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Laws of Nature Trump Economics: It’s All About Energy Return on Energy Invested (EROEI) – Dr. Charles Hall +Video

Thursday, March 8, 2018 16:12
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Dr. Charles Hall: The Laws Of Nature Trump Economics

By Adam Taggart  /  Peak Prosperity

Dr. Charles Hall may not be a name you instantly recognize, but it should be.

Now a Professor Emeritus of the College of Environmental Science and Forestry, Dr. Hall is a rigorous researcher of energy, oil, biophysical economics — and was a critical early pioneer in developing the key resource metric of Energy Returned On Energy Invested (EROEI).

Here’s how Hall describes EROEI in layman’s terms:

These energy investment ideas are everywhere in nature.

Certainly business people know about investments, but you’ve got to realize that anytime that you’re investing, you investing not only money, you’re investing energy. And, in fact, we consider money to be a lien on energy, a promissory note on energy.

So, if, for example, you buy in New York City a bagel for $1, that bagel cannot possibly get there without the use of a considerable amount of energy. And that energy is, for example, energy used in Louisiana to take natural gas and turn it into nitrogen fertilizer. And then it’s put in a barge and barged up  the Mississippi River to Nebraska. And then a tractor spreads in on a field. And then it plows up the field and plants wheat seeds. And then later comes along and tills the soil and maybe takes care of the weeds or whatever and certainly harvests it. And then more energy is used to take the harvested wheat and grind it up and turn it into flour. And then they put it in a sack and put it on a railroad train and ship it to New York City. And there somebody boils a pot of water to cook the bagel. Oh, and they use electricity to mix the batter. And then you have a bagel.

That would not have taken place without the use of energy at every step.

And that same is true for everything that goes on in our economy. Everything that goes on in our economy requires energy for it to take place. And so we’ve examined that for a long, long time. Using the concept of energy return on investment and then later we’ve developed this into a whole approach called biophysical economics.

After a life’s career of looking at the world through the lens of EROEI, Hall is very concerned that, as a global society, we are hurtling towards an energy crisis that will forcefully (and likely painfully) downshift our standard of living within the lifetime of the current generation. And yet, our current economic models remain blind to the possibility of resource limits — so we are highly likely to be caught completely unprepared by this approaching crisis:

Economics is practiced in the United States as a social science. When I first looked into economics I was astonished that it’s not consistent with the law of conservation of energy nor the second law of thermodynamics nor the laws of conservation of mass. All of those things do not enter into the basic economic models. In fact, the basic economic models, as far as I’m concerned, just make no sense if you have a background in the natural sciences (…)

I think that we’re likely be really blindsided by the decline of oil and gas in near future. The people who have examined the long-term future of fossil fuel availability predict this well within a generation. We’re probably going to be faced by severe restrictions in all of our fossil fuels – in oil, in gas, and even coal. We may live in interesting energy times (..)

It’s just astonishing what I read in newspapers about people who don’t understand the importance of resources and the physical world in everything we do. Now, it is true, there has been a pretty health dose of examining climate and its relation to economics, and I think that’s good. But I think that’s, at most, half the story because I think resource limitations are likely to be at least as important as climate change going into the future, and then we have to think about them at least as much as we have been doing with climate. We have to think about the resource issues much better than we have.

Somehow people think the resource issues have been resolved by the market, but that’s not true at all, although, you know, I guess as long as the price of gasoline is fairly cheap, people don’t worry. They think the issue’s been resolved. The issue has not been resolved at all. The Limits To Growth and everything associated with that – they’re not been proven wrong. One might argue that their timing was not on the money, that things that are taking a little bit longer than was anticipated, but that doesn’t mean that the chickens aren’t coming home to roost. And I see them coming home rapidly and especially in the poorer countries of the world – they’re just getting creamed by the interaction of population growth and resource limitations. And depletion of oil wells and depletion of soils and on and on and on. It’s just a terrible situation for many countries.

Those interested in learning more about Dr. Hall’s work after listening to this podcast should consider purchasing his new book Energy and the Wealth of Nations; An Introduction to Biophysical Economics

Click the play button below to listen to Chris’ interview with Dr. Charles Hall (61m:23s).

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TRANSCRIPT 

Chris: Welcome, everyone, to this Peak Prosperity podcast. It’s February 7th, 2018, and I am your host, Chris Martenson. Energy is everything. My background as a scientist from the biologically oriented field of neurotoxicology allows me to see this very clearly. All organisms grow into their available energy. You see that in how trees apportion their canopies and light gathering strategies. How predators and prey balance themselves out, and how yeast and bacteria exponentially exploit their culture media. Are humans really any different? No, we’re not.

