#246: The Surplus Energy Economy, part 1



We have reached a turning-point at which economics and the economy have parted company. Orthodox economics continues to promise growth in perpetuity, but the economy itself is going in the opposite direction.

The explanation for this is simple. Conventional economics assumes that the economy is driven by money, which is entirely under our control. But the economy is, in reality, not a financial system, but a physical one, which uses energy to convert raw materials into the products and services which constitute prosperity. The modern economy has been built on abundant, low-cost energy from fossil fuels, but this dynamic is winding down and, as we shall see in a future instalment, we have no complete (or timely) alternative with which to replace it.

The aim with The Surplus Energy Economy is to set out a comprehensive assessment of the condition and prospects of the world economy and financial system, seen from the perspective that the economy is shaped by energy, not money. This series of articles will be as specific as possible, using data from the SEEDS economic model.

The conclusions reached here necessarily contradict the orthodox line, which is that the supposed ‘normality’ of growth will soon return, and that seamless transition to renewable energy sources will deliver economic expansion in perpetuity.

The economy is analysed here as a material system which has started to contract after reaching physical constraints imposed by the availability and cost of energy. Similar limits apply to environmental tolerance for energy-based economic activity.

Findings will come later in this series, but we are completely unprepared for the reversal of prior growth in the economy. The ending of growth has not arrived without warning, and we can identify a precursor zone, starting in the 1990s, which was characterised by deceleration, followed by stagnation.

Rendered myopic by denial, and misled by a mistaken economic orthodoxy, we have been attempting the impossible task of fixing material economic problems with monetary tools. As we shall see, this has placed global finance at systemic risk.

An economy on the turn

The consensus view of current global economic problems is that they are temporary, and largely traceable to pandemic lockdowns and the war in Eastern Europe, though some observers do concede that excessive use of QE might have been a factor in the recent resurgence of inflation.

These, though, are explanations rooted in orthodox economics, which makes many fallacious assumptions. One is that the economy is entirely a financial system, not constrained by energy, resource or environmental limitations. Another is that the economy can grow in perpetuity, notwithstanding the limited physical characteristics of the Earth.

The concept of ‘infinite growth on a finite planet’ isn’t a logical proposition, but it’s been a mightily persuasive one.

Evidence is accumulating in support of an alternative view, which is that the economy is a material system, subject to physical constraints, and that economic prosperity is determined by energy, not money. Surplus Energy Economics interprets the economy in this way, and models it on this basis using SEEDS (the Surplus Energy Economics Data System).

Energy interpretation of the economy isn’t going to be accepted by the mainstream any time soon, and not just because it demonstrates the fallacies of orthodox economics. Energy-based analysis tells us that economic growth, far from continuing indefinitely, has already decelerated via stagnation into contraction.

This has never been a remotely acceptable conclusion where the ‘powers that be’ – or, for that matter, the general public – are concerned. Over a very long period, we have been using monetary gimmickry in futile efforts to reinvigorate a floundering economy. But trying to fix a material economic problem with financial tools can be compared to trying to cure an ailing house-plant with a spanner.

These efforts have led, via the global financial crisis (GFC) of 2008-09 and a subsequent era of monetary recklessness, to a point of systemic risk in global finance. We have a ludicrously-inflated “everything bubble” in asset prices and, even more seriously, an enormous complex of inter-connected liabilities which the system cannot possibly honour ‘for value’.

Why, though, are economics and the economy going in different directions?

Origins – ‘the class of ‘76’

When the year 1776 is mentioned, it probably reminds people chiefly of the Declaration of Independence, from which date the history of the United States begins. But two other events of profound importance also happened in that year, and both of them took place in Scotland. James Watt completed the first truly efficient steam engine in 1776, whilst Adam Smith published An Inquiry into the Nature and Causes of the Wealth of Nations in the same year.

The importance of these breakthroughs is scarcely capable of exaggeration. Watt gave the world the ability to convert heat into work, which enabled us to harness the vast energy resources contained in coal, oil and natural gas. Smith’s book, generally referred to as The Wealth of Nations, was the founding treatise of classical economics.

A significant distinction needs to be noted from the outset. James Watt was an engineer and inventor, and his practical work laid the foundations for a vast expansion in the material economy of products and services. Adam Smith was primarily a philosopher – he considered The Theory of Moral Sentiments (1759) his finest work – and can be described as a theoretician, setting out his explanation of the economy in terms of the working of money.

