The competitive struggle between technology and resource depletion

The study of EROI may be of little more than academic interest except for two factors. Energy extraction has conformed to Ricardo’s ‘best first’ principle, meaning that the easiest resources to extract tend to be the first. But at the same time, human ingenuity continually pushes the technological frontier forward. Hence, there is a competitive and ongoing struggle between resource depletion and technology. The US shale revolution typifies this tension, and for a time at least, seemed to signal the triumph of technology. But the extraordinary ramp up of production beginning 2009, and that was supposed to run for decades and lead to US ‘oil independence’, has already fallen 600,000 barrels per day below its April 2015 peak (EIA).

On the other hand, wind and particularly solar PV, have driven even further down the cost curve, with further declines in the pipeline. At the same time, the shift to ICT-enabled service economies was supposed to decouple energy from economic growth. While learning curves often seem intuitive and obvious, ex-post, their use ex-ante can be fraught. Furthermore, while relative decoupling has been a feature of the advanced economies for several decades, absolute decoupling is still mostly an aspiration.

It’s useful to be reminded that the future is not at the end of a trend line. Seven years ago, concentrated solar was being projected by some as the new ‘low cost baseload’ power source of the future, but installed global capacity is still barely a blip at around 5 GW. A sober assessment could similarly be made of optimistic forecasts for nuclear, ocean, tidal and geothermal. The problem for wind and PV is whether the issue of intermittency is merely a ‘surmountable challenge’ or a fundamental constraint at high penetration. This is still an open question. In Europe, there is a strong correlation between installed variable renewable energy and electricity prices.

installed wind and solar per capita
Residential electricity price for EU countries 2014, including taxes, versus installed wind and solar. Sources: Eurostat, BP, IEA

On the other hand, the effects of energy supply constraints are real and daunting. The loss of oil from Cuba’s economy as a consequence of dissolution of the Soviet Union in 1989 provides a classic case study in oil dependence. The Cuban socialised model of agriculture had been sustained by the highly generous terms of trade of Cuban sugar for Soviet oil (Sinclair 2001) Although the drop in oil consumption was more moderate than originally feared – 20% over 2 years – the impacts were enormous and debilitating. The Cubans did eventually learn to live with less oil, and adapted to the loss of oil through decentralisation, urban gardening, and a range of market based reforms. The defining economic feature of the 1970s was the stagflation driven by the 1973 oil crises. King has shown that US expenditures on oil that exceed 4% of GDP is likely to be recessionary.

My perspective is that EROI provides a framework to understand these competing narratives – which I call the techno-optimist, encompassing the Silicon Valley mindset, versus the limits to growth narrative. Note that many in the degrowth movement, such as Alexander and Trainer argue that a future with less resources actually offers an opportunity for civilisational renewal.

technology versus depletion

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