What we’ve done is take hundreds of millions of years of ancient sunlight and very rapidly converted that into extremely useful mechanical and food energy to drive our own population expansion in industrial growth given that between ten and twenty or more calories of fossil fuels are secretly hidden in each calorie of food that you or I eat. We really should have a crisp, clear plan for how and when we’re going to either run out of, or self-wean from, fossil fuels. Now, as soon as you look into this topic with even a tiny bit of curiosity or rigor, all sorts of very tricky questions and worrisome complexities pop up. Now, one of the most critical and central of all questions concerns the energy that we get back from our energy extraction efforts.

Today, we’re going to be talking with Dr. Charles Hall, Professor Emeritus of the College of Environmental Science and Forestry, and a critical early pioneer and rigorous researcher of energy, oil, biophysical economics, and especially energy returned on energy invested. His career has been so productive that his Curriculum vitae is 39 pages long. It’s packed with publications, books and awards. I cannot overstate the importance of the body of work that Dr. Hall has bestowed to the world. Dr. Hall, I’m beyond excited to welcome you to the program today.

Dr. Hall: Well, that’s pretty flattering, Chris. Thank you. I’m just a regular guy who likes to trout fish like you, but I was trained well. I would like to say that – I was trained well in my undergraduate days at Colgate, and especially by my Doctoral advisor, Howard Odem [PH]. So you can – that’s one thing a teacher can tell you that you can take some rather ordinary play, and get a good advisor, and it can make a hell of a difference. And that certainly happened with me.

Chris: Well, fantastic. Since we’ve met, can I call you Charlie?

Dr. Hall: Sure, sure. Everybody does.

Chris: All right. Charlie, most of my listeners, they’re already familiar with the idea that energy returned on energy invested, or EROEI, or Eroei, is important, but for everyone’s benefit, familiar or not. Can you please explain EROEI and why it’s important?

Dr. Hall: Sure. I might start by discussing, briefly, how the concept came about. I’m an ecologist. I was trained as an ecologist and as a natural scientist – physics, chemistry, geology, all that kind of stuff – and biology, of course. And I did my PhD on the energetics of fish migration. I worked in a small stream in Duke Forest, North Carolina. I was at University of North Carolina. And at that time, the idea was that fish had home ranges, and they didn’t move. And I put what they call weirs or fish traps into the streams and found that the fish were moving like crazy. So I came up with a process for looking at how much energy the fish used in their migration, and how much they or their descendants would gain from the process of migration. I later extended this to salmon moving out in the ocean and so forth.

What I found was that for every calorie, or jewel, that the fish invested in migration there would be a return of at least about five calories or jewels from the process. In other words, it looked like a good energy investment. Now, [audio failure] study for this, but it got me thinking in terms of organisms investing energy into their life history processes and that’s true. Everywhere you look, once you’re a little bit trained to do so – for example, if you walk on a path in a pine forest and if you look at where the boughs of the tree are, you normally find that in the path or road that you’re walking on, the boughs are much lower on the tree than on the other side. In other words, when a bough on a pine tree cannot pay for, through photosynthesis, it’s cost of being there, the tree clips it off. And you can see this very clearly if you go out in almost any forest and especially in the evergreen forest it’s very clear.

Now, the point is that these energy investment ideas are everywhere in nature. They’re not just here, and they’re not just there. And in my books, I give many other examples. Now, I was fundamentally an ecologist interested only in nature, but I had a really good undergraduate named Cutler Cleveland when I was a young professor, and we applied these ideas to looking for oil and gas. And I was astonished to find out that it would take, for the United States oil and gas industry, your energy return on energy investment was not that high and declining rather rapidly, even back then in 1980. We were even on the first page of The Wall Street Journal with this paper that we wrote that was published in Science.

And so this began my process of looking at the energy cost of all kinds of things, and the energy gain from that investment because that’s what organisms do, or that’s what humans do. Certainly business people know about investments, but you’ve got to realize that anytime that you’re investing, you investing not only money, you’re investing energy. And, in fact, we consider money to be a lien on energy, a promissory note on energy. So, if, for example, you buy in New York City, a bagel for a dollar, what that has meant is that that bagel cannot possibly get there without the use of a considerable amount of energy. And that energy is, for example, energy is used in Louisiana to take natural gas and turn it into nitrogen fertilizer, and then it’s put in a barge and barged up the Mississippi River to Nebraska, and then a tractor spreads in on a field, and then it plows up the field and plants wheat seeds and later comes along and kills the soil and maybe takes care of the weeds or whatever and certainly harvests it. And then more energy is used to take the harvested wheat and grind it up and turn it into flour. And then they put it in a sack and put it on a railroad train and ship it to New York City. And there somebody boils a pot of water to cook the bagel – oh, and they use electricity to mix the batter, and then they put the bagel into a pot of boiling water to cook it. And there you have a bagel.

Now, that would not have taken place without the use of energy at every step. And that same is true for everything that goes on in our economy. Everything that goes on in our economy requires energy for it to take place. And so we’ve examined that for a long, long time. Using the concept of energy return on investment for getting the fuels to start with and then later we’ve developed this into a whole approach to economics called biophysical economics, and I’ll put in a plug for my new book, Energy and the Wealth of Nations; An Introduction to Biophysical Economics that’s available from Springer. And it will be out almost as we speak. And all of these concepts are developing in excruciating detail there.