It’s worth remembering, too, that Smith was describing an agrarian economy, and could not have anticipated the coming of the Industrial Revolution. No-one should doubt the importance of Smith’s ground-breaking work, but we are entitled to wonder why, more than two centuries into the Industrial Age, his successors continue to adhere to the precepts of an economy shaped by money alone, not subject to material constraints, and capable of defying logic by delivering “infinite growth on a finite planet”.

The activities which began with ‘the class of ‘76’ have continued in parallel ever since. The heirs to Watt created the huge and complex economy of modern times, accomplished on the basis of energy from fossil fuels. Classical economists, who are the heirs to Smith, have purported to explain this dramatic expansion in terms, not of material energy, but of money, which is an immaterial human artefact used primarily for the exchange – not the creation – of the products and services made available by the harnessing of energy.

So long as the economy continued to expand, there was no necessary conflict, other than at the intellectual level, between these two schools of thought. The beneficiaries of economic growth could thank Watt for their improving prosperity, or hand the credit to Smith, with most people probably giving scant thought to either.

Now, though, we have reached a parting of the ways between economics and the economy. It’s becoming increasingly apparent that economic growth, having decelerated since at least the 1990s (and arguably for a lot longer than that), has gone into reverse.

Classical economics says that this can’t happen. As we shall see, observation makes it increasingly clear that it has.

This presents us with a choice of two interpretations. One, favoured here, is that prior growth in prosperity has reversed because the fossil fuel dynamic has been winding down. The other is that we can restore the economy to perpetual expansion if we work along the monetary lines specified by classical economics.

The existence of ample intellectual and observational evidence makes it imperative that we take note of economic deterioration, and then seek explanations for why it has been happening. In the modern parlance, there is a range of “narratives” which purport to tell us why the economy is struggling. We looked at these rival explanations in a previous article, so need not distract ourselves by revisiting them now.

The line of inquiry followed here is based on reasoning from first principles within a framework of evidence. Our conclusions are simply stated.

Prior growth in the industrial economy has gone into reverse, because the dynamic built on fossil fuel energy has decelerated, over a lengthy period of time, to a point of trend reversal which we might, if we so choose, call “inflexion”. There exists no plausible alternative that offers a complete and timely replacement for the economic value hitherto sourced from oil, gas and coal.

This means that, in material terms, the world is getting poorer. We can see this happening, if we choose to look. At the same time, energy-intensive necessities are becoming more expensive. The ensuing contraction in discretionary prosperity is one of the main economic problems created by this process.

The other is the unravelling of the vast financial system predicated entirely on the assumption that the underlying economy of products and services could never cease to grow, let alone start to contract.

Foundation principles

The Surplus Energy Economics interpretation of the economy reasons from first principles, of which there are three.

First, the economy is an energy system, because literally nothing that has any economic value at all can be supplied without the use of energy. Other raw materials, including food and water as well as minerals and plastics, are functions of the energy required to make them available. Energy is ‘the master resource’, and is the obvious connection between our economic and environmental challenges.

To be slightly more specific, the modern economy is a dissipative landfill system. Energy is used to convert raw materials into products whose ultimate destination is disposal. This is dissipative because, in thermodynamic terms, this process involves the conversion of concentrated, dense energy into the diffuse format of waste heat. The use of fossil fuels as the concentrated input to this process means that the resulting waste heat contains climate-harming gases.

The second principle is that energy is never ‘free’. Whenever energy is accessed for our use, some of that energy is always consumed in the access process. Energy is used at every stage in the creation, maintenance, operation and replacement of the systems which supply us with energy. This ‘consumed in access’ component is a cost deduction, because it is energy which cannot be used for any other economic purpose. It can be thought of as a rent levied upon economic activity by the material character of energy resources.

It is known here as the Energy Cost of Energy, giving us the principle of ECoE.

This means that material prosperity is a product of the supply, value and cost of energy. Prosperity, therefore, is, first and foremost, a material concept, not a financial one.

Money has no intrinsic worth, but commands value only as a man-made ‘claim’ on the material output of the energy economy. It is worthless unless there is something material for which it can be exchanged.

Our third and final principle is that of money as claim.

‘Two economies’

As well as being self-evident, these principles lead us to an obvious conclusion. This is that we need to think conceptually in terms of ‘two economies’. One of these is the ‘real’ or material economy of products and services made available by the use of energy. The other is the ‘financial’ or parallel economy of money and credit.

From this, it follows that the financial economy is a representational counterpart or proxy of the real economy. If these ‘two economies’ are in a reasonably close relationship, we are in a situation of equilibrium where the claims that constitute the financial system can be honoured by the material economy.

As we shall see, the situation now is one of extreme disequilibrium, meaning that we have created an enormous quantity of excess claims which cannot be ‘honoured for value’. This is why major downsizing of the financial system has become inescapable, and will look like ‘value destruction’.

