
nologies. For even if a nuclear plant should turn out to lie a substantial net
energy gainer, it could still create a net energy problem. If nuclear plants are
built in too rapid succession, there might be temporary energy shortfalls because
of the immediate demand for energy to build the plants.
A workshop of the International Federation of Institutes for Advanced Study
(IFIAS) offers this example (with the figures picked for illustrative purposes) :
"Consider a country embarked on a program of nuclear reactors. Supl.pose
such reactors to have a 30-year life. and to have a capital energy requirement
to build them equal to 10% of the total energy production in their life; that it
takes six years to build a reactor, and one new reactor is started each year . .
For many years the country will incur a net energy deficit (11 years), and 20
years will elapse before the cumulative energy production exceeds the cumula-
tive energy investment." I
Two parallel debates over nuclear power are being waged-one over its
energy efficiency and one over its cost efficiency. Davis, of Bechtel Power, esti-
mates that all the energy invested in a nuclear plant is repaid after 2.3 month;
of full power operation.' Similarly. many utility executives have touted nikes
as great cost savers over coal-fired plants.
Nuclear critics, on the other hand, charge that industry calculations are care-
fully tailored, and don't include all the money and energy costs (or subsidies)
associated with mining uranium ore, enriching nuclear fuel. reprocessing, re
search and development, insurance, safety, plant decommissioningg. and lbong-
term waste disposal and safeguarding.
"When all energy inputs are considered," says energy consultant E. J. Hoffman.
"the net electrical yield from fission is very low." 16
Much of the difference between the various estimates lies in what the analysts
include in their accounting and( what they leave out. In other words, where they
draw their system boundaries. And that is a critical decision in any energy
analysis. "If you let me draw the system boundaries wherever I want, I can
make almost any project look good or bad," says Winters. "That's thle nature of
the game."
He says the boundary is determined in part by tlhe question you're trying
to ask. "You may be interested only in the energy you're borrowing from .i city
as opposed to the amount you're returning. You may be interested in the rate at
which you're depleting a resource . In that case, what you do is put the
resource that's in the ground within the system boundary of society."
Or, in accounting for the energy cost of an automobile. (1b you include the gais
an assembly line worker uses getting to the job? The energy used to make his
automobile? The gas used by those who made it? Perlimps the most important
thing an analyst can (do is make very (clear what his boundaries are.
Energy analysis can help) identify the most fruitful conservation strategies.
It can compare thle savings from home insulation with the energy costs of imak-
ing and installing the insulation. It can pinploint ways to reduce the energy in-
tensiveness of a manufacturing process and thereby lower tlhe energy input per
unit.
Winters says that an overall conservation strategy is suggested by the fact
that some 70% of all energy lised( by a final .ons-umner is in the form of goods and
services, rather than species of energy such :1i <.lectricity ;11d gasoline. "So
if we really want to cut down our comsunmption. there's probably miore, r,)onm

15 "Energy Analysis." Workslihp Reponrt No. 6, IFI.,. GuldsniPdshvttmi. wedeiin August
25-30, 1974.
'mQuoted in "It Takes Energy to Get Energy," by Wllson Clark. Smlthsonlin. De-
"ember 1974.






70


to attack that sector than there is in how much gasoline we use or how much we
heat our houses. What this implies is somehow changing the product mix."
Such as shifting to returnable bottles or smaller cars.
Energy analysis, says the IFIAS workshop report, is a means of identifying
the constraints of a system. "For example, by means of thermodynamic calcula-
tions one may establish the theoretical energy requirements for a process, and
compare them with those of present technology. This gives one a feel for the extent
to which a given technology could be developed-a limit not identifiable by
economic methods."
Energy analysts certainly don't see their techniques as a replacement for
economics-though the limitations and failures in trying to apply economic
analysis and operate a market economy have been all too obvious. (One thinks
of the widespread anti-competitive practices and arrangements, including OPEC;
the natural monopolies like public utilities; the government regulation induced
by varied corporate abuses; the distorted flow of information; the failures to
account for external effects such as pollution; and the many subsidies provided
by taxpayers. The effects include social inequities, environmental degradation,
resource scarcities, recession and inflation.)
Winters suggests that an economic analysis can be made of an individual
technology-or a mix of technologies-to check feasibility, and this can be
followed by an energy analysis to ascertain efficiency.
The IFIAS group is particularly interested in the use of energy analysis to
understand price changes and other factors in the economic system. It can
be a "means of injecting physical variables into economic theory," the workshop
report said. "It can be a more sensitive indicator than money."
The IFIAS group is planning a follow-up conference "to consider the interface
between energy analysis and economics."
Winters sees at least five "gates" through which a decision-making process
must pass to show that a project will work: political, economic, cultural, envi-
ronmental and energetic.
"The two primary parameters that are currently being used are what is polit-
ically feasible and what is economically feasible," he says. "They don't always
overlap. These are the two areas in which most of the arguments over weeding out
the various energy alternatives takes place." But the constraints of the other
three gates must be satisfied in order to conform to human behavior, to main-
tain the stability of the environment, and to be thermodynamically, or physically,
possible.
There is reason to believe that the energy gate is one of the narrowest of all
the gates for society's options to pass through. So if limited funds are available
to evaluate options, it is logical to ascertain early what will fall through the
energy gate.
Winters notes that perhaps environmental considerations should sometimes
be grounds for rejecting energy options, hut may not carry the necessary political
clout. "Whereas, if one took those environmental objections, and at the same
time noted that something is energetically impractical, one might be better able
to implement environmental criteria."
One of the more interesting questions raised by net energy analysis is what
are the cybernetic (feedback control) properties of an energy system. If it takes
energy to make energy, to what extent do these energy subsidies control those
functions outside the control of economic forces?
In the past, such influences may have been minor, but in a period of resource
scarcity, their influence could be dominant. To illustrate how we might better
understand and manipulate to our advantage these cybernetic functions, Winters
uses a hypothetical ecosystem as an example. (An ecosystem is a highly complex
energy system which is governed by its energy cybernetics.)
"You can think of any animal as an energy storage. Take for example a group
of lions in a closed ecosystem. They are in a highly ordered state, tending to go
toward disorder-an example of the law of entropy at work. And so they must
have an energy source to maintain their order. Otherwise you have fewer lions,
or emaciated lions.

INDUSTRIES ARE JUDGED BY ENERGY THEY ITSE AND JOBS THEY CREATE
These d(lays particularly, there is good reason to factor into energy analysis
the effects on employment. Because typically, reductions in energy use generate
more jobs. .Tohn P. Holdren, assistant professor at the University of California,






71

Berkeley, says that the energy producing industries themselves comprise the most
capital-intensive and least labor-intensive major sector of the economy.
"Accordingly," he says, "each dollar of investment capital taken out of
energy production and invested in something else, and each personal-consumption
dollar saved by reduced energy use and spent elsewhere in the economy, will
create more jobs than are lost." 15 (Whether that dollar helps or hurts the energy
situation would depend on where it's spent.)
Much valuable work in this area has been done by Bruce Hannrmon, of the Center
for Advanced Computation, University of Illinois at Urbana-Champaign, One case
study showed that returnable bottles demanded less energy and more labor
than throwaways.'
But Hannon has gone much further. He has plotted on graphs the relationships
in 363 industries between dollar value added, energy use and employment."8
One chart shows the tradeoffs in the economy as a whole resulting from a
10% growth in specific industries, if total GNP is held constant. For example,
it indicates that growth in railroad car manufacture would have an overall
impact of increasing energy use by almost 4.5 trillion Btu's and decreasing employ-
ment by more than 2.5 million jobs. Toward the other end of the scale, a 10%
growth in making wood furniture would lower energy demand by more than
a trillion Btu's while increasing jobs by more than 2.5 million.
Such analyses suggest that it is possible to make intelligent plans to shift from
enterprises that are negative in terms of energy consumption, environmental
effects and job formation, to enterprises that better serve society's needs.
In some cases, existing industries, by eliminating waste and altering products,
could make desirable transitions. In most cases, perhaps, change would be ex-
tremely difficult. Ecologist and author Barry Commoner has long stressed the need
for shifting away from products-such as plastics-that involve heavy pollution
and energy consumption. But he notes that with some industries, such as the
petrochemical makers, "the intensive use of energy is built into the very design
of the enterprise in order to eliminate human labor." 1
Even if a large net gain in employment is indicated, the type of labor or its
location could be radically different and pose an additional dilemma. Of the
shift to returnable bottles, Hannon says: "Jobs would be lost in the highly
organized, high-wage can makers' plant and gained in the low-wage, relatively
non-organized retail sector." Thus the opposition to the plan by organized
labor.a"
"That's something that labor will have to deal with," says Nick Apostola,
coordinator of a new organization, Environmentalists For Full Employment
(EFFE), located in Washington, D.C. He suggests that labor "seize the oppor-
tunity to boost up those low-level jobs so they'll be higher paid." In a recent
policy statement, EPFE said:
"Modern technologies that are excessively capital intensive and energy waste-
ful simultaneously destroy the environment, deplete resources, and cause struc-
tural unemployment. These problems must be attacked concurrently and such
technologies must be rejected."
"Suppose they pick zebras for an energy source. In order to utilize the zebra
energy-since zebras don't just walk into the lion's mouths- the lions are going
to have to expend some energy to run down the zebras. I used to be a zoo-
keeper and have some appreciation for the task the lion has before him.
"If our lions are to survive, they must make sure they get more energy out of
zebra hunting than they put in. Let's say they put two energy units in and get
10 out.
"A lion will be competing with some other carnivore in that ecosystem for an
energy source. Maybe the leopard. And one factor that determines who will win
the competition is who has the most efficient return on his investment. If another
carnivore in competition with the lion could reinvest at a rate of one unit in for
10 out, then he would end up being the dominant species.
"In the ecosystem, no two animals occupy the same niche, competing for the
same energy source. There's always at least a slight difference. And the relation-
ship becomes very complex. Finding the niche with the best reinvestment ratio
becomes a major key to .species survival.