Chris: All right. So this idea that it’s – it seems very basic; it seems really intuitive; it seems fairly obvious once it’s laid out. This idea that you’re spending more energy, whether you’re a salmon or a potato farmer, then you are returning from that effort, you starve. You end up going bankrupt energetically at some point. So this idea of energy returned on energy invested seems exceedingly important and it seems completely obvious, and yet having read you bio and looked at your work and all of that, you’ve not found it an easy path, say, to get research funding to garner interest around this. Is that a fair way to characterize that?

Dr. Hall: Absolutely. Well, first of all, economics is practiced in the United States as a social science. And when I first looked into economics I was astonished that it not only doesn’t use, it’s not consistent with, for example, the law of conservation of energy and the second law of thermodynamics and the laws of conservation of mass. All of those things do not enter into the basic economic models. In fact, the basic economic models, as far as I’m concerned, just make no sense if you have a background in the natural sciences. So, to start off with, I would say one thing that we need to do is to turn economics into a real science.

Chris: I read a very important booked that helped shape my opinions around economics. It was called The Origin of Wealth by Charles Beinhocker – no, sorry, Eric Beinhocker. And what Beinhocker pointed out there was that they have this Santa Fe institute was convened first in 1995. They bring in all the best people from all the major disciplines. And when the physicists and chemists and other hard science people start down across from the economists they had to stop themselves from snickering because they said, “Oh, my goodness. You’re still using closed form equations. Those went out the window with the discovery of the second law of thermodynamics. You’re using 1795 original calculus that some guy named Walras, a Polish economics early researcher used.” And so, what this means for those listening is when you try and develop a closed form system, you’re saying, “We think we can solve what’s happening in our system as if nothing from the outside is going to intrude on it. It has a stable point of equilibrium if we can just get that right. We work out some math and it’s all going to work”

But, of course, economics is an open system like the earth is. If the earth is an open system, it depends on sun’s energy streaming in. If that sun’s energy stops, we suddenly discover the earth is very much dependent of that in it’s complexity and order and interesting, less dependent on this energy flow coming to and through it. Economics, as its orthodoxy and dogma is currently practiced and preached in places like Chicago and elsewhere, really seems to – it’s easily disproved that it’s a useful model for the world. And yet it’s very dominant and, of course, people don’t really want to look into too hard. Charlie, why is that? Is it simply because once you take the biophysical approach you understand there are things called limits and you can’t run and exponential, infinity money system with that concept?

Dr. Hall: Well, I’ve been struggling with that question for 40 years, and what can you say? That you think a whole discipline is based on sand. Many people have said that in our book and elsewhere that we quote many of the people, starting with the Nobel Prize Winner in economics, Wassily Leontief, and he said, “How can people in other disciplines continue to allow this splendid isolation of economics?” I don’t know why it’s the case. Many recent Nobel Prize winners in economics have come up with basic theories that undermine this or that part of economics. But, from my perspective, the whole thing is a house of cards. Now, I think – who was it – oh, who was the great journalist, like not Munchkins, but…

Chris: Murrow? Edward Murrow?

Dr. Hall: No, back in the 1930s. I’ll probably think of it as soon as we hang up. But anyway, he said, “Never expect people to understand something who’s job it is to not understand it.”

Chris: Oh, Sinclair. Upton Sinclair, the journal…

Dr. Hall: Oh, is that what he – yeah, I guess probably it was him. And so, we’ve built a whole system that requires people not to understand reality and to understand – I mean, the models that are built using these closed forms mathematics, as you say, is ludicrous. And you get tenured economics, I understand, not from coming up with good concept, but from doing elegant math. And to do math that’s appropriate for the complexity of modern systems, you have to do it on a computer with simulation because you can’t solve these things analytically. But economists continue to sort of burrow along in the same direction. I don’t know why they do so.

It’s true that some economists like Piketty criticize some of the social aspects of how we do conventional economics This is often called neoclassical economics, and they do this – they may criticize certain social aspects of it because, in fact, these models are used to, in my opinion and that of many, is to oppress other people. But they don’t criticize the foundation, the scientific foundation that we’re dealing with.

Chris: Well, indeed. And with Piketty, as good as his criticisms where in showing wealth and equalities, all of this, the core thing is that all of economics is founded around the kind of money that we have which is this debt based, fiat money which is, itself, and exponential machine. As long as it’s growing exponentially, it’s happy. And so biophysical economics, if we could just make it simple, says infinite growth on a finite planet is a very stupid idea. We need to have a different system. We seem to be at that crossroads, do we not, Charlie, where we’re turning out – like it’s becoming increasingly obvious that limits apply. And we’re hitting that bumpy plateau of energy output on a total basis. It’s getting really harder to get net energy out the system at this point, and we desperately need a new form of economics for the next phase of human history. Is that a fair way to look at it?