The reality – though it’s of scant comfort – is that much of the ‘value’ that will be destroyed never really existed in the first place, and consisted of monetary claims that the real economy of the future was never going to be able to honour. We are, in fact, in two bubbles – the “everything bubble” in asset prices, which is destined to burst, and the ‘delusion bubble’ of gigantic financial commitments that must be relinquished because they cannot possibly be honoured.

A brief history of now

The central proposition which emerges from first principles is that prosperity is a function of surplus energy, meaning total energy less the ECoE cost of making that energy available for use.

In pre-industrial times, almost all energy was sourced from human and animal labour. The dynamic here was that human energy was obtained from nutrition, and expended in hunting or finding that nutritional energy. The same equation exists in nature, where an animal or a bird survives only if the energy sourced from consuming food exceeds the energy expended in obtaining it.

Agriculture made this process more efficient without, of course, changing the fundamental dynamic. If, say, twenty people could now be fed by the labour of nineteen, an energy surplus existed which enabled the release of the twentieth person for non-subsistence activities. These activities were varied, and included capital investment in buildings, tools and infrastructure, all of which increase productivity in the future by sacrificing consumption in the present. But a surplus of 1/20 is very small, which explains why pre-industrial systems of investment, craft manufacture, education, law and government were rudimentary by later standards.

Accessing fossil fuels was completely transformative. In today’s developed economies, very few people work in agriculture, and their labour is supplemented enormously by inputs and services made available by fossil fuel energy. Modern agriculture, no less than industry, is a system built on oil, gas and coal.

Classical economics, which traces its origins to the pre-industrial era, is prone to ignoring the energy dynamic to the point of absurdity. For example, the statistic that only about 6% of world GDP is attributable to agriculture leads to the absurd proposition that the remaining 94% of the economy could carry on unaffected if we lost the ability to produce food. In many economies, activities like tourism and financial services are statistically larger proportions of GDP than agriculture or the supply of energy, and are thus deemed to be ‘more important’, and worthier of more investment and policy attention, than these basics.

Classical economics side-steps issues of scarcity by promising infinite substitutability, a claim which, where energy is concerned, is now being disproved, with brutal economic consequences.

Conventional economics has been described as “the dismal science” and, whilst it might indeed be dismal, it certainly isn’t a science. What classical economics is pleased to call the “laws” of economics are merely observations about the behaviour of the human artefact of money, and are in no way analogous to the laws of science.

It hardly needs be said that energy cannot be lent into existence by commercial banks, or created out of the ether by central bankers. We can’t overcome environmental problems by sending a cheque to the universe, and neither, for that matter, can we make energy transition to renewables possible by using QE – any such exercise would be self-defeating, because it would simply push up the prices of every raw material input required for the expansion and maintenance of renewables.

Output and prosperity

Two terms used frequently here are output and prosperity, and we need to be clear about the difference between them. The understanding of prosperity, defined in material terms, ought to be the primary objective of economics, and the calculation of prosperity is at the centre of the SEEDS economic model.

The difference between output and prosperity is cost, much as necessary expenses are the difference between individuals’ total and disposable incomes. At the macroeconomic level, output is the value created by the use of energy, and prosperity is what remains after ECoE has been deducted from output thus defined.

The principal metric in orthodox macroeconomics is gross domestic product, which is often, – though quite mistakenly – assumed to be a measure of output or prosperity. In fact, GDP is a quantification of financial transactional activity, and it’s perfectly possible, indeed commonplace, for transactions to take place without any economic value being created.

One technical point needs to be made here before we examine economic output. There are two ways in which other currencies can be converted into dollars for purposes of comparison and global aggregation. One of these is to use market exchange rates, and the other is known as purchasing power parity (PPP). PPP is the convention used in measuring global growth, and it is the one used here, except where otherwise stated. Monetary amounts need to be expressed at constant (‘real’) values, so the nomenclature is ‘$PPP 2021’. SEEDS analysis of national economies is undertaken in local currencies, again at constant 2021 values.

When it comes to internationally-comparable conventional economic statistics, the International Monetary Fund can be regarded as authoritative. In its most recent set of data, published in October, the IMF stated that world gross domestic product fell by 3.0% in 2020, during pandemic lockdowns, grew by 6.0% in 2021, and was likely to have increased by 3.2% during 2022.

From the same source, world GDP was $146 trillion (PPP) in 2021. Adjusted for broad inflation (using the GDP deflator), the equivalent number for 2001 was $73tn, meaning that reported real GDP doubled (+101%) between those years.