'7 New York Times. July 23. 1975.
is "Options for Energy Conservation," reprinted In technology Review, February 1974.
"The Energy Crisis--All of a Piece." Center MaNgazine. March-April 1975.
20 "Energy Conservation and the Consumer," Center for Advanced Computation, Univer-
sity of Illinois, October 1974.








"It carries with it a risk, however, for if our lions should become solely depend-
ent on zebras, then what happens when there is a zebra plague? The answer, of
course, is that the lions eat something else. To be able to compete for other prey,
however, means that the lions have had to maintain an ability to hunt for ani-
mals which did not yield a maximum return in their investment. And if we
examine lion habits, we see that they have done exactly that.
"This makes the problem most interesting, for it implies that there is a force
in addition to net energy efficiency directing lion evolution. This force is called
diversity. Diversity, in the case of lions, is seen in their varied feeding habits.
It enables them to survive environmental changes. So we see two antagonistic
forces operating upon lions: one, hunting efficiency strengthening their chance
for survival in the present and two, diversity enhancing chances of survival in
the future.
"A given organism has to find a compromise between how much energy it's
going to tie up in reinvestment and how much in diversity. If it ties up in rein-
vestment it may become a dominant member of the ecosystem at any given time,
but may also end up the way of the dinosaur.
"The application to man's technological system, I think, is direct. We should
choose energy systems which show a good net energy gain, but we must balance
this with a diversity of interchangeable technology which will help protect us
from the unforeseen problems that always interrupt the best-laid plans of men
and lions."
Winters points out that man, throughout history, has periodically improved
his reinvestment ratio. He learned to use rocks to break bones and get the mar-
row. And there was agriculture and fire, and so forth, up through the stream of
innovations in the Industrial Revolution. But after each of the earlier innova-
tions there appears to have been a long plateau, so that energy crises were more
the rule than the exception.
Where are we now? At one of the "little wrinkles" of a major growth spurt
that will continue for a long time? Or are we approaching a leveling spot of one
of the broad plateaus, in a situation where we have begun to exceed the total
productive capacity of our energy systems?
Winters says that to maintain our growth rate in energy supply, the techno-
logical innovations must be bigger and come in more quickly than in the past.
Energy analysis may tell us the theoretical upper limits of available energy, but
physical limits apparently are not the prime constraint. "If we look at today,"
says Winters, "we know we're not at our physical limits in terms of what we
could do theoretically. It looks as if social and cultural limits always begin to
impede the system before the technical limits are reached.
"The question may not at all be, Can we build a fast-breeder reactor? Or can
we get nuclear fusion? It may well be, Can we construct social institutions which
can maintain the dynamic stability of the cultural, political and economic proc-
esses that are needed to maintain such a technology?"
As a matter of fact, Winters suggests that the social structure we have come
to depend on-with its standard of living and complex, centralized system of
organization-may itself demand a lot of energy to maintain.
"There is an interesting paradox-and this is pure supposition and beyond the
level of measurement. If we believe there is some relationship within a given
system between the complexity of a social order and the energy base (and one
culture may require more energy than another), then in order to get total cooper-
ation at any larger level of complexity, a broader energy base is required." An
example would be the need to achieve affluence before people cooperate in popu-
lation control.
"If it takes affluence to induce cooperation, and you can only do this by increas-
ing the energy base (a necessary but not sufficient cause for affluence), then it
would seem that the only way to increase the energy base is through greater
cooperation. So you've just got yourself in a self-stultifying situation."





















APPENDIX II

CRITICS BEGIN TO SURFACE
Following several years of development and promise, the limitations
of energy accounting have begun to emerge. The three articles which
follow ask what the technique offers that economic analysis fails to
deliver and conclude that, given the present state of development, it
not only offers little but might even be misleading.






























-w












ENERGY ACCOUNTING VS. THE MARKET


Based on a paper by Joel Darmstadter, given at the Pacific Science
Congress, Vancouver, B.C., A ugust 22, 1975. The paper was a spinoff from
Darmstadter's recently published RFF study, Conserving Energy: Pros-
pects and Opportunities in the New York Region (see p. 7).
The concept of energy accounting, which is now enjoying something of a vogue,
challenges the adequacy of the usual economic forces and economic criteria to
impel desirable energy conservation measures. Its proponents argue that rational
energy conservation measures can only be pursued in the framework of explicit
and quantitatively detailed knowledge of the energy implications of contemplated
courses of action. In this view, for example, the choice between a bus system
and a rapid-rail transit would be decisively governed by which mode promises
to deliver the most passenger miles per unit of energy required. Any other cost
questions would be secondary. In its extreme form, such an approach would
accord to an "energy standard of value" a status parallel to the conventional
monetary basis of decision making. Indeed, some legislators have sought to impose
a requirement for energy impact statements on contemplated governmental
actions.
One of the concepts spawned by energy accounting is that of "net energy."
which refers to the fact that it takes energy to produce energy. While this is
obviously true, it is less obvious that energy input-output measures are the only
way to avoid the dangers of putting more energy in than is gotten out.
The dissatisfaction the proponents of energy accounting feel toward market
forces has arisen for obvious reasons. It is easy to observe that people often
prefer to drive their cars to work. even when public transportation is cheaper
and readily available. Manufacturers may be reluctant to switch from an exist-
ing production process to another, more expensive but less energy-wasteful, mode.
People with frost-free refrigerators are willing to pay not only for the more
expensive appliance, but the higher electricity bills as well. Clearly neither cost
saving nor energy conservation ideals are the prime considerations of the com-
muting car drivers and the frost-free refrigerator owners. And the manufacturer
in the example is actually rewarded for his energy-intensiveness.
It would be incorrect, however, to assume that these observable behavior pat-
terns are an argument against using cost and price measures for energy con-
servation. Rather, they are an argument for remedying a defect in market pricing,
which has failed to exact full payment for social harm. For example, no pay-
ment has been exacted for environmental damage caused by automobiles. A manu-
facturer's energy use might so pollute the environment that, were he charged for
the damaging emissions, his inducement to shift away from energy-intensive
processes might rise. Those using energy-was.ting appliances have chosen to pay
higher energy costs to avoid drudgery-but here, too, costs might, in time, rise
to a point that would discourage all but the most luxury-loving. In the last
analysis, choices to conserve energy can be influenced by higher costs, but cannot
bo dictated by them because energy consumption is. only one element in a much
wider range of human activity. Consequently, the energy accounting approach.
by focusing solely on energy, may result in misguided policy emphasis.
An example of this can be shown in land use policy. Cities. with their high-rise
apartments, compact shopping districts, and public transport, are much more
energy-efficient than suburbs, with their heavy use of private auto transport,
dispersed shopping facilities, and single-family dwellings that are considerably
heavier energy users per square foot of living space than multifamily units. But,
clearly, energy consumption is only one of many social concerns in land use; be-
fore choosing to increase the number and density of cities, one would wish to
consider such things as esthetics, recreation, open space. conserving resources.
other than energy, less air pollution, less crime, and so forth. The costs of these
amenities include some degree of increased energy use, but the advantage of the
market pricing system, when it works properly, is that it takes all costs.--not Just
energy-into account.
(75)






76

This does not deny, however, the existence of imperfections in market pricing
processes and institutions, as well as gaps in information, which do interfere
substantially with desirable shifts toward energy-conserving behavior. To rem-
edy these defects, a number of measures to improve the market pricing approach
could be considered.
For energy users to be able to respond knowledgeably to market conditions,
government policies designed to guide consumption practices along a more in-
formed path are clearly desirable. Examples include mandatory information on
energy efficiency and costs in the heating and cooling of newly constructed build-
ings; in the operation of automobiles; or in the use of room air conditioners.
Governmental policies designed to shape market outcomes through explicit
action to influence prices could also be brought into play. For example, a govern-
mental horsepower or weight tax would help sway owners towards smaller cars.
Gasoline taxes would do the same and might encourage much more car pooling.
The expansion of public transport-particularly bus transit systems, which are
less burdensome than is the case with the enormous capital commitment of rapid-
rail service-is badly needed. In housing, compulsory insulation standards and-
conceivably-some changes in home financing arrangements supportive of energy
conservation practices suggest themselves.
In the past, governmental action may have had an effect detrimental to con-
servation. For example, many people believe that the government's control over
interstate natural gas prices-which are set far below market clearing levels-
have artificially encouraged consumption of the scarce and desirable resource
and deterred supply expansion.
In'summary, the potential for significantly diminished levels and growth rates
in energy demand undoubtedly exist, but the feasibility of such savings must
be measured by an economic yardstick. The virtues of the price system, with all
its weaknesses, is that all costs-not just energy costs-are accounted for. Only
through the medium of the price system can we measure the benefits gained or
foregone by altering a consumption habit or a production process involving direct
or indirect energy inputs, rising energy costs can and probably will curb demand
(there is also the possibility that some part of the public will meet rising en-
ergy costs by curtailing expenditures in other areas). Public policy can do much
more in fostering conservation through information and demonstration pro-
grams and through tax and price measures that expose the energy consumer to the
full cost of his consumption.