Dr. Hall: That’s what I think, and that’s why we wrote this book. And I think anybody who thinks they know economics, may I invite you to take a look at our book, Energy and the Wealth of Nations and come to the guaranty – if you buy it and you don’t think it’s worth it, I’ll buy it back from you for whatever you paid for it. So how many books have you got in economics that come with a guaranty?

Chris: That would be one, now. All right, well listen, Charlie, you know, I just keep pounding my internet fist on this virtual table. I write articles about oil, declining discoveries, falling investments, terrible cashflows, capital returns in the oil industry, even at $60 a barrel oil prices, and all the rest. But I’m swamped by a flood of news articles that all point in the opposite direction towards a future with so much oil that we’ll collectively be deciding to stop using it. That’s the – it’ll be peak demand, not peak oil. Please give us your views on this subject.

SH Well, let me give you two sides of the coin here. People have been talking about peak oil for a long time. I mean, they were even talking about it back in 1910. But it’s been a bit elusive. And the economists said that technology would come along, and we had peak oil in the United Stated, the most oil ever produced even to today, approximately, was produced in 1970, and then it stared to decline. But then we discovered Alaska and the Prudhoe Field in Alaska, and that saved our ass for several decades. It was a lot of oil. And that and other things. But the production of oil kept going down, down, down.

Now we have this fracking revolution which is generating just unbelievable thousands and thousands of new wells that may last only for a few years, get most of their oil right off the bat, and then decline very rapidly. We don’t fully know where that’s taking us. I’m writing a paper with the person I think knows about oil in the world, John Larare [PH], and our guess is that – well, two things.

First of all, this fracking revolution has kept the world from being squeezed for oil. That’s just the fracking revolution in the United States has made a huge different. No question. And that’s new technology, and it’s just like the conventional economists said that if the price is right, new technologies will come along and take care of a declining resource. Well, that happened.

But now, most of these regions, especially the older ones such as the Barnett Shale, but also essentially all of them, are showing signs of ageing already even after less than 10 years of production. So what it turns out is very important is that most of the oil is coming out of what’s called sweet spots, out of the best places. And this is true for all of the areas that we are producing. You have Eagle Ford and Bakken and we can go on and on with all the names. And we’re examining the trends. And what happens is that the sweet spots are so important that they are not doing what’s called infill drilling. They’re drilling between existing wells, robbing Peter to pay Paul in a certain sense, to try to get a little bit more oil out of the sweet spots. And there doing that, for example, in Montrose County in North Dakota, rather than going to Williams County or to other counties that are the next best counties because the next best is a lot worse, apparently, then the best counties. And so what people don’t understand is that we’re just skimming the cream off of these, and I don’t know how long we can maintain this oil production from these frack regions.

And if the data that is supplied to me by John Larare is correct in which we are writing up together as a paper, if that data is correct, and I think it is correct, we’re going to be in big trouble in perhaps as soon as five years, or certainly a decade. Where the official estimates are that we will continue to have lots and lots of oil from these frack sites indefinitely for 25 or more years. The US Energy Information Agency, for example, our official energy agency, makes such predictions. But they’re just not consistent with the state when you look at it more carefully. I don’t know what’s going on. And they don’t give the US EIA doesn’t do what’s called peer review publications and they don’t’ give the techniques by which they come up with their predictions, so it’s pretty hard as a scientist to understand what the hell’s going on.

Chris: Yeah, I totally agree. There was an MIT study that came out that faulted the EIA for their methodology and they noted that the EIA had confused something very basis. They had confused a fall in the price of the drilling because the service companies were so squeezed by the downturn in oil prices – they confused that with technology advances, and then extrapolated those as technology advances far into the future. And the history says no, every time the price of oil goes up and there’s a scramble for these services companies, their prices end up going back up. It’s not a – it’s not the same as a technology gain. That, in fact, Art Berman says that when you parse this out and you separate the two factors, 85 percent of the so-called technology gains were due to price cuts by service companies and 15 percent is yeah, we’re doing better. We’re doing, you know, 80 stage fracks. Were putting 30 million, 50 million pounds of sand down there. You know, 4 million gallons of water. We’re drilling 10,000-foot laterals.

Those are the things we’re doing, but those all collectively are not so much technology, it’s just doing more of the same. And what Art shows is that, yeah, you get more oil out of the ground a little bit quicker, but the decline curves are also a little bit steeper, so we’re not – the data seems to suggest that we’re just getting it out the ground faster, and we’re not getting more out of the ground, so lots of complexity here. My concern, Charlie, is that my country seems to have based an entire future strategy on the idea that nothing’s going to change in this story. We’ll always get more oil out of the ground because we’re plucky, courageous entrepreneurs.

