A one day workshop in London examining relations between energy and economic growth on 30 June 2017 brought together over 30 representatives of the research, policy, and finance communities. The workshop focussed on the concept of Energy Return On energy Investment (EROI) and its potential implications for energy policy within government and the wider energy / economic policymaking community.
Energy Return on Investment (EROI)
The metric of Energy Return on Investment (EROI) measures how much energy is needed in any extraction process to deliver a quantity of energy output.
Trends in EROI can provide useful information around the changing quality of an energy resource, and the relative impacts of physical depletion and technological improvements. In the transition to a low carbon economy, awareness of this measure and its economic implications could provide a useful addition to the suite of analytical tools that inform energy policy development.
The role of energy in economic growth
During the workshop, speakers outlined the need to consider the role of energy as both an enabler of economic growth, and as a potential constraint on it. Conventional economic models tend to equate the importance of energy in the economy to its cost share, around 5 to 10% of GDP, but other theoretical and empirical approaches suggest that it plays a much more important role in economic growth.
Importantly, it was shown that the energy return on investment from conventional fossil fuels is in decline, and there is a wide range of estimates for the EROI of renewable energy sources, some of which are relatively low. This could lead to what one speaker called the “Red Queen” effect, whereby it is necessary to run harder just to stand still in economic terms – since it requires increasing effort to obtain the same amount of energy. Some speakers argued that an economy needs a certain level of net energy to maintain and grow economic output, but there were different views on the level of net energy that would be needed to sustain and grow the UK economy.
Future research needs
Despite differing views, there was wide agreement that further policy-relevant research is needed in this area. Key points identified for the research community included the need to:
- Work towards a more consistent and robust estimation method for EROI and net energy, that allows different energy sources to be compared at the point of use stage;
- Communicate not just EROI values, but also trends, set against threshold limits (“minimum” EROI required);
- Work more closely with economists and the policy community to facilitate greater mutual understanding of the issue on both sides.
The workshop was hosted by the UK Department for Business, Energy and Industrial Strategy (BEIS) and organised and funded by the UK Energy Research Centre (UKERC) research programme, the Centre for Innovation and Energy Demand (CIED) and the Centre for Industrial Energy, Materials and Products (CIE-MAP) – two of the Research Councils UK’s End Use Energy Demand Centres.
Tim Foxon, CIED, University of Sussex: Energy and Economic Growth: Learning from past transitions
Michael Kumhof, Bank of England:Energy and Economic Growth: Many Questions, Some Answers June 30, 2017
Gael Giraud, Agence Française de Développement (AFD) and University Paris-1, Chair Energy and Prosperity: Some thoughts on EROI and macroeconomics
Victor Court, EconomiX, Université Paris Nanterre: Energy-Return-On-Investment (EROI):The accessibility of energy and its link with economic growth
Paul Brockway, UK Energy Research Centre and CIE-MAP, University of Leeds: UK fossil fuel futures
Marco Raugei,Oxford Brookes University: EROI & Energy Policy (2) (Key UK renewables: PV, wind, biofuels)
Brand-Correa L.I., Brockway P.E., Copeland C.L., Foxon T.J., Owen A., Taylor P.G., (2017) Developing an Input-Output Based Method to Estimate a National-Level Energy Return on Investment (EROI). Energies 2017, 10(4), 534 Available at: http://www.mdpi.com/1996-1073/10/4/534/pdf