THE ECONOMICS OF ENERGY ANALYSIS

(By Michael Webb and David Pearce)
The object of this paper is a critical appraisal, from the economist's standpoint,
of what appears now to be called energy analysis, but which has, at one time or
another, been called energy budgeting, energy accounting and energy costs. The
proliferation of articles on energy analysis and the fact that it has apparently
been afforded serious attention in political circles and official documents,' are in-
dications of the importance now attached to this technique. Remarkably, how-
ever, energy analysis has been subjected to only a minute amount of published
criticism, although we are aware of extensive verbal criticism from many quar-
ters. We seek to correct the balance as far as the published literature is concerned.
While what we have to say is frequently critical in a purely negative sense, we
hope that what we have to say will prompt energy analysts to define in a rigorous
fashion the real uses of their studies.

THE GENESIS OF ENERGY ANALYSIS
It is useful to begin by asking why energy analysis should, in recent years,
have become so important, even if that importance, in our view, is exaggerated.
The genesis of EA is clearly the awarene.%s, now a commonplace, that the world
has many natural resources in finite supply. Of these, energy resources-at least
as far as the fossil fuels and uranium are concerned-are clearly limited as a
stock. Others such as solar energy are limitless flows (within any sane time hori-

SNational Economic Development Office, Energy conservation in the United Kingdom:
Achievements, Aims and Options, HMSO. London 1974. See especially pp 90-1.






77


zon anyway). However, as far as the 'renewable' or unlimited fuels are concerned,
technology is not developed to apply them to practical use and they must remain
in the realm of probabilistic future supplies. To plan the future on the basis of
what might be is to engage in a maximax policy the costs of which, if technology
fails to generate the required new fuels, would be catastrophic to future
generations.
We accept that the critical issue in what we might call nonspeculative plan-
ning is that of rationing resources intertemlporallly in the most equitable fashion.
Inter-generational equity is a subject of detailed concern by economists, al-
though we would be dishonest if we suggested that all ecmnomnists believe in ac-
commodating the problems bequeathed by one generation to another in their
analysis. But what we car say is that energy analysis offers no assistance with the
problems of intertemporally allocating resources in finite supply.
The reason for this is simple-EA is a purely mechanistic technique devoid
of all value content (even though, as we shall argue, its exponents often use it
for evaluative purposes). As such it can tell us nothing about optimal allocation
rules. We make no specific counter-claim for economic analysis either. The liter-
ature on the economics of intertemporal allocation is frequently rarified and this
is not the place to discuss its merits.2 What we are concerned to note is that the
fact, if it be one, that current teclhnoloy sets a limit to the availability of exploit-
able energy is not one that affords EA any importance. Instead, it seems to us
to make the normative issue of intertemploral allocation that much more impor-
tant. and this is not something that EA can, in our view, assist.
Slesser' writes that 'economics treats the world as a closed system having ac-
cess to limitless amounts of energy, whose acquisition takes only time, capital,
labour and technology. But this is simply false. There is nothing in economic sci-
ence that requires us to assume limitless resources of any kind. Scarcity is, in fact.
the very foundation of economics.
The same false charge that economics assumes 'no shortages of any inputs
to the production system' has been made by Chapman.4 He compounds the error
by stating that economics assumes substitutability between inputs where as en-
ergy analysis does not. Indeed, both Slesser and Chapman emphasise that. if capi-
tal and material inputs are reduced to energy units, the result is a two-input
model of the economic system-the two inputs being labour and energy-then
there will be non-substitutability between labour and energy. As Slesser says 'in
the last analysis, energy does what labour cannot do'. Continuous substitutability
between input is indeed an assumption of neoclassical economic analysis, but it is
not a necessary one and much of the progress in economics since the formulation of
neoclassical axioms from 1870 to 1940 has been in the realm of reassessing the
neoclassical results in the context of product discontinuity. The general outcome
of this analysis is that the original results of the neoclassical system remain
intact.
However, even if the possibilities of substitution are non-existent, it remains
the case that the problem again reduces to one of rationing resources over time.
Thus, if labour and energy are, in some sense, the only resources, if substitution
Is constrained, and if energy is a finite non-,renewable stock whereas labour is a
renewable flow of resource, the policy options are:
Allocate resources over time according to some intergenerational welfare
criterion.
And/or restructure the configuration of material output in favour of
labour-intensive and against energy-intensive outputs.
It is evident, and would seem to be admitted by most energy analysts, that
EA has nothing to tell us as far as the first option is concerned. Its role in the
second also seems more than questionable. If energy is scarce then some price
change will take place, generating exactly the product substitution called for.
However, if, as we would accept, market prices are non-optimal even with re-
spect to current-generation biassed decision-rules (and hence even more non-
optimal with respect to future-oriented rules) then it would be useful to identify
energy intensive activities so as to adjust market prices to reflect the true
shadow price, perhaps, by the use of an energy tax.

SFor an interesting contrast see the essays by I. F. Pearce ind by J. Kay and J.
Mirrlees in D.W. Pearce (ed), The EFroniominiR of Natural Ret'ource Depletion, (fMacmRlllan.
Bas.ingstoke. 1975).
3 M. Lesser. 'Accounting for energy', Nature. vol 254. March 20. 1975.
4 P. Chapman. 'Energy costs : a review of methods.', Energy Policy, No. 2. vol 2. p 91






78

What is not clear, however, is why we need EA to identify such energy-
intensive uses: a tax on energy consumption can be implemented without carrying
out elaborate exercises to identify energy use. If, say, some tax proportionate
to energy consumption was introduced, energy-intensive activities would auto-
matically bear the heaviest tax burden, simply because energy costs comprise
part of the costs of production of economic activity and because these costs are
shifted forward from the most basic economic sectors such as resource extraction
to the final product. In short, we fail to see where the 'two factor' approach
adopted by energy analysts takes us. At best it adds nothing to what simple eco-
nomic analysis tells us, at worst it serves only to obscure the issue.
We may also note at this point that reducing inputs to energy and labour ob-
scures the fundamental reason for the separating out of capital by economists.
Basically, capital generates a flow of goods in excess of the original value of the
capital. Indeed, this is the very rationale of capital investment. If it were not,
we would merely be diverting resources from one use to another with the same
value and hence gaining nothing. We have nowhere seen in the EA literature ref-
erence to the productivity of capital.
Clearly it can be accommodated in the sense that capital reduced to energy
units generates a flow of energy values if the project is productive of energy
(eg a nuclear power station). We would then have a situation in which there
would be labour inputs (measured in man-hours or in value terms?) plus energy
inputs to be offset against energy outputs plus any non-energy outputs. But such
a calculus is devoid of any use, because it offers us no decision rule by which to
choose options. If we have a project using a combination of, say, 4 energy units
and 6 labour units, with output 5 energy units and 3 units of some commodity,
how do we decide if it is worth undertaking?
The absence of a homogeneous measuring rod relating to values in energy
analysis makes such a calculation worthless. The only way homogeneity of units
could be achieved would be to reduce labour to energy terms as well and to value
commodity output in energy terms. The latter appears to be what some energy
analysis would want to do, but they resist the reduction of labour to energy units.
As such we have no homogeneous unit and hence no decision criterion.
Alternatively, the rule might be to select projects which minimise energy costs
regardless of the levels of other inputs. Energy analysts appear divided on
whether such a rule is sensible. While protesting on the one hand that EA
cannot be evaluative it is not in the least difficult to find in the literature state-
ments such as 'energy analysts believe that it makes sense to measure the cost
of things done, not in money, which is after all nothing more than a highly
sophisticated value judgement, but in terms of thermodynamic potential.' But
if EA is not evaluative, what is the point of such an elaborate exercise?
We elaborate on this point in later sections. For the moment we argue that
the energy analyst's attempt to differentiate their subject from others by reducing
economic systems to two-input analysis serves no useful function and, indeed,
only obscures some important aspects that differentiate energy embodied in
capital from energy embodied in other commodities.
There may well be other 'energy limits' or 'boundaries' to economic activity.
Many writers have commented on the pollution limits set by the effects of waste
heat dissipation. Georgescu-Roegen for example states 'The additional heat into
which all energy of terrestrial origin is ultimately transformed when used by
man is apt to upset the delicate thermodynamic balance of the globe." These
expressions of concern are well-taken and do indeed reflect lack of attention
to the laws of thermodynamics by economists. What is not clear, however, is why
we need EA to identify this boundary, or, if we do need it. why the existence of
such a boundary is thought to involve some deep criticism of economic analysis.
The most basic assumption of economics is that economic agents-consumers
and producers-seek to optimise subject to constraints. If there is indeed a dissi-
pated heat limit to economic activity this constraint can be added to the optimisa-
tion problem. Occam's razor demands that we do not multiply our techniques
beyond the minimum necessary if existing techniques are quite capable of accom-
modating the problem.