Dr. Hall: Well, I think that concept is simply not true. And we can show in many different ways how that’s not been true in the past. And in the oil industry, it goes back to what’s called – you ever hear of the Zapp hypothesis?

Chris: No. What’s that?

Dr. Hall: By Hubbert. M. King Hubbert was the original guy who analyzed the long-term production of oil, and Zapp was a – that was really the guys name who had come along before him. And he was a pretty good oil analyst. But he had assumed that – this is back when there was just conventional vertical wells, and he had assumed that the wells would continue to produce, or that we would continue to find oil at the same rate, barrels per foot – say, 120 at that time, that we had in the past. And Hubbert said, no, no, that’s not true because we got the best stuff first. And if you look at how many barrels we find per foot, it’s been declining over time, and I would guess it will continue to decline which, in fact, it did.

But now, in effect, the people who are making the estimates of oil and gas from the fracked areas are assuming we will continue to find oil and gas at the rate that we found it in the past where, in fact, the data indicates the opposite. So this means a declining energy return on investment and lower and lower returns which has got to be reflected eventually in lower economic returns and unless the price of oil goes way up. Now the price of oil, you know, that can go up indefinitely, but at some point, you got to realize that every time you use more money to get a barrel of oil, you’re using more energy to get a barrel of oil. And what that means is at some future point it’s going to take you a barrel of oil of energy to get a barrel of oil out of the ground. And, obviously, that’s not – it’s going to long before that that is no longer an adequate time to continue with your production of oil. And what happens then?

Now, it’s not that I know these things for sure, although there’s an awful lot of people that I have a lot of respect for that are doing these analyses, it’s that this concept is not taken into consideration by our official energy experts. And what’s really hurting me is the maintenance of the data that we rely on to understand what’s going on in the oil industry is becoming poorer and poorer as we have less committed people, or fewer committed people, who really know what they’re doing maintaining the data sets in, for example, US Bureau of Census. So we need – it’s not a lot of money, but we need some millions of dollars invested into maintaining good data, and then analyzing it properly. And this is probably the most important thing about the future of the US economy, how much energy we have available. And we don’t have good people in our government or in our private industry that are well funded by the government that are analyzing these sorts of things.

What’s happened is that there has been a selling of neoclassical economics of market economics as if this were the only answer. That all you have to worry about is let the free market do it’s thing, and then everything will be somehow perfect or the best of all possible worlds or something like that. And this is absolute crap. And so I don’t know, the United States, I feel, in many, many ways has been sold a bill of goods about the virtues of the market system. That’s a different discussion. I think you should probably interview Jules Secura [PH] sometime on that issue, but that’s a different thing.

Chris: I’ve noted that. And to turn potentially to a country that handles things a little bit differently, I’ve been serving on a UN panel on sustainable energy, handing out and award. And what’s important about that story is there are a number of Chinese nationals on this panel. And I can tell you the quality of the conversations I have with them is very, very different. They’re very scientifically literate. They’re trained. They understand that things like limit happen, and they understand how important this is. And I know you’ve coauthored a book titled The Chinese Oil Industry History and Future. And in 2017, two of your coauthors on that book released a peer reviewed report issued form the China University of Petroleum in Beijing that projected a permanent peak in oil output for China beginning this year, 2018. The report made a huge impact on me, Charlie, immediately. The implications are enormous. What can you tell us about this report and the state of energy awareness in China?

Dr. Hall: Well, first of all, one of their students, Yuan [PH] Hugh [PH], came and studied with me for a year, and she was really, really good. And we wrote a lot of that material in much of that book. And then her advisor, Leon [PH] Jung [PH] and I don’t know quite know how to pronounce it Feng, F-E-N-G, he’s a really, really competent guy, and has come to our – we have meetings in biophysical economics, and he’s come to a number of them, and so I know him quite well. And he’s extremely competent.

The thing is, as you say, as you said earlier in this interview, these things are just bloody obvious. Except apparently to somebody toilet trained in economics. I don’t know what they do to give their economists this faith, indefinite faith in technology and markets to solve all the problems. That’s just crap. And so I don’t know if there’s anything we can do until we teach a new generation of economists how to deal with the real world which is, of course, what our book, Energy and the Wealth of Nations attempts to do.

But anyway, you take some smart people from China, and there’s lot of them there, and you expose them to data and facts and truth and it makes a big difference. But I don’t know what data and facts and truth means relative to our government at the moment. Certainly, there’s a lot of discussion about that. But it’s certainly science in so many layers you would have to peel away before you got to using science in how we make decisions in our government. It’s ludicrous. And the only thing that keeps us floating along is we’re resource rich in a relatively low population country. So we can skate along for a while anyway. And, of course, we’re doing it increasingly on debt and who knows what that means.

