Biophysical Economics

The following is the coverage that appeared in the NYT of the conference on Biophysical Economics that I attended last week end at ESF.



The New York Times
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October 23, 2009
New School of Thought Brings Energy to 'the Dismal Science'
By NATHANIAL GRONEWOLD of Greenwire

SYRACUSE, N.Y. -- The financial crisis and subsequent global recession have led to much soul-searching among economists, the vast majority of whom never saw it coming. But were their assumptions and models wrong only because of minor errors or because today's dominant economic thinking violates the laws of physics?

A small but growing group of academics believe the latter is true, and they are out to prove it. These thinkers say that the neoclassical mantra of constant economic growth is ignoring the world's diminishing supply of energy at humanity's peril, failing to take account of the principle of net energy return on investment. They hope that a set of theories they call "biophysical economics" will improve upon neoclassical theory, or even replace it altogether.

But even this nascent field finds itself divided, as evidenced by the vigorous and candid back-and-forth debate last week over where to go next. One camp says its models prove the world is headed toward a dramatic economic collapse as energy scarcity takes hold, while another camp believes there is still time to turn the ship around. Still, all biophysical economists see only very bleak prospects for the future of modern civilization, putting a whole new spin on the phrase "the dismal science."

Last week, about 50 scholars in economics, ecology, engineering and other fields met at the State University of New York's College of Environmental Science and Forestry for their second annual conference on biophysical economics. The new field shares features with ecological economics, a much more established discipline with conferences boasting hundreds of attendees, but the relatively smaller number of practitioners of biophysical economics believe theirs is a much more fundamental and truer form of economic reasoning.

"Real economics is the study of how people transform nature to meet their needs," said Charles Hall, professor of systems ecology at SUNY-ESF and organizer of both gatherings in Syracuse. "Neoclassical economics is inconsistent with the laws of thermodynamics."

Like Hall, many biophysical economic thinkers are trained in ecology and evolutionary biology, fields that do well at breaking down the natural world into a few fundamental laws and rules, just like physicists do. Though not all proponents of the new energy-centric academic study have been formally trained in economics, scholars coming in from other fields, especially ecology, say their skills allow them to see the global economy in a way that mainstream economists ignore.

Central to their argument is an understanding that the survival of all living creatures is limited by the concept of energy return on investment (EROI): that any living thing or living societies can survive only so long as they are capable of getting more net energy from any activity than they expend during the performance of that activity.

For instance, if a squirrel burns energy eating nuts, those nuts had better give the squirrel more energy back then it expended, or the squirrel will inevitably die. It is a rule that lies at the core of studying animal and plant behavior, and human society should be looked at no differently, as even technologically complex societies are still governed by EROI.

"The basic issue is very fundamental: Why should economics be a social science, because it's about stuff?" Hall said.

'Peak oil' embraced

The modern biophysical economics movement may be relatively young, but the ideas at its roots are not.

In 1926, Frederick Soddy, a chemist who was awarded the Nobel Prize just a few weeks before, published "Wealth, Virtual Wealth and Debt," one of the first books to argue that energy should lie at the heart of economics and not supply-demand curves.

Soddy also criticized traditional monetary policy theories for seemingly ignoring the fact that "real wealth" is derived from using energy to transform physical objects, and that these physical objects are inescapably subject to the laws of entropy, or inevitable decline and disintegration.

The sharpest difference between biophysical economics and the more widely held "Chicago School" approach is that biophysical economists readily accept the peak oil hypothesis: that society is fast approaching the point where global oil production will peak and then steadily decline.

The United States is held as the prime example. Though the United States is still the world's third-largest producer of oil, its oil production stopped growing more than a decade ago and has flatlined or steadily fallen ever since. Other once-robust oil-producing countries have experienced similar production curves.

But the more important indicator, biophysical economists say, is the fact that the U.S. oil industry's energy return on investment has been steadily sliding since the beginning of the century.

Through analyzing historical production data, experts say the petroleum sector's EROI in this country was about 100-to-1 in 1930, meaning one had to burn approximately 1 barrel of oil's worth of energy to get 100 barrels out of the ground. By the 1990s, it is thought, that number slid to less than 36-to-1, and further down to 19-to-1 by 2006.

"If you go from using a 20-to-1 energy return fuel down to a 3-to-1 fuel, economic collapse is guaranteed," as nothing is left for other economic activity, said Nate Hagens, editor of the popular peak oil blog "The Oil Drum."

"The main problem with neoclassical economics is that it treats energy as the same as any other commodity input into the production function," Hagens said. "They parse it into dollar terms and treat it the same as they would mittens or earmuffs or eggs ... but without energy, you can't have any of that other stuff."

Nor is conservation or energy efficiency the answer. In his presentation, Henshaw noted that the International Energy Agency's own data show that energy use is doubling every 37 years or so, while energy productivity takes about 56 years to double.

In fact, the small world of biophysical economists seems to agree that energy and resource conservation is pointless in the economic system as it is now construed, contrary to what one might expect. Such efforts are noteworthy as it buys the world a bit more time, but the destination is inevitably the same -- a gallon of gasoline not burned by an American will be burned by someone else anyway.

Other peaks?

Though not as closely studied, biophysical economists theorize that the peak oil phenomenon holds true for all non-renewable resources, especially energy commodities. Proponents of the field say they are moving closer to understanding "peak gas" and "peak coal." Consumption of many of the world's most valuable minerals could likewise see those resources nearing exhaustion, as well, they say.

And no amount of technology can fix the problem. Hagens points out that oil extraction has evolved by leaps and bounds since the early 1900s, and yet companies must expend much more energy to get less and less oil than they did back then.

