Wednesday, November 29, 2006

Energy Return on Investment

Thomas Homer-Dixon, a leading expert on environmental threats to security, writes in today's New York Times about the the world's energy situation. He points out that oil prices often reflect factors that are far more volatile than the long-term supply and demand situation, where the trends are not very promising. Homer-Dixon writes,

A better measure of the cost of oil, or any energy source, is the amount of energy required to produce it. Just as we evaluate a financial investment by comparing the size of the return with the size of the original expenditure, we can evaluate any project that generates energy by dividing the amount of energy the project produces by the amount it consumes.

Economists and physicists call this quantity the “energy return on investment” or E.R.O.I. For a modern coal mine, for instance, we divide the useful energy in the coal that the mine produces by the total of all the energy needed to dig the coal from the ground and prepare it for burning--including the energy in the diesel fuel that powers the jackhammers, shovels and off-road dump trucks, the energy in the electricity that runs the machines that crush and sort the coal, as well as all the energy needed to build and maintain these machines.

In the United States, the energy return on investment in oil and natural gas production has fallen from 25 to 1 in 1970 to 15 to 1 today. This, in part, is because we have pumped most of our easy-to-get-to oil so that now much domestic drilling activity involves wells that have more marginal potential.

Although Homer-Dixon doesn't make this specific point, it's worth noting nonetheless that some of the recent enthusiasm expressed for biofuels doesn't make much sense in terms of energy return on investment. Some biofuels, in fact, require more fossil fuels to produce than they are capable of replacing.