Kent A. Klitgaard

Energy and the Wealth of Nations

Includes several new chapters and comprehensive updates addressing the implications of hydraulic fracturing (fracking), access to energy and social inequality, and climate science and planetary boundaries Integrates energy and economics by combining natural and social sciences Uses predictive tools and measures, such as EROI, to show how the economy is embedded in a biophysical world subject to scientific rules and constraints Provides a fresh approach to economics for those wondering “What’s next?“ after the Great Recession and continued volatility in energy prices Offers economic analysis from the real-world perspective of peak oil, high energy prices, the role of alternative energy sources, and potential environ

Energy Return on Investment

Many important earlier writers, including sociologists Leslie White and Fred Cottrell and ecologist Howard Odum, as well as economist Nicolas Georgescu-Roegen have emphasized the importance of net energy and energy surplus as a determinant of human culture. Human farmers or other food gatherers must have an energy surplus for there to be specialists, military campaigns, and cities, and substantially more for there to be art, culture, and other amenities. Net energy analysis is a general term for the examination of how much energy is left over from an energy-gaining process after correcting for how much of that energy (or its equivalent from some other source) is required to generate (extract, grow, or whatever) a unit of the energy in question. Net energy analysis is sometimes called the assessment of energy surplus, energy balance, or, as we prefer, energy return on investment, depending upon the specific procedures used. To do this we start with the more familiar monetary assessment and then develop how this relates to the energy behind economic processes [1].

What Every Conservation Biologist Should Know about Economic Theory

The last century has seen the ascendance of a core economic model, which we will refer to as Walrasian economics. This model is driven by the psychological assumptions that humans act only in a self-referential and narrowly rational way and that production can be described as a self-contained circular flow between firms and households. These assumptions have critical implications for the way economics is used to inform conservation biology. Yet the Walrasian model is inconsistent with a large body of empirical evidence about actual human behavior, and it violates a number of basic physical laws. Research in behavioral science and neuroscience shows that humans are uniquely social animals and not self-centered rational economic beings. Economic production is subject to physical laws including the laws of thermodynamics and mass balance. In addition, some contemporary economic theory, spurred by exciting new research in human behavior and a wealth of data about the negative global impact of the human economy on natural systems, is moving toward a world view that places consumption and production squarely in its behavioral and biophysical context. We argue that abandoning the straightjacket of the Walrasian core is essential to further progress in understanding the complex, coupled interactions between the human economy and the natural world. We call for a new framework for economic theory and policy that is consistent with observed human behavior, recognizes the complex and frequently irreversible interaction between human and natural systems, and directly confronts the cumulative negative effects of the human economy on the Earths life support systems. Biophysical economics and ecological economics are two emerging economic frameworks in this movement.

Ecological economics and institutional change

Ecological economics remains unfinished in its effort to provide a framework for transforming the economy so that it is compatible with biophysical limits. Great strides have been made in valuing natural capital and ecosystem services and recognizing the need to limit the scale of economic activity, but the question of how to effectively transform the economy to limit the scale of economic activity remains unclear. To gain clarity about the institutional changes necessary to limit the scale of economic activity, it is essential that ecological economics understands the limitations of its neoclassical roots and expands its theoretical framework to include how markets are embedded in social and institutional structures. This has long been the domain of institutional economics and heterodox political economy.

Energy and Wealth Production: An Historical Perspective

There are many scientists from different disciplines who have thought deeply about the long-term relation of humans and wealth production. Most have concluded that the best general way to think about how different societies evolved over time is from the perspective of surplus energy. To chemists Frederick Soddy and William Ostwald, anthropologist Leslie White, archeologist and historian Joseph Tainter, sociologist Fred Cottrell, historian John Perlin, systems ecologist Howard T. Odum, sociologist and economist Nicolas Georgescu-Roegen, energy scientist Vaclav Smil, and a number of others in these and other disciplines, human history, including contemporary events, is essentially about exploiting energy and the technologies to do so. This is not the perspective taught in our schools and the role of energy is essentially missing from our dominant books and teaching about history. Instead human history usually is seen in terms of generals, politicians, and other personalities.