5N. Georgpscu-Roegen. 'Energy and economic myths', Southern Economic Journal, vol
41. No 3 January 1975.






79

THE HOMOGENEITY ASSUMPTION AND RELATIVE PRICES
Energy analysts treat energy as an entity that can be aggregated regardless of
its source. The exception is labour energy which is differentiated from other
energy inputs.
In energy analysis, any commodity, i, can be 'reduced' to some energy content
Ei plus some labour content LU. The volume of output can be left in physical,
monetary or energy terms, giving us expressions of the 'cost' of a unit of that
output of the form

Energy Cost= EiL
Ej+ Lii
where Qi is the output measure of i. We have already commented on the dif-
ficulties of finding a use for such a ratio. We may note that the aggregation
problem in economics is 'solved' by using prices. That is, Qi would blie measured
in value terms, and the denominator would appear as
e=n L=ma,
5 P,.X-+ ,, PL.L
e=l L=l
where Pc, Xe refers to the price and quantity of different energy sources. and
correspondingly for labour. The prices in these expressions will. if markets
function properly, reflect consumers' willingness to pay for the product in ques-
tion, or, for inputs, the benefit foreg(mone to consumers by using the input in its
current use rather than the next best use (the input's 'opportunity cost'). Where
markets do not operate properly the prices used are shadow prices-prices
which, if they did operate, would reflect marginal willingness to pay on the part
of consumers. Either way, the use of prices serves to homogenise the heterogenous.
units and to import value-content to the resulting aggregate.
Before proceeding to discuss the validity of the analogous procedure in energy
analysis-the use of energy units to homogenise inputs-we may note that
shadow prices also bear some relation to the finitude of resources. Essentially, if
markets operated freely and perfectly, the current price of a resource would
reflect expectations about the limited stock of that resource. As the stock is
depleted the price will rise, thus rationing the use of the resource, inducing the
adoption of substitutes, encouraging recycling, and so on. Where the totality
of resources of a specific kind, such as energy, are concerned, this mechanism will
not operate except in the sense that labour and capital can be substituted for
energy.
Now, energy analysts are quite right to point out that the possibilities of this
kind of substitution are limited, although not, one suspects, as limited as is often
suggested. We know, however, that markets in natural resources such as energy
do not function perfectly. We need not dwell on the reasons for this here7
but it is important to note that we do not know the extent of the deviation of the
appropriate shadow prices from the actual market prices. We have noted a
tendency in some of the EA literature to assert that market prices fail totally
to reflect future scarcity, an assertion that is nowhere substantiated by any
evidence. Indeed, assessing the evidence is a complex issue.
We are prepared to believe, however, that current resource prices are not
accurately related to future scarcity. What we need to know, then, is how EA
will assist us in identifying the future limits. As we argued earlier it is not in
the least clear how it assists.
We can now turn to the central matter of this section : the homogeneity assump-
tion in energy analysis. To demonstrate the problems of using a common energy
unit (or, indeed, any common physical unit) we consider an example which
contrasts such a physical measure with the economist's concept of opportunity
cost outlined above. Assume the existence of some resource, call it 'oil', which is
homogeneous and in finite supply. In addition assume that all the deposits of

'Properly' in this context relates to a situation in which the configuration of prices
maximises consumers' welfare in the aegregate. The EA Iterature contains numerous
comments on the biases imparted by using market prices but we have nowhere noticed
even qn awareness of the idea of shadow pricing. perhaps because energy analysts
mrQttakpnlv idpntlfv economics with the free enterprise ethic.
7 See the introduction to D.W. Pearce (ed). The economics of natural resource deplc.
tion (Macmillan. 1975). where the various divergencles are listed.






80

this resource are equally accessible and thus that there is no change in the
physical inputs required to obtain a ton of this resource. Thus each ton can be
obtained at a constant expenditure of energy. Finally, for simplicity, assume that
there are no substitutes available for this resource.
As the physical exhaustion of this resource approaches, energy analysis will
continue to measure its cost calculations at a constant 'cost' (in termnis or kWht
etc). But economic analysis would show the price of 'oil' increasing to reflect its
increasing scarcity. This would probably happen in two ways. Suppliers, seeing
the coming exhaustion of their product and knowing of the absence of the
possibility for substitution, will raise its price. Second, if there exists a futures
market, dealers in this market would offer higher prices for the product as the
time of its physical exhaustion approached. If there is no futures market, the
price will nonetheless rise because of supplier reaction. Whether the time-profile
of prices that results is an 'optimal' profile from the point of view of social welfare
is not relevant to this example. We noted above that the profile may well deviate
from such an optimal path. Our point is that prices will rise by some amount to
reflect scarcity, whereas the energy cost will be constant.
In such a situation energy analysis would be a poor guide to increasing scar-
city: indeed, in this case it would indicate no scarcity at all. Now, energy anal-
ysts have emphasised that one of the main functions of EA is to identify
changes in relative prices over time. It is argued that, because of the deficiencies
of the market mechanism, economic analysis will not identify those changes, or, if
it does, will do so later than energy analysis.8 Indeed, this appears to be the
sense of some of the more grandiose claims for EA. Berry, for example, has
said 'if economists in the market place were to determine their shortages by
looking further and further into the future, these estimates would come closer and
closer to the estimates made by their colleagues, the thermodynamicists.'" Our
simple example shows that no such convergent process need occur.
Now suppose that instead of the 'oil' being equally accessible it has a decreas-
ing quality gradient-to obtain the marginal barrel of oil we need to expend
extra amounts of energy and other resources. This is perhaps more pertinent to
many material resources. As more and more marginal resources are exploited
we can expect the energy cost to rise and hence there is some relationship be-
tween scarcity and energy cost. Equally, however, we will find that the real
economic cost of extracting the marginal resource will rise. We can illustrate
this by taking the example of copper extraction.
We know that the grade of copper ore has been declining. It has been calcu-
lated that fuel input per unit of copper output for the USA fell to about 1930,
rose slightly from 1930 to 1950 and then rose very fast indeed to 1960. The curve
is in fact a flat-bottomed 'U' shaped curve. The important question relates to
the information provided by this curve. Would it indicate that energy analysis
has pinpointed a rise in the relative (real) price of copper earlier than economic
analysis would, and hence is more sensitive to scarcity? It is certainly the case
that if we look at the real price of copper (the money price deflated by an index
of manufacturing wage rates) we find it rises much later than 1930-somewhere
in the mid 1960's.10 Has energy analysis therefore anticipated the relative price
rise?
The problem is that it is impossible to draw any conclusion at all from such
an analysis. Firstly, the energy cost of copper extraction is only one of the costs
involved. The energy approach and the economic approach are therefore non-
comparable. Secondly, if we took the money costs of fuel inputs we would secure
the same result as EA. Quite simply, whatever the energy inputs into copper ex-
traction, and however far back the energy costs are traced through the economic
system, those inputs will have prices and the accumulation of prices will be
revealed in the final money cost of fuel for copper extraction. In short, if we
are interested in energy inputs along it is completely unclear why we require
energy analysis rather than the straightforward and readily obtainable money
cost of energy inputs.

8 P. Chapman, 'Energy analysis: A review of methods and applications', Omega forth-
coming.
9R.S. Berry: US Congressional Record, 92nd Congress, S 2430. 1972. Quoted In
M. Slesser, 'Energy analysis in technology assessment', Technology Assessment, vol 2,
No 3, 1974.
10 W. Nordhaus, 'Resources as a constraint on growth', American Economic Review,
1974.






