Net Energy and Jevons' Paradox

As last week’s Archdruid Report post suggested, a difficult paradox lies in wait for attempts to bail industrial society out of its peak oil predicament by bringing new energy sources online. To build the infrastructure to produce a new energy source in meaningful quantities, a great deal of energy will be needed. If the new source can’t be shipped via existing distribution networks, or used in existing end-use technology, more energy will have to be invested to provide these as well.

Until much of the new infrastructure is in place, though, the energy needed to develop it will have to come from existing sources. This is where the jaws of the trap open wide, because in a world already on the far side of Hubbert’s peak, existing energy resources are fully committed. Thus the immediate effect of launching a project to make energy more available will be to make energy less available, driving up prices even faster than they would rise under the pressure of resource depletion.

One conclusion worth drawing from what I’ve called the “paradox of production” is that some recent debates over net energy may need reassessment. Net energy or EROEI (energy return on energy invested), for those who haven’t been following these debates, is the energy that can be obtained from a given resource, minus the energy that has to go into providing that resource to users. Just as net receipts, rather than gross receipts, determine whether a business prospers or goes bankrupt, it’s the net energy available to our society, rather than the total amount of energy it consumes, that determines whether something like today’s industrial civilization can survive.

At the same time, as the paradox of production points out, the energy costs that have to be factored into net energy are not limited to those needed to produce energy from a given source in the first place. The energy cost to get it to the end user and to convert it into useful work at that point also have to be taken into account. Thus it’s important to distinguish production costs – the direct and indirect energy inputs needed to turn a natural resource into useful energy ready for distribution – from system costs – the direct and indirect energy inputs needed to apply that energy to its end use, whatever that happens to be. Both have to be accounted for, but each has its own distinctive features.

In particular, the production costs of a given energy resource depend almost entirely on the nature of the energy resource itself. The system costs of a given resource, on the other hand, depend partly on the resource and partly on the nature of the end use, and the same energy source can have dramatically different system costs depending on the form in which it’s distributed and the use to which it’s put.

Compare the net energy of photovoltaic cells used to power computers, for example, with the net energy of photovoltaic cells used to power automobiles. The production costs are the same in either case, but the system costs are totally different. The data center makes use of an existing distribution network (the electric power grid) and a mature technology (electronic computers), so its system costs are identical to those involved in powering any other computer. Putting the same energy to work powering automobiles requires the manufacture of millions of new cars (if the electricity is used directly in electric cars), or a network of fuel plants, pipelines, and filling stations, in addition to millions of new cars (if the electricity is used indirectly, in a form such as hydrogen).

Discussions of net energy in the peak oil community have generally tended to focus on production costs, to the neglect of system costs. There’s an interesting irony here, because market forces and political pressures in the real world tend to focus on system costs, to the neglect of production costs. The recent ethanol boom in America is the poster child for this oddity of contemporary economics.

In terms of production costs, ethanol made from American corn is a losing proposition. It takes more energy to provide the fertilizers, pesticides, tractor fuel, and other energy inputs to grow the corn, and to ferment and distill it into fuel ethanol, than you get back from burning the ethanol. The system costs of ethanol, on the other hand, are negligible: the US already has an extensive transportation system for getting bulk grains from farms to factories, and existing liquid fuel distribution networks are perfectly capable of handling fuel ethanol. All that has to be added to the mix are factories to turn corn into fuel, and misguided government grants and tax writeoffs seem to be taking care of that nicely.

This same effect shapes less embarrassingly self-defeating choices as well. Look at the suite of alternative energy sources that are getting significant funding these days – windpower comes to mind – and you’ll find that all of them use existing infrastructure to distribute and use the resulting energy. Meanwhile, those alternatives that pose high system costs – the much-ballyhooed hydrogen economy is the classic example – wither on the vine.