"It isn't that there's no technology," Hall said. "The question is, technology is in a race with depletion, and that's a whole different concept. And we think that we can show empirically that depletion is winning, because the energy return on investment keeps dropping for gas and oil."

The most pessimistic of the biophysical economics camp sees the oil-fueled world economy grinding to a halt soon, possibly within 10 years. They are all working to get the message out, but not all of them believe their peers in other professions will listen.

"Of course I'm trying to send a message," said Joseph Tainter, chairman of Utah State University's Department of Environment and Society. "I just don't expect there's anyone out there to receive it."

TANSTAAFL

“There ain’t no such thing as a free lunch” has been traced to the late nineteenth century when saloons in the US offered free lunch for their paying customers. Obviously the idea has since become a corner stone of economics by emphasizing that whenever we make a choice then we have to sacrifice something else in exchange. The same principle governs all activities in the scientific world that is governed by the entropic nature of the universe. We can never produce something out of nothing.
It is unfortunate, in light of the above, that so many thinkers, institutions and organizations have chosen to remedy what is arguably the greatest challenge to civilization; environmental degradation; by advocating policies that are not guided by that most basic of ideas. Sustainability, an inevitable phenomenon of an increasingly complex systems, is being promoted by each and every government in the world, by the United Nations and all its agencies and many think tanks and educational institutions of higher learning through arguments and models that seek more economic growth when it is very clear that sustainability came to the forefront; as an existential issue; as a result of the destructive activities of economic growth. Major concerns about sustainability, the ability to continue the current scale of operations into the future demands that we adopt a radically different methodology rather than the current paradigm that glorifies economic growth and unfettered markets. As the proverb says "If you always do what you've always done, then you'll always get what you always got." Business as usual will only result in severe shortages and unthinkable environmental degradation.
Kenneth Boulding, the preeminent economist is reputed to have said: “Only mad men and economists believe that infinite growth is possible in a finite world”. He actually went further as to characterize that kind of irresponsible behavior as a “cowboy economy” when he suggested that we need to think of the delicate balance of a “spaceship” earth. A society without limits is a fiction.
This idea of the absolute need for limits to growth has been adopted by many thinkers in all sorts of fields, physics, anthropology, biology, ecology, philosophy and economics just to name a few. But the most effective proposition has been the one made by Herman Daly who revived the old idea of the classical economists in general and that of J. S. Mill in particular, namely steady state economics. This notion has become the foundation for all environmental visions that seek to steer human activity in such a way as to avoid the imminent collapse that we are heading towards. How far are we from the abyss is debatable but many of the models such as the Club of Rome, global ecological footprint, Pimentel estimates of the limits to the size of global population or the Energy Return on Investment (EROI) speak in terms of decades and not centuries.
Add to the above the bleak Environmental assessment of the group of 1300 scientists assembled by the UN, the dreadful outlook of James Hansen of NASA about the severity of the upcoming climate change in addition to the dire predictions of James Lovelock who has been described as “one of the environmental movement’s most influential figures” and one cannot help but be bewildered when we hear the politicians suggest more growth when it was growth that created the problem in the first place. When would we understand that more of the same is a recipe for disaster and that sustainability is not compatible with economic growth. It is simply one or the other.
Under the best of circumstances growth can be justified as a means to an end but it is pure madness when growth becomes an end in itself as it has become in the developed world. Why is it so difficult to connect the dots and conclude that since pollution is a by product of economic activity and since economic growth demands a greater scale of human activity then economic growth is the cause of environmental degradation. Maybe when all is said and done Homo sapiens (wise humans) we are not.
The world is at a critical proverbial fork in the road. We can either change direction and hope that we can avoid the abyss or we can pretend that there is a free lunch and we can have it all, economic growth and sustainability in a finite world. The choice is very clear, either follow the principles and the models that show unmistakably he absolute need for a radical change in the whole architecture or continue the pretense that we can have our cake and eat it too. Lipstick on a pig just won’t cut it.

Copenhagen, Again.

"Progress toward high industrialized world emissions cuts remains disappointing during these talks. We're not seeing real advances there," Yvo de Boer, the head of the U.N. Climate Change Secretariat, told reporters.
That just about sums up all the progress or disappointment at the on going pre Copenhagen discussions taking place at Bangkok, Thailand. The discussions are scheduled to end on October 9, 2009 and are being attended by delegates from 180 different countries who are attempting to nail down a global agreement to cut carbon emissions that will be finalized at Copenhagen. Unfortunately , the differences between the developed world and the developing world are just as wide as they have ever been. Even the targets for the developed world seem to be way out of reach.
Such an outcome should not be surprising to all of those who are familiar with the logic behind the “Tragedy of the Commons”. Each country wants to decrease the cost of its own targets hoping that somebody else will pick up the slack. When each country attempts to lower its own cost by shifting it to another country then the earth suffers because the global targets will be missed and only ruin will result.
The US position has posed the greatest challenge to the participants so far. "Not knowing what the United States is going to be able to bring to Copenhagen really makes it very difficult for other countries in that Kyoto discussion to increase the level of ambition of their numbers," said John Ashe, a senior diplomat who chairs a key U.N. group negotiating expanded Kyoto commitments. So far it does not look very promising for the developed world to agree on the up to 40% carbon emissions cut by 2020 from the 1990 levels that scientists deem to be essential.
To make things even more complicated the developing nations refuse to accept anything less than a 40% cut by the developed world in addition to financial transfers that do not appear to be forthcoming. As you can see both sides are playing a game of chicken when the health of the entire planet is at stake.