81

Thirdly, the analysis presumes scarcity rather than demonstrates it. That is,
the fact that the energy costs of securing extra copper are rising need in no way
be correlated with a scarcity situation. We argued( above that a decreasing qual-
ity gradient situation would tend to have rising energy costs associated with it.
It does not follow from this, however, that every situation in which we observe
rising energy costs is a situation of scarcity. In contrast, whatever the defects
of market prices, if we observe the real price of copper rising we can deduce
something about scarcity.
We must be careful not to claim too much for economic analysis in this respect,
however, for it is equally true that if markets fail to operate at all sensitively,
constant or falling real costs might exist even though a scarcity situation might
exist. All we are saying here is that we fail to see how energy analysis improves
our knowledge of the situation. Fourthly, simply because energy inputs per unit of
output rises befor- the real price of copper rises, no conclusion to the effect that
energy analysis has anticipated a relative price rise can be deduced. The an-
alysis tells us nothing, for example, about technological change. It also assumes
a decreasing quality gradient which, while it may be a sensible assumption for
copper, is questionable for other resources.
Finally, whereas the economic argument that current prices reflect future
scarcity has some rationale to it, a rationale based on the maximising behaviour
of resource owners, energy analysis offers a purely melhanistic interpretation
of future scarcity based on the simple pro)positioi that the exploitation of copper
has led to the processing of leaner and leaner ores. To put it another way, what
does energy analysis tell us that is not already contained in the fact, readily as-
certainable, that copper concentration in ores has been declining over the years?
If we reformulate the EA proposition as saying thle declining ore quality is a
sign of increasing scarcity we are stating thle obvious as long as we ignore tech-
nological change and the chance of higher quality ore discoveries.
We can extend the analysis further. So far we have considered the case of an
homogenous resource with no decreasing quality gradient, and the case where
the quality gradient does decline. Now we consider the case in which we have sev-
eral different types of energy inputs, say electricity from nuclear power, hydro.
electricity and coal. In economic analysis different inputs are held to be effi-
ciently allocated if the extra output (marginal product) produced by each last
unit of input used to produce each output is the same. The marginal product of
each input must lbe the same in all its uses. In the economist's language, the mar-
ginal rate of transformation is common between all inputs.
Now, different types of energy may be used in various ways-they can be
used to supl)ply energy directly, or they can be converted into other forms of en-
ergy for indirect use (coal into electricity etc). As Turvey and Nobay have pointed
out," the marginal rate of transformation of factors in production (assuming the
satisfaction of the conditions required to give an efficient allocation of resources)
gives one economic measure of how one fuel type should lie converted into each
other. In cost terms the various fuel inputs should lie valued at their marginal
production costs. Where fuels are purelased by consumers the conversion factor
is given by the rate at which the consumer is prepared at the margin to substi-
tute one fuel for another so as to maximize his utility. This is the marginal rate
of substitution and, assuming efficiency in the allocation of resources, is meas-
ured by the marginal cost of the fuel to the consumer.
What these concepts tell us is that in both production and consumption a therni
is not necessarily a therm. Fuels have a number of attributes and heat comn-
tent is but one. Two fuels with tlhe same lnieat content but other different at-
tributes (in terms of cleanliness, transportability, etc) would have different
marginal costs. In terms of economics the fact that two forms of fuel have the
same heat content does not make tlhise fuels identical. But in energy analysis
the assumption of homogeneity (kilowatt hours are kilowatt hours regardless of
how they are produced) obscures this important difference. The ('a.u1OItion of
energy eosth using the homogcm.ify (i.zsiumptiow nmakxc eCnrgy ana1y.vi irrlerrant
to the process of resource allocutiron now and over time. If, on the other hand, the
ho'nmogcncity assumption is relaxed, energy anal!'sii. has no foundation.
This point needs consider lilde emphasis since it lies at the heart of the mi.sus.
of energy analysis, and is tihe foundation of its exaggerated imniorta lv Only

R. Turvev in]nd A.R. Nohayv 'On invna-iring energy eI-oniisumption', Eronomir Jniinial,
December 1965






82

by assuming homogeneity can EA proceed. But once homogeneity is assumed EA
loses all relevance to resource allocation decisions. We may note that this pre-
cludes EA from being used for virtually all of the purposes claimed by energy
analysts. Examples are numerous. Thus it has been claimed 12'3 that if the av-
erage thermal efficiency of power stations is 25% then 75% of the energy input is
lost. But within the economic system consumers are demonstrating a preference
for a secondary fuel input over a primary fuel input. The price which they pay
for electricity will reflect the opportunity costs of the inputs, including coal.
used to make it. This is true irrespective of how much of the heat content of coal
would be released in its alternative uses.
In the market economy system if consumers demand coal as an input to make
electricity they are saying that they value its use in this way more highly than
in its alternative uses, even though in these alternative uses all the coal's heat
content may be released. It follows that it is misleading to talk of the therms
not directly converted into electricity as being 'lost'. Their alternative uses
are assessed by consumers when the price system functions reasonably well.
Another problem with the implicit homogeneity assumption can be illustrated
using an example given by Chapman."4 He sees one of the possible uses of energy
analysis as being the ranking of alternative energy conservation investment proj-
ects. Such projects are to be ranked simply in terms of the number of therms
saved per invested. Now clearly this implies that all therms are equally 'worth'
saving, whether they come from domestically produced coal, imported oil, or
foreign enriched uranium.
To appreciate some of tihe problems involved with this approach consider the
following example. Suppose that expenditure of 1 on the enforcement of speed
limits led to a saving of 10 therms in reduced petroleum consumption; that an
exl)enditure of 1 on a law limiting the heating of public buildings led to a reduc-
tion of coal consumption (used for electricity) of 11 therms and that an expend-
iture of 1 on the development of a new gas cooker (of better efficiency) led to
a saving of 12 thermnis.
On the simple objective being used the last policy would be the best. But this
choice would imply that not only would the alternative use values of the alter-
native fuels be neglected, but, in addition, it would be assuming that saving a
therm of imported energy was equivalent to saving a therm of domestically pro-
duced energy. On the first of these lwints it is quite clear that if a government
really wished to do this it could have a considerable amount of energy at little
financial cost merely by introducing physical -ontrols on the use of energy,
eg rationing. But if such a policy were to consider only its costs of implementa-
tion and the resulting energy savings in physical units, it would be ignoring the
value of the benefits foregone due to the reduced consumption of energy. The
problem then is simply that the saving of energy measured in physical units
implicitly assumes a one-to-one correspondence of benefits foregone to energy
(per therm) saved. In the market type economy there is no reason why this
correspondence should exist.
ENERGY ANALYSIS AS A NORMATIVE TECHNIQUE: ENERGY CONSERVATION
So far we have tried to concentrate on what we might call the 'positive' claims
of EA, claims which we feel have not been substantiated. We now turn to the
wider claims for EA. These state that EA lihas sonime evaluative purpose. We are
very much aware that energy analysts, in the main, have declared, in some
cases repeatedly, that EA is not evaluative. Thus, Chapman declares 'Energy
analysis does not tell anyone what they ought to do'. 1 Since energy analysis is
merely an analytical technique this is what we would expect. Unfortunately,
however, these same authors have then used this technique to make policy rec-
ommendations. The same author has stated that energy analysis can be used to
rank alternative energy conservati-on lp)licies.
Used by itself this is just what it cannot do. The ranking of alternative policies
must be in terms of some specific objective function, and this function takes
us away from the positive aspects of energy analysis into normative issues since
this objective is necessarily not part of the analytical method. We might add that
Chapman's denial of the evaluative role of EA is not supported by some of his
colleagues. Hannon is quite explicit: 'In the long run we must adopt energy as
a standard of value and perhaps even afford it legal rights',1' (Our italics).

12P. Chapman and N.D. Mortimer. Energy Inputs and Outputs of Nuclear Power
stations Open UTniversity Energy Research Group, Report ERG 005. 1974.
13 P. Chapman. 'The Ins and outs of nuclear power'. New Scientist, 19 December 1974.
14 B. Hannon, 'Energy conservation and the consumer', Science, vol 189, No 4197, July 11,
1975.