Hydrocarbons and the Illusion of Sustainability

After fifty years, Paul Baran and Paul Sweezys Monopoly Capital has stood the test of time. Not only did it provide a lucid description of midcentury American society, but Monopoly Capital established a framework for analyzing events to come.… By bringing Marxian theory into their historical moment, they fomented many debates and encouraged the development of various perspectives, a legacy that has expanded to include analyses of the labor process, imperialism, finance, globalization, and the environment.… They elucidated a fundamental contradiction of the time. Capitalism is a system of self-expanding value that must continually accumulate, yet is confined by a social and institutional order that precludes rapid accumulation. This framework is especially useful for analyzing the fundamental problems of the twenty-first century. Among those crucial problems is the demise of the hydrocarbon economy.Click here to purchase a PDF version of this article at the Monthly Review website.

Globalization, Neoliberalism and Energy

Young adults today have grown up in a world where globalization is a pervasive reality and where most of our politicians accept its supposed virtues. Sometimes there are discussions about how globalization is losing (or gaining) us jobs, or whether we have globalized too much or not enough, but for most people it is just a fact represented by the labels from all around the world on their clothes or electronic devices. This was not the case when the authors of this book were young; at that time nearly everything we ate, wore, or drove was made in America. Anything from overseas – except specialized luxury goods – was normally assumed to be cheap and inferior. Globalization, at least on the scale we see it today, is a relatively recent phenomenon so it is important to understand how globalization grew so large so fast, what are the perceived and actual gains and costs, and how these are related to energy use.

Explaining Economics from an Energy Perspective

This book is written by an ecologist and an economist, and part of our objective is to assess where insights and principles from these two disciplines can be combined to understand economies better. Although the two disciplines may appear very different we believe instead that the phenomena they study are very similar in many ways. From a biophysical perspective the economies of cities, regions, and nations can be viewed as ecosystems, with their own structures and functions, their own flows of materials and of energy, with more or less diversity and stability and so on: in short with all the characteristics of natural systems, with, generally, much greater energy intensity and dominance by one species. From the perspective of individual organisms there are also important similarities between natural and economic systems.

Peak Oil, Market Crash, and the Quest for Sustainability: Economic Consequences of Declining EROI

Much of what traditional economics believes “works” because of clever technology, substitutions, and intelligent investments, in fact does so only because we have had huge amounts of cheap energy to throw at the problem [1]. Our present situation is perhaps most readily captured by the phrases “the end of cheap oil” and “the second half of the age of oil,” created by petroleum geologists Colin Campbell and Jean Laherrere. These concepts also apply to a very much broader suite of the basic resources and environmental conditions required to fuel our economy (Fig. 18.1). Although many people are taught and believe that technology has made natural resources increasingly irrelevant, this book contains a great deal of evidence to show the contrary. Our national and global society is becoming more, not less, dependent upon natural resources, as oil, for example, underlies essentially everything we do economically. Second, many of the things that are treated as externalities in conventional economics, that is, as supposedly secondary issues not properly included in prices, are instead what we believe to be often the main issues of economics. Depletion of highest quality fuels is one such issue. More generally, understanding and protecting the basic systems of the Earth, such as the atmosphere, far from being a luxury or an externality as is indicated in conventional economic analysis, are the critical issues for economics.

Economics as Science: Physical or Biophysical?

Economies exist independently of how we perceive or choose to study them. For more or less accidental reasons we have chosen over the past 100 years to consider and study economics as a social science. Before the late nineteenth century economists were more likely to ask “Where does wealth come from?” than are most mainstream economists today. In general, these earlier economists started their economic analysis with the natural biophysical world, probably simply because they had common sense but also because they deemed inadequate the perspective of earlier mercantilists who had emphasized sources of wealth as “treasure” (e.g., precious metals) derived from mining, trade, or plunder. In the first formal school of economics, the French Physiocrats looked to the biophysical world and especially land as the basis for generating wealth (e.g., Quesnay, 1758; see Christensen [1, 2]) focused on agriculture.