This is part of the blowback from the paradox of production, because system costs have another feature that sets them apart from production costs: if an energy resource requires new distribution networks or end-use technologies, all the new items have to be in place before the energy resource can be used at all. If you don’t have every piece of a hydrogen transport economy in place, for example – the electric power plants, the hydrogen factories, the pipelines, the filling stations, the hydrogen-powered cars, and everything else associated with them – you can’t use any of it.

The more existing infrastructure you can use, by contrast, the more flexibility you have. Since windpower can use the existing electric grid to power existing electric appliances, for example, you can add windpower capacity one windmill at a time, and upgrade as you go. In a world of depleted energy reserves and rising prices, this is a viable option; sinking huge sums into new infrastructure for distributing and using a new energy resource probably won’t be.

There’s another dimension to system costs, though, that opens up an unexpected window of opportunity. Since total net energy includes system costs as well as production costs, cutting system costs boosts net energy. One of the largest components of system costs for any energy resource is inefficiency, and in many cases this can be reduced significantly without impacting the flow of energy through the system. When this is done, the effective net energy of the resource goes up.

This is the logic behind Jevons’ paradox, first propounded by British economist William Stanley Jevons in his 1866 book The Coal Question. Jevons pointed out that when improvements in technology make it possible to use an energy resource more efficiently, getting more output from less input, the use of the resource tends to go up, not down. His argument is impeccable: as the use of the resource becomes more efficient, the cost per unit of the end result tends to go down, and so people can afford to use more of it; as efficiency goes up, it also becomes economically feasible to apply the energy resource to new uses, and so people have reason to use more of it.

Jevons’ paradox has been used more than once to argue against conservation, on the grounds that using energy more efficiently will simply lower the cost of energy and encourage people to use more of it. The problem with this logic is that it assumes that the only thing constraining energy supply is price – and in a world already starting to skid down the far side of Hubbert’s peak, this is no longer true. Now that geological realities rather than market forces are placing hard limits on the upper end of petroleum production, Jevons’ paradox becomes a counterweight to rising energy prices.

Now it’s sometimes been suggested that all the easy gains from conservation were made in the 1970s, and that further gains will come at much higher cost. This would be true if the achievements of the Seventies had been kept in place, as they should have been – but were not. Compare the poorly insulated McMansions and gas-guzzling SUVs that define the recent American lifestyle with the snug homes and efficient compacts so common in 1979, and it takes an effort of will to avoid seeing the ground that has been lost.

This offers a bitter commentary on the missed opportunities of the last quarter century. From another perspective, though, this provides a certain amount of qualified hope, because it allows lifestyle changes and simple upgrades perfected decades ago to be dusted off and put back to work. Those of my readers who recall the Seventies will remember just how simple and cost-effective many of these changes were. They played a crucial part in dropping petroleum consumption worldwide by 15% between 1972 and 1985. That decrease could have been used to free up resources for the transition to sustainability, instead of being blown off in a final 25-year orgy of conspicuous overconsumption. That didn’t happen, and the arrival of petroleum production declines means that it won’t happen again, but the same effect could be used now to help cushion the otherwise rocky descent into the deindustrial age ahead of us.

The same insight can be put in another way. One crucial measure of our predicament is the steady decline in net energy available to industrial society, from the 200-to-1 surplus of light sweet crude flowing under natural pressure to the single digits available from those renewable sources that manage to rise above the breakeven point at all. As we’ve seen, though, the whole picture of net energy includes systems costs as well as production costs, and rising production costs can be countered to some extent by conservation and efficiency improvements that lower system costs. This won’t bring back the age of cheap abundant energy, but it could make things easier for many people in the near future

If governments in the industrial world want to launch a crash program to do something about soaring energy prices and spiralling energy shortages, then, the obvious choice is the one that worked in the 1970s – conservation. Just now, given the ideologies that dominate the political classes of the major industrial nations, this seems about as likely as a resumption of the Punic Wars, but attitudes and political climates can change abruptly. In the meantime, the more people who learn, practice and prepare to teach the homely but valuable conservation skills that were part of everyday life in the Seventies, the easier the transition will be when it arrives. Where the people lead, at least in this case, the leaders will eventually be obliged to follow.