Chris: Well, absolutely. So turning back to this study then, you know, the implications of it, that really – I thought it was carefully worded, but reading not that much between the lines, it said, hey, we’re looking to import twice the amount we’re currently importing by 2030. That’s just 12 years away. We don’t know where those supplies are going to come from. It remains to be seen how this will be resolved, but, wink, wink, this is either saying very soaring prices or there’s going to be skirmishes over this. We recently saw Saudi Arabia visit Beijing and also Moscow, so big geopolitical realignments. All of this is going on. What did you make of this – to me, I guess here’s the substance of the question. Charlie, I was shocked that China could announce peak oil, that it’s this year, and that it literally had zero traction in the U.S. media.

Dr. Hall: Surprise, surprise.

Chris: Zero. That’s big news, isn’t it?

Dr. Hall: Uh, sure. You know, we used to talk about ostriches hiding their heads in the sand, or the elephant in the living room. Sure, these are real things and they’re happening. And they have huge effects. You know, peak oil may or may not have occurred for the entire world, it’s not quite clear, but it certainly has occurred country by country. And I’ve done work with a former student, John Hallick [PH] on this, and you could just -we made models of the future oil production and published them back in 2004, and we come back and look at them now, and for something like 38 out of 42 countries, they’ve already gone through a Hubbert curve. They’ve already had a peak, and they’re one the decline. And they fall pretty much what’s called the Hubbert curve – sort of a bell shaped curved in increase in production and the decline. And our predictions for 38 or 42 countries were just essentially right on the money. So it’s happening. It’s occurring all around the world. And it hasn’t happened yet for the biggest countries like Russia and Saudi Arabia, but it could any day. And then what? We don’t have a plan B.

And for these countries where it’s occurring, there’s a really fine book by a guy named Nafese [PH] Amon [PH] of what are the political implications of these patterns, of these physical patterns. And so where you had a peak in oil in Egypt and Syria, in Venezuela, in Nigeria, just for example, and there are other countries, political chaos follows. It’s just a really amazing analysis. And so what we’re having all around the world, and even Thomas Freeman who I don’t – he’s a journalist who writes for The New York Times, I don’t always like what he says, but he had a really good one on Iran just a few days ago with respect to water. And he said, well, you know, if you want to understand the Middle East you got to study Arabic, you got to study Parsee, you got to study, you know, and he listed languages, and he says, but you also have to study environmental science because that’s what’s going on. That’s what’s driving what’s going on over there. And it’s only going to get tighter with respect to energy, with respect to water, with respect to soil. You’ve got huge population increases, and you don’t have any more fertile land, so you don’t have anything for young men to go, and they’re just going to find trouble. And he develops this beautifully in his book, and I think he’s right on the money. So what’s going to happen as this spreads to more and more countries around the world. Well, I think you can guess.

I think a mistake that’s been made in the past is as if all these resource crunches were going to happen to the world as a whole. No, they’re playing our one country at a time, and I think we see the results. And it’s just making more and more of the world unstable, especially where population continues to grow. So, for example, in a country like Syria or Egypt which were, you know, medium oil producing countries during the time period when the production of oil was increasing, this brought a lot of money into to government and to the economy as a whole, and times were good, and people had large families, and they had lots of kids, and they didn’t realize that the prosperity was due to the increase in the amount of oil that allowed their economy to operate better and better and grew some more food, etc., etc.

And then when you reach peak oil and it starts to go down the other side, you get the rug pulled out from under you. The oil production increase had, in a sense, put the rug under you and made life comfortable, relatively so, and the response of humans is always to have more children. And then when that rug is pulled out from under you, people are really pissed off, and then you get all the trouble that we have where we look all around the world and find these highly populated people with very unstable circumstances. And it means that, where in the past different ethnic groups could live together in relative peace, increasingly, when there’s not enough land because there’s just more and more people, then the ethnic tensions are enhanced. It’s terrible.

Chris: And so a lot f people, Charlie, pin their hopes on alternatives. We’re going to go to renewables. I want to ask you now, and it’s specifically about solar photovoltaics. People thinks there’s a future filled with clean and abundant energy if we can just use solar. You and Pedro Preado [PH] extensively studied Spain’s massive photovoltaic system and came up with a rather dour conclusion about the true energy return of that system. What did you find there?

Dr. Hall: Well, first of all, Spain is a very sunny country. Second of all, it has a quite sophisticated engineering structure. And so it’s a country where solar energy should work. And Pedro had been chief engineer on a number of projects, large solar projects. One in particular he had kept every receipt. In other words, he had to sign for everything that came in to his site to make the site work. Every load of gravel, every truck full of water, every photovoltaic array that was made either in Spain or China or whatever. So he had all this information. And what we did was follow the money. We started with the assumption that any time you spend money you’re also spending energy, and I think that’s true. It’s a little bit different, perhaps, for a work of art like a Picasso or something, but basically anything that is produced or any GDP that takes place requires energy to have that occur, and so we followed every dollar that was used to produce a one-gigawatt solar facility in Spain.