83

Fundamental to the choice between, or ranking of, alternative policies is the
specification in an operational form of an objective function. In energy analysis
this is also necessary in order that the boundary of the system should be de-
lineated. In none of the papers on energy analysis that we have read is the ques-
tion of the form and specification of the objective function discussed adequately.
This may be the result of the (correct) view that energy analysis has no norma-
tive significance. But, as has been mentioned, in many of these papers policy
questions are discussed (and sometimes recommendations made) and so the
relevant objective should have been stated clearly. In this connection it is im-
portant to note that in economics the costs and benefits of particular actions
cannot be defined or measured until the associated objective function has been
specified operationally. Market price data are relevant in the pursuit of some
objectives, while for others shadow prices must be used. Since the use of money
values is sometimes recommended in energy analysis for the choice between
alternative policies it follows that the associated objective must be specified.
From the writings of a number of energy analysts it would appear that one
of their prime concerns is with the question of energy conservation. They are
particularly concerned to ensure that in the development of some energy source
(e.g. shale oil or nuclear power) more energy is not invested that will ie produced.
It is therefore pertinent to enquire whether energy conservation can be con-
sidered to be an (or the) objective.
Expressed in this way the answer must be 'no' because it is non-operational.
How much energy is to be 'conserved' over what time period? In what geograph-
ical area? Since all methods of production involve the use of energy should
the economic growth rate be chosen to maximise the rate of energy conserva-
tion? Since even a zero growth rate involves positive production levels the re-
quired growth rate would be negative. We presume this is not what is meant.
Perhaps what is meant is that each productive process (when substitutes are
available) should be selected so as to minimise the energy requirement. If this
is the intention, then general, rather than partial, equilibrium analysis is re-
quired and we note with interest that the development of satisfactory physical
input-output tables would meet this objective.
It ,remains the case, however, that objectives such as minimising the energy
input of a given output are distinctively evaluative. It introduces the idea that
energy as a constraint on economic activity is more important than any other
constraint. If, for example, we selected policies on the basis of energy content, pre-
.ferring those with low energy input to those with higher energy input, we could
easily find ourselves in a situation in which we would be adopting policies with
high total resource cost.
Certainly, energy conservation can be furthered by switching from energy-in-
tensive products to non-energy-intensive products. The difficulty is to see why we
need EA to further this end. Quite simply, the energy imputs into any economic
process will have a price attached to them. This price will reflect the resource
costs of supplying that input and included in these resources costs will be tlhe
energy inputs. In this way, the price of an energy input is built up from all the
related previous processes. An energy conservation programme would require
knowledge of how much energy costs will be saved by switching between
products, information obtainable from a monetary input-output table just as
readily as from a physical input-output table of the energy analysis kind. Further,
the use of monetary measures would at least offer some indication of social
preferences for the commodity switches whereas EA offers us no such guidance,
as we have repeatedly pointed out. In short, energy conservation measures based
on some index of energy input to commodity output implies an objective func-
tion. but it is a function unrelated to consumer preferences and we see no
justification for adopting EA as the appropriate technique when a preferable
one exists.
Chapman has stated explicitly "Thus if you want to adopt an effective energy
conservation policy you can compare the costs of various policies (in 's) with
the amount of energy saved overall (in kWht's or therms or joules etc). This
allows you to choose a best 'buy' in energy conservation."'6 Cliapiman claims

15 P. Chapman. The relation of energy analysis to cost nnnlv.ls, paper pr.spntol to
Tntltution of Chemlcal Engtneprs working pnrty on materials wnd energy rpsourrf,.. 1975.






84

that this choice cannot be made using economics because markets are imperfect
and mnarket-supplied data will be a poor guide to resource costs. In our view
there are so many problems associated with this approach as to make it non-
operational in the form outlined by Chapman. Further, although Chapman
criticises economics he then (implicitly) uses it in his proposed method of choice.
The first problem associated with this suggested method for ranking alterna-
tive conservation projects is its total ambiguity with regard to the meaning of
"costs". It is not clear whether cost refers to lifetime costs or to initial (invest-
ment) costs, and whether these costs are to be aggregated in nominal terms or
in time-discounted terms. In addition it is not clear whether these costs are to
be given by market data or, given Chapman's strictures against economics when
markets are imperfect, by the use of shadow prices. It is possible that what Chap-
man has in mind is some kind of social cost-effectiveness analysis. But in that,
event the alternative policies should be compared in terms of achieving a speci-
fied saving of energy, and the interpretation of costs as social opportunity costs,
made explicit.
All energy conservation measures will have a time dimension in the sense that
they will take time to implement and their effects will endure. A problem which
is immediately posed is that of determining the length of the planning period.
This again involves the making of value judgements. Since the effects of any pro-
posed policy will be uncertain a decision must also be taken on how to deal with
risk and uncertainty. In particular it must be decided whether an error of, say,
+50GJ in the estimate of energy requirements in any one year is to be con-
sidered as being no worse than an error of -50GJ with the exception of the sign
difference. This would be equivalent to saying that the marginal utilities of
equal size gains and losses were the same. Certainly we would doubt the value of
energy studies which made no reference to the range of possible outcomes, and
if possible with some probability estimates attached to them.
To illustrate some of the problems involved with an energy analysis of alterna-
tive conservation policies consider the following hypothetical example. For
simplicity we assume perfect knowledge of the future and we will interpret the
costs of the alternative policies to mean the initial costs.

Option year 1 2 3 4 5 6 7 8 9 10
GJ GJ GJ GJ GJ GJ GJ

A................ ---------------------- 50 100 50 100 100 100 100 100 100 100
B ---------------------- 20 50 130 150 150 150 100 50 50 50
C .--......------------------- 100 80 20 50 50 50 100 150 150 150


The question is then posed of how to choose between these al'rernative policies.
Each policy involves the same expenditure (200) and achieves 'the same saving
in energy (700 GJ). 'However, the time distribution of both the expenditures and
energy savings are different for the various policies. If we take Chapman's
proposal at its face value we would have to assume that each of 'these policies
was equally desirable. But this would not be the case if the policies were ranked
using economic analysis.
Firstly, from the economist's point of view neither the costs nor the con-
sequences of these policies are the same for each policy option. This is because
there is what is known as a time value of money, which simply says that equal
nominal sums to be paid or received at different dates have different values
when consideredd from the point of view of an individual or society. This means
that before money sums occurring at different dates can be added together they
must be re-expressed in terms of their values at some common date, such as
the present or the terminal year of 'the policy. Whatever date is chosen a rate
of interest must be selected. Now this involves many problems and the theoretical
basis for this rate is the subject of dispute among economists. It would not be
apl)propriate to go into these issues here, so we shall assume that the rate is 10%
(equal to the test discoun'r 'rate). Using this rate and discounting all costs to
year 1, the costs of the three policies are 182', 173 and 189 for A, B and C
respectively.
'The question must now be considered of whether a society would be indifferent
between alternative energy savings policies which achieve the same total savings
but with different allocations over time. In economics stress is laid upon the






85

time dimension in defining a commodity. This means that a unit of electricity in
1976 is not considered to be identical to a unit of electricity in 190SO or 1990. In
economics it would not be valid to simply aggregate the energy savings occurring
in different years. Before this aggregation can be made, -as with the investment
costs, all the energy savings inmusr be expressed in terms of their equivalent values
at some common year. Thus the energy units could be discounted to their equiv-
alent year 1 values. Using 10c as the discount rate, the discounted energy savings
are 401 GJ, 432 GJ and 366 GJ for policies A, B and C respectively. In economic
analysis, for the data given policy B is preferred. But what do we know about
this data?
Since in this example conservation polices are compared on the lt.asis of joules
saved per spent, an implicit assumption must be made that the price mechanism
is working perfectly. If this assumption is not Tmade what significance attaches
to the costs of the alternative conservation policies? Thus Chainian's strictures
against the economist's market assumptions in 'their comparisons of alternative
conservation policies apply equally to his own proposed method. However,
economists do not always assume that markets operate perfectly and much
modern work on project (and policy) appraisal involves 'the use of social cost-
benefit and social cost effectiveness analysis where that assumption is not mad(le.
If by cost of the alternative policies is meant market determined initial costs,
'then an important criticism of the suggested approach would be its total lack
of attention to the costs incurred by a nation during years 4 to 10 inclusive.
There is an implicit assumption that the recurring "cost" (however measured)
is the same per joule of energy saved. But why should this be the case?
Consider, as an example, the following 'two policy options both of which it is
assumed give rise to the same total savings of energy and have the same initial
cost. One l)olicy involves saving energy by passing a law limiting the speed of
road vehicles (with costs of new road signs and of the legislative process). The
other involves expenditure on the thermal insulation of houses. The effects on
producers and consumers per joule saved will be very different with these -two
policies. In the house insulation example conslmners continue to enjoy the same
or an improved level of home comfort and the initial costs of the policy are
followed by a flow of energy savings which do not involve any reduction in
consumer benefits. In the speed limit case, however, journeys will take longer
increasing industrial costs etc and there will be generated benefits in the form
of fewer accidents etc. It is clear that the effects per joule saved of different
energy conservation policies could l)e very different. The only satisfactory way
of proceeding would be to measure the costs of the alternative policies 'to include
all the direct and indirect costs, and to define the costs in terms. of some particular
objective function.
Earlier we discussed the homogeneity of energy assumption of energy analysis.
When alternative energy conservation policies are considered this assumption
is of crucial importance. This is because the way the energy conservation
evaluative method is set up it is implicitly assumed that it is equally desirable to
save 1 GJ of oil or 1 GJ of coal or 1 GJ of natural gas etc. But to look at the
problem in this way ignores the differences in the relative reserve positions of
the different fuels, the alternative uses which are available for those fuels (eg
the use of oil as a fuel input or as an input into plastics.), and of the geographical
location of .those different fuels. It seems to us that there would be a &rrong case
for an identification within energy analysis of the effects on each different fuel
of different conservation policies.