And it was amazing. We found that – and then we assigned an energy cost to each of these things. Now, this is not precision science, but I think we got it about right. We did it by several different methods which agreed with each other. And then we looked at the – it was supposed to last for 25 years, and so we estimated how much energy would be produced by this facility over 25 years. And we compared it to the energy that it costs to make everything that was used, including business services and bulldozing and fences and security systems and all of this stuff. How much was used to generate the facility? And found that the energy return on investment over the lifetime of the project was only about 2.4 to 1. It was not very productive over the lifetime of its existence.

Now, some people have argued, some people I respect, have argued that we should multiply the electricity by three because if you’re putting in fossil fuel to make everything that you use – oil and gas and coal – and you’re producing electricity, then you should weight the electricity accordingly. Well, that would give you – if you accept that argument, and I’m not sure about it, but it’s a possibility – then you’d get about a 7.5 to 1 energy return on investment. But that doesn’t yet include for the fact that the sun doesn’t shine half the time, or more than half, because of clouds. And what do you do during that time period? So you have to build back up systems or storage. And this is true also, or maybe even more so for wind turbine systems. And when you do this, the energy return on investment is positive, but it’s not really great.

So I think an important question for the future will be to sort out these questions. Can a renewable system replace oil and gas? Quite frankly, I don’t know. I don’t think so. Can it replace a quarter of our energy? Maybe. Right now, you have to realize that all the wind turbines and photovoltaic systems we have produce only about 2 percent of the energy used by the US and in the world. And in the meanwhile, while we’re building all of these solar systems, which are very energy intensive to build, and you have to put in all the energy up front, or most of it. At the same time, our use of fossil fuels continues to increase. It’s little bit irregular, and maybe it’s slowed down a bit and maybe it hasn’t, but it’s not clear that we’re displacing our fossil fuel systems with solar or just adding to the mix. These are questions that we need to be thinking about much more seriously.

The problem with energy analysis that you hear out there, and maybe including this one, I don’t know, is that people tend to already have their conclusions, and then they use science or something like science to defend the position that they take. But good science works by generating and testing hypotheses. And so you might have a hypothesis that renewable energy systems can replace fossil fuel systems or replace a quarter of them or whatever you want to say, and then approach it as examining the hypothesis rather than having your answer beforehand and arguing that it’s this way or that.

So, quite frankly, Chris, I don’t know for sure. I think that we’re likely be really blindsided by the decline of oil and gas in near future. The people [Audio] [PH] who have examined the long-term future of fossil fuel availability, we’re going to be well within a generation. We’re probably going to be faced by severe restrictions in all of our fossil fuels – in oil, in gas, and even coal. And the same people buying [Audio] [PH] peak coal in China because there’s lots of coal left, but it’s in deep mines and then seams. It’s very hard to get at. So I don’t know. We may live in interesting energy times.

Chris: Well, that’s certainly true. I recently, very recently, read another EROEI study on the solar arrays in Northern Europe. It was by Ferroni and Hopkirk. Came to even more dire conclusion than you did in Spain. Now, this is Northern Europe, of course. They came up with a net EROEI of less than one, clocking in at .82. I liked the study. They had pretty broad boundaries. They included all sorts of things that most people overlook. It’s not just how much went into the panel versus how much came out, but, of course, the installation, the maintenance, some of them break, they have to be cleaned, the need a security guard, there’s a fence around this place, all that stuff, right.

And so that’s for every solar array installed in Norther Europe. Presumably any place else with similar insulation levels – it means humanity actually loses ground. These are energy wasting not generating systems. We feel good, we plug our Tesla’s in, we tell ourselves a nice story that this is going to save us all, but, you know, this study and yours and others that are coming out are really starting to give me a consensus that says, solar is not a slam dunk. We have to really understand that it doesn’t make sense in some areas at all, and I don’t know yet that we’ve proved that it makes sense anyplace, really.

Dr. Hall: Well, I have colleagues that are pro-solar who would argue otherwise. And we met last summer and agreed on procedures to try to reduce our differences in our analysis. I personally come down that solar can be [Audio] can make a modest contribution, but it will not be cheap, it will not be easy, and there will be really big problems with intermittency. I quite frankly think this is another question that hasn’t been well resolved yet. And my colleagues who have this view agree with me on that, that we don’t really know the answer to this. There are some people at Stanford University, Jorgensen and Delucci, I think, who think it’s a piece of cake to replace all energy with renewables. And there have been a whole group of very distinguished scientists – 120 of them – signed something saying that the world should not be fooled by their analysis, that there are many problems with the analysis that they did. I mean, here’s really, really important science for the future on mankind, and it’s hidden off in corners of academia, and it’s not particularly supported or not at all supported by government research, and it’s just insane that we are not paying a lot more sophisticated attention to this.