ENERGY ANALYSIS AS A NORMATIVE TECHNIQUE: INVESTMENT APPRAISAl.
In some of their work energy analysts have adopted an investment criterion
which economists know as the pay-back criterion. This criterion has played an
important role in the energy analysis of nuclear power. Both Chainmaln un(d
Mortimer" and Price" have calculated the number of years for individual
nuclear stations and for programmes of such stations that will (on certain con-
ventions and assumptions. and ignoring risk mind uncertainty) elapse before the
energy produced exceeds the energy consumined. The implic; ation of their analysis
is that -the shorter is this period the better is the project. But this is not ilIt-.ces-
sarily so, and there are a number of problems assUociated with the uise of this
criterion which must be clearly understood before it. is used in the making of
policy decisions.

1J6. Prier. Dyanamir energy. annool.iR and nuclear power. Friends of the Enrth ltd for
Earth Re.ourceR Ltd. lindlon. Doempinhbr 1974.






86


An implicit assumption of this inet'hod is that the expenditure or saving of
a nominal unit of energy has the same worth irrespective of when that expendi-
ture or saving takes place. This criterion would rank the following two projects
equally. The negative signs indicate a net energy consumption by the project,
(on whatever measurement unit is chosen), while the positive signs indicate a
net energy production.

Project/year 1 2 3 4 5 6 7 8 9 10

A......................... ---------------------300 -200 -100 600 600 600 600 600 600 600
8......................... ----------------------50 -100 -450 600 600 600 600 600 600 600


The fundamental question which is raised is that of whether "society" is
indifferent to exactly when energy is produced or consumed. This question im-
mediately raises a number of complex issues, the most difficult of which is
probably the determination of the relative weight to be given to a unit of energy
production or consumption by different generations. The calculation of this
weigh'c is a matter of controversy among economists. But there is general agree-
ment that its value declines through time and that it is less than one. This means
that society prefers consumption (savings) which occur relatively early in time
to those which occur relatively late. Applying this principle to projects A and B
it would follow that society would prefer project B to A since, when allowance
is made for time, it has lower costs but the same benefits. The first problem with
the energy pay-back criterion is its neglect of the importance of time.
Other problems involved with the use of this criterion include its failure to
recognize explicitly the need for the normnialisation of the lives and capital outlays
of the alternatives projects. That is, how is a comparison to be made between
two projects which have different estimated lives and investment outlays?
Sufficient. has been said to demonstrate the unsatisfactory nature of the energy
pay-back criterion.
CONCLUSIONS
While most of the protagonists and practitioners of EA would probably agree
that as an analytical method ilt is in its infancy and requires considerable refine-
ment, the amount of publicity which has been given to the "conclusion" of some
its papers makes it of paramount importance that the deficiencies and limitations
of this method be widely understood.
An example of the publicity given to one of its "policy conclusions" is the
work of Chapman and Mortimer, and Price (cited above) on the optimal con-
struction rate for a programme of nuclear power stations. At times, these aulchors
have provided what must seem to the layman to be powerful arguments against
the rapid build-up of nuclear generating capacity. Their concern has been to
show tha'r, ignoring all questions of the constraints in the construction industry
on the maximnium rate of construction, etc, that with some building programmes
of thermal reactors, nuclear power "would always be a net consumer of energy:
the more reactors we build, the more energy we should lose"." It is our contention
that the policy consequences of the acceptance of this implicit policy recom-
mendation -are potential so serious that even at this stage of its development
the methodology of EA needs to be subjected to detailed scrutiny and criticism.
Our original intention was to offer positive criticisms of and comments on
EA in the hope that they would help with the further refinement of this method.
At that time it was our belief that by providing a decision taker with more in-
formation EA should be an aid to the taking of "good" decisions. Unfortunately
as our study progressed the deficiencies in EA appeared to us to become more
fundamental. Thus we must conclude that EA as now formulated and practised
does not have any use beyond that which is currently served by some other
analytical technique.
As we have argued in this paper EA does not; (i) offer a method of evaluating
projects, (ii) enable predictions to be made of changes in relative prices (either
of the type coal against oil, or energy against labour), or (iii) permit a choice
to b)e made between alternative conservation measures. If energy analysis does
not do any of these thingss, what does it do? We have been unable to find an
answer to this question. If EA has uses not already adequately met by other
techniques, it must be for energy analysts to demonstrate those uses by both a

17 J. Price, op cit, p 24.









far more lucid exposition than they have so far provided and a direct comparison
of IDA and any other approach in a case study. It is our belief that the applica-
tion of EA has run far ahead of the admirable motives that have produced it.
In the absence of a convincing response to the challenge we have losed above we
suggest that it is a technique searching for a function.


NET ENERGY ANALYSIS-Is IT ANY USE?

(By Gerald Leach)
Net energy analysis began with two reasonable suspicions and an apparently
simple method for testing them. The first suspicion was that as we turn to more
diute and difficult energy sources the amount of "energy needed to get energy"
will increase so that the net energy delivered will fall-perhaps in some cases
to zero or less. In the long run this trend might be all-pervasive and set an
ultimate physical limit on energy-based activities. The second suspicion was
that traditional disciplines might miss these ominous trends because they either
set narow system boundaries or use indirect units such as prices to measure
energy flow. Net energy analysis or NEA therefore proposed measuring "all"
energy flows associated with energy supply (and conservation) technologies
and measuring them directly in energy units of account. Since all energy fore-
casting and policy issues are basically about such flows (though about lther
things as well) this procedure could sharpen all insights and decisions in the
energy field.
The idea had obvious appeal and caught on rapidly. From the start there
were sceptics, chiefly economists, who often based their attacks on a mis-
understanding of the humble aims of NEA as a descriptive science, believing
they smelled heresy in the form of proscription and energy theories of value.
But more recently skepticism and doubt have spread to net energy analysts them-
selves, especially in recent months as the tide of studies produced a remarkable
variety of methods, assumptions and "results" which could not easily be ex-
plained away as merely the teething troubles of a new discipline. These worries
culminated at the large NEA workshop held in August 1975 at Stanford, Cali-
fornia to compare and standardise procedures, where failures to resolve im-
portant methodological issues were more common than consensus.
In this article I take a critical look at NEA and suggest that the worried
have good cause. At one level. I argue that as a practical tool for present day
energy problems NEA is an elaborate sledgehammer for cracked nuts, adding
little of importance to established energy studies.. Nor doe.,s it have any special
virtues as a longer term seer. At a deeper level. I suggest that NEA is plagued
by methodological torments that cannot be resolved in any practically useful
way, making it a Heath Robinson nut cracker. These are harsh conclusions and
as a worker in the field I come to them reluctantly. The basic objections of NEA,
like other comprehensive "look out" studies such as environmental impact analy-
sis or technology assessment, are admirable. What I question here is how effec-
tively NEA can ever support these fine aims in practice, while stressing that the
question is a practical one in view of the widespread adoption of NEA by energy
agencies, especially in the USA where Public Law 93-577 2 now requires a man-
datory net energy analysis on new energy technology developments.

TERMS DEFINED
At the outset I must emphasize that I am not discussing energy analysis in
general, though some of the critique of NEA applies to this broader subject also.
By estimating the total (fossil fuel) energy embodied in the final output of
goods and services and thus capturing the often very substantial "hidden" indirect
energy requirements for production, energy analysis has several most important
uses. For example, it can map national energy flows in fine detail and thus help
demand forecasts; it can identify energy intensive products; and it can say
much about the inflationary impact of higher fuel prices.

1 Draft Proceedings Report: Net Energy Analysis Workshop. August 25-30. 1975; In-
stitute of Energr.v Studies. Stanford UTniversity. California. USA.
S Federal Non-niuclear Energy Research and Development Act of 1974. Section 5(a)
5. which reads: 'The potential for production of net PeneTrgy by the proposed technology
at the stage of commercial application shall be analyzed and considered In evaluating
proposals.'







88

In contrast NEA studies only the energy requirements for energy products or
savings. However, most of these have long been studied by traditional disciplines
so that in a strict sense NEA adds only one new component: the previously
"hidden" indirect requirements for materials, capital plant, non-energy products,
services and the like. It is this "hidden" subsidy of delivered energy which is
returned by the consumption sector to build up and operate the energy supply
sector which NEA claims is important, which gives it its name, and on which,
in my opinion, the value of NEA's contribution should be judged.
This cardinal point and the terms I shall use are clarified by Figure 1 and
the definitions below. The figure shows a generalised energy "module" which can
represent any level of aggregation from a single stage of a fuel conversion chain
(eg, a coal mine in Wyoming) to a whole national energy system and clearly
shows the feedback loop I of energy subsidy which reduces the gross output of
energy to a net amount available for the demand sector. The energy flows, which
may be zero in some cases and for simplicity are assumed to be the sum of sepa-
rate components, are:


I.

SSubsidies I I


Direct fuels / erials services, etc


S. Final useful
fEnergy extraction, _L0 Ef work and
S resource n processing etc h Output Eo Net output N hat



Return Er.

Resource 'lost' Es Waste E, Waste heat Eh

Supply Demand


FIGURE 1.-Generalised energy system with main energy flows.

Ei-principal energy input: eg, raw feed to a process stage or fuel extracted
from a resource stock S.
E,--energy of resource S rendered unusuable by extraction: E.+.E, equals re-
source reduction.
E--energy of principal input discarded as waste material: eg, coal spoil ura-
nium mine tailings. E, and many flows and flow-pairs B. is strongly
cost and technology dependent.
Eh-waste heat discarded.
Er-principal energy output returned to operate module or a previous stage in
a chain: eg, gas pumped back into an oil well to increase fraction recovered.
Eo-principal energy output crossing the system boundary.
N-net output available, equals Eo-I.
Ef-final useful heat and work obtained from N: ie, after passing through end
use appliances etc.
I-sum of external inputs crossing the system boundary, of which:
Ie,-as direct fuels and electricity;
Ir-as energy associated with non-energy inputs. These can be many and various
depending on system boundary assumptions (see later), including energy
for research and development, exploration, buildings, equipment, materials
etc for capital and operational phases, government regulation, selling and
advertising; residuals management and decommissioning; labour in various
guises; and the restoration of ecological side-effects.
Note that Ie is usually and I, is almost always, measured as a gross energy
requirement or GER which records the total fossil fuel equivalent, a function of
E,. In many analyses this quantity is compared with system outputs Eo and N.
For brevity I will assume here that this direct comparison is legitimate, though
it is not: a fact which raises some awkward data problems for NEA.







89

Now clearly this model is a great over-simplification of any real world system,
even though it is able to record all energy flows. Above all it assumes away, or
assumes that agreed solutions have been found to, four problems which in fact
remain exceedingly intractable:
1. how does one define the system boundary or, the same thing, know
which external inputs I to count;
2. how does one allocate energies between joint products;
3. how does one 'add up' energies of different quality, or avoid hopeless
overcomplexity by not doing so;
4. how when projecting an analysis, e.g. over the 20-30 year lifespan of a
facility, does one allow for the many cost and technology dependencies af-
fecting flows and flow-pairs. This is particularly relevant for nuclear sys-
tems where today's E- has a large but unknown potential as a resource 8
for tomorrow's technologies.
These are the main issues I wish to discuss here. But before turning to them
it is worth asking how relevant NEA is in the broad perspective of today's
energy 'prolilemiatique'.

ARE 'HIDDEN" SUBSIDIES IM PORTANT?

Figure 2 shows the major (annual) fuel flows for a national system (excluding
solar energy etc.). In fact by adopting three conventions8 consistent with na-
tional statistics the diagram is to scale for the UK energy system in 196S, though
the quantities in dotted lines are only guesses. The feedback subsidy I is the
latest estimate by Chapman.'


ResourCes + reserves global
and national
I
total-indentitied workable
Resource reduction
I 2007
I Energy extracted
I imports
I Gross output of demand
I
I 100 Net output ol demand
W8 67n Final useful energy
I 69.8 67.0 (work. heat light etc)
I Supply technologies End use apoi ances I


I I
S Ei so EE


II
I I
I I
I I fl 2,8
t
Indirect energy purchases
I by energy supply industries
-- - - __ L__


FIGURE 2.-Main energy flows. 'K 19WS.

Two points about the diagram are immediately ibtvionus. First, I is relatively
trivial. The energy gain for the demand sector is \V/I = 24 while for resource
use the inclusion of I to give a uet rather than a gross efficiency (.V/E instead of
Eo/Ei) makes a difference of only 4 ler cent. Second. there is a large reduction
as one goes from resources on the left to useful energy on the right. The system
is not only energetically inefficient but. needles- to say in this journal, lia< a large

3The conventions are: (1) energy Is measured as heat content or enthalpy (1 kWh
electrical=1 kWh thermal) as In the 'heat supplied basis' tables of the Digest of UK En-
ergy Statiticrs; (2) fuel and electricity transactions between energy industrial are ac-
counted for In the energy supply sector so that Eo Is energy delivered to final con-
sumers; and (3) nuclear fuels in Ei are counted as heat released and not as theoretical
yield, making Ew for the nuclear sector zero with this one-yvear 'snapshot* view. I'slhg
OECD terminology Ei is 'total Internal consumption' and Efo Is 'total internal final con-
sumption' less 'consumption by the energy sector'.
4 P. Chapman. Fuel's Paradise: energy options for Britain (Penguin Books. London.
1975).


68-391 0 76 7






90

potential for improvement over the next 10 to 30 years. Counting the whole
panoply of conservation, energy income sources and technical measures there
is undoubtedly a very large scope for providing the useful flows Er, N and E0 with
much smaller upstream counterparts towards the resources end.
These potentialities and the uncertainties surrounding when they will be
achieved and at what scale are, I suggest, so large as to render I an insignificant
factor at present in any future-looking energy assessments. But the worry, of
course, is that I might grow relatively in size and have some serious effect
which, without NEA, would not be detected in advance. Is this worry legitimate?
I think not.
First, there seems no reason why NBA is particularly fitted to detect such
trends. Sectoral forecasts of energy demand use available signals about the
future to predict all components of E-, including I, for example, a rising demand
for steel by the oil industry, and thus the energy associated with it, would be
recorded as a higher energy consumption in the steel sector. It is not clear that
NBA can provide better signals, nor that separating out I as a special compo-
nent of demand has any particular virt ties for forecasting.
iSecondly, one has to ask what 'serious effects' an increase in I might have.
It may or may not raise the financial or other costs of energy supply but these
matters are outside the competence of NBA to answer since it deals only with
energy flows. In terms of NEA the only effect is that to provide a given N there
has to be a rise in E- and this may or may not lead to an accompanying increase
in resource use (Ei or Es). So all that matters is what happens, if I increases,
to the resource rations such as N/Ei and N/ (Ei + EB,).
Let us now put some numbers into this argument. Table 1 gives some NBA
data for a wide range of synthetic fuel sources. It shows that on the admittedly
approximate estimates made to date N/ I ratios run from about 10 to 50, bracket-
ting the present UK average of abl)out 24. The most striking point about these
data, though, is that in the 'worst' case-coal-to-oil-the inclusion of I makes a
difference of only 10 per cent in the resource ratios shown in the last two columns.
This figure is almost certainly inside the error margin for estimating the re-
source ratios, especially when one takes future cost and technology changes into
account. Also, for strategic energy questions the much more important factor
is the overall change in energy outputs per unit of resource base compared to
present day figures: how is the efficiency of resource consumption changing?
Where these changes are large, as in most of the fuel conversions shown in the
Table, 'rough cut' figures are normally quite adequate (given the inherent un-
certainties in estimating them and in estimating I-see later) and can be ob-
tained from almost any good text on modern energy technologies.

TABLE 1.-ENERGY INPUTS AND OUTPUTS FOR U.S. SYNTHETIC FUEL SOURCES

Resources and inputs Outputs Ratios
Ei+Es Ei Er I Eo N N1 N Ei+Es Ei+E

Shall oil:
Surface report: Room+pillar
mine..---------..-------- 195 121 0 6.5 100 93.5 14 0.48 0.51
In situ report-.---.--------- 282 195 0 6.3 100 93.7 15 0.33 0.35
Coal-to-gas (high Btu gas):
Western coal: Surface mined 185 180 0.72 2.0 100 98.0 49 0.53 0.54
Eastern coal: Deep mined---- 327 196 1.0 2.2 100 97.8 44 0.30 0.31
Coal-to-gas (low Btu gas):
Western coal: Surface mined-- 169 164 0.91 5.1 100 94.9 19 0.56 0.59
Eastern coal: Deep mined---- 298 169 1.1 5.6 100 94.4 17 0.32 0.34
Coal-to-oil:
Western coal: Surface mined. 163 158 0.70 8.4 100 91.6 11 0.56 0.61
Eastern coal: Deep mined....-- 287 172 1.0 7.8 100 92.2 12 0.32 0.35
Coal-to-methanol:
Western coal: Surface mined. 178 173 0.73 2.2 100 97.8 44 0.55 0.56
Eastern coal: Deep mined---.. 315 189 1.0 2.5 100 97.5 39 0.31 0.32

Sources: Synthetic fuels commercialization program, vol. II: Cost/Benefit Analysis of Alternate Production Levels. Syn-
fuels interagency task force to the President's Energy Resources Council, June 1975. Original data for standardized output
Eo of 50,000 bbl oil equivalent per day or II0XII02 Btu per year adjusted to make Eo equal 100 arbitrary units.

A second set of numbers also shows that resource consumption estimates are
fairly insensitive to the inclusion of I inputs. Suppose that all new energy sources
have an N/I ratio of only 5: i.e., in this respect they are five times worse than