Chris: I complete agree, and I’m surprised that the Department of Energy seems to have no interest in this, and I’m surprised that most US agencies don’t have a liquid fuels emergency plan. It just a willful blindness that says, you know what, we don’t even want to look at that, so we actually don’t want to ask the questions because then we might have answers we’re uncomfortable with.

Dr. Hall: I think that one of the reasons is that there has been – when I grew up, well, actually, in the 60s and the 70s, there were – there was a lot of faith in government agencies and professionals and so forth that I based in part on this “success” of the Manhattan Project to build the first atomic bomb, that, you know, we could do a whole lot with government funding and putting the brightest people to work on these sorts of things. And that has been lost due to the weaning of the public or the governmental trust, for some reason. And it’s a complicated issue. The economists who say, oh, all you got to do is let the market decide. That’s nothing else you have to do. There’s no need for additional information beyond the market. And I think that’s a really, really scary concept that’s applied increasingly in our entire society.

Chris: Well, editorially, Charlie, first you have to have a market. We don’t have actual markets anymore in the sense that we have constant intervention my monetary authorities who are going to set the price of money. And, of course, if you think you have a small crew of people who can set the price of money on which everything is based, you don’t have a market. So it’s this whole conceit that there is such a thing as market that can decide things is kind of silly. And I’m particular, when you have a government saying, we’re going to support this source of energy, and we’re going to hamstring that one, you don’t have a market.

Dr. Hall: Not to mention that fact that if consumers are making the decisions, then our whole economy is being driven by the desires of 14-year-old teenagers in our malls. It’s just ludicrous. And, in addition, their tastes are being manipulated by advertising. To think that we have a free market is ludicrous.

Chris: I know. I know. So Charlie, I’m really interested in how people can follow your work, you know, buy your books, of course find those. Or any of those of your colleagues or prior students who are advancing your fields of inquiry. Where should people go who are now intrigued and say, yeah, I should know more about these topics?

Dr. Hall: Okay, the first thing you can do is just Google Charles Hall Energy, and it connects with a bunch of my stuff. We have a new society called The International Society for Biophysical Economics, and these Chinese folks are very much involved with that, so you can email me chall@esf.edu and we’ll put you on the mailing list of that. I have both an energy list serve, and a biophysical economics list serve. And obviously, we put everything we’ve got into a big book called Energy and the Wealth of Nations; An Instruction to Biophysical Economics by myself and economist and economist Kent Klitgaard, and so it’s all there. And we have a smaller book that’s called Energy Return on Investment, a means of integrating biology, economics, and sustainability, and that’s only a little bit more than 100 pages and gives you the essence of all of these arguments. And we have a journal called Biophysical Economics and Resource Quality. We call it BERQ, Biophysical Economics and Resource Quality, and I’m a co-editor of that, and so we’ve got relatively up to date papers there.

There is – I have to day, Chris, that there is a lot more research that’s being done on this stuff recently. I get some very interesting email about EROEI and somebody supplying it for their PhD thesis or something in Europe or something else. I get an email several times a week – sometimes I think every day. This is my third interview this week, for example. So I don’t know, I can’t – as I told my 102-year-old mother a few years ago I said, I’ve become a micro celebrity. So that’s about all I want to be, thank you, so I hope you’re not too successful. But it doesn’t mean that it – there’s a lot of people that once you read this, once you get it, you think, like you say, duh, it’s so bloody obvious, you know. It’s very straight forward, what we’re doing. Now, the details can get complicated, but it’s very straight forward. So you can get your access.

Okay, let me summarize what I just said. You can join our society, you can google Charles Hall Energy, and that leads you to all kinds of stuff. Join our society, buy our two books, look at the journals we have. I will certainly answer any email that’s sent to me. I’ll try to. It’s getting a little bit ridiculous sometimes. And there are many other people that are beginning to think this way.

A problem has been that we thought we were putting all of this together in something called the International Society of Ecological Economics, not biophysical economics, but ecological economics but I feel that this society and the journal sort of turned away from asking very fundamental questions about how we do economics and focused mostly on putting a price tag on nature in various ways. Now, I don’t say that I think this is bad, but I don’t think this is the main question that we should be dealing with.

One of the things that’s pretty interesting to me is that in our international society of biophysical economics, we have an increasing number of people from the financial world joining with the scientists and environmental people to ask these questions because many people in the financial world are unhappy with the economic tools that they have at their disposal and are coming to our meetings to try and learn about how we go about doing biophysical economics.

Chris: Well, thank you so much, Dr. Charlie Hall, for first pioneering the field of energy return and energy invested, and for persisting, even though the funding was a challenge through the years. And please know that I and all my listeners deeply value your contributions here, and your work will stand the test of time. And I want you to enjoy your well-earned retirement. I wish you all the best with trout fishing and thank you so much for being on our program today.

Dr. Hall: Okay. You’re welcome. Bye-bye Chris.

Chris: All right. Good bye.

https://www.peakprosperity.com/podcast/113808/dr-charles-hall-laws-nature-trump-economics

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