Over the same period, though, global debt increased by 180% in real terms, in a relationship illustrated in Fig. 1. Over a period in which reported GDP grew by $73tn, total public and private debt expanded by $232tn (Fig. 1A), meaning that each dollar of reported growth was accompanied by $3.15 of net new borrowing. Another way to look at this is that borrowing averaged 10.8% of GDP during a period in which reported growth in GDP averaged 3.4% (Fig. 1B).

For the United States, growth in GDP of USD 7.3tn (46%) was accompanied by a USD 34tn (115%) increase in aggregate debt. On this basis, USD 4.66 of net new debt was added for each dollar of reported growth, whilst borrowing averaged 8.9% of GDP during a period when GDP itself grew at an annual average rate of 1.9%.

Fig. 1

Given that GDP is a measure of transactions, a direct connection exists between borrowing and changes in GDP. A simple example illustrates this point. If a government were to use borrowed money to employ 10,000 people to dig holes in roads, and another 10,000 to fill them in again, the wages paid to both groups would be added to GDP, even though no economic value has been added. The spending of these wages would contribute to GDP measured as expenditures and, most absurdly, the work would count as ‘value added’ for computational purposes, even though no such value has in fact been created.

The cost of employing these workers would be added to government debt, where it would be disregarded by anyone choosing not to make the connection between the two. The technical terms for these are flow (in this instance, of GDP) and stock (of debt).

What this amounts to is that you can report just about as much “growth” as you like, depending upon how much you are willing and able to borrow. Historic data illustrates this connection. Between 2001 and 2021, average growth in the United States was 1.9%, and annual borrowing averaged 8.9% of GDP, as we have seen. China reported far more growth than America over this period (averaging 7.8%), but also borrowed very much more (an average of 24.7% of GDP).

A reflection on absurdities

This relationship between stock and flow cautions us, not just against an unquestioning acceptance of GDP as a measure of output, but also against relying on the ratio of debt to GDP, because these are not discrete data series.

We are sometimes told that debt “doesn’t matter”, which, of course, is absurd. We are also informed that borrowing now can create growth which, in due course, ‘pays off’ the debt taken on to create it. Individual enterprises can indeed do this, but a borrowing-to-growth ratio of 3:1 (and often higher) makes this a mathematical absurdity at the macroeconomic level.

Whilst we’re pondering absurdities, few are more readily accepted than aggregate ‘valuations’ of assets. We are routinely told that market movements have ‘added’ or ‘wiped out’ billions, or even trillions, in investor value. Statisticians – who really should know better – frequently tot up the supposed value of property and other assets and then deduct liabilities to produce a ‘national balance sheet’. The results usually echo Harold MacMillan when he told the British public (in 1957) that they’d “never had it so good”.

The reality, of course, is that the only potential buyers for the entirety of a nation’s housing stock are the same people to whom it already belongs. Foreign buyers don’t affect this other than at the margin and, in any case, their investment merely shifts property demand between countries.

The same applies to any asset class, including stocks and bonds. Aggregates are arrived at by multiplying average prices by the number of units of the asset in question. This implies that the entire asset class could be sold for that sum, which is completely impossible. The error involved here is the application of marginal transaction prices to the aggregate of stock.

Property is an appropriate example, because we are often treated to the proposition that real property prices can never fall because ‘demand is always increasing as population numbers expand’. The mistake made in such glib statements is the conflation of ‘demand’ with ‘want’. You or I might ‘want’ a new sports car, but that ‘want’ only counts as demand to the extent that we have the wherewithal to implement it. Likewise, ‘wanting’ or ‘needing’ a home does not count as ‘demand’ unless prices are within the reach of those who want or need one.

It’s much more meaningful to think of asset prices as the inverse of the cost of capital. What this in turn means is that stock – not just of asset values, but of liability viability as well – is a temporal function of economic flow.

This leads us, as a precursor to measuring prosperity, into a consideration of what really constitutes economic ‘output’.

Underlying output

As we have seen, much of the economic ‘growth’ of recent times has been created by credit expansion. The SEEDS economic model strips out this ‘credit effect’ to calculate underlying or ‘clean’ economic output, known here as C-GDP.

This is illustrated in Fig. 2. On this adjusted basis, underlying annual average growth in the global economy between 2001 and 2021 was only 1.6%, rather than the reported 3.4% (Fig. 2A).

Over this period, the expansion in C-GDP was only $27tn, or 39%, rather than the reported increase of $73tn, or 101% (Fig. 2B). Put another way, within total reported growth in the global economy over those two decades, only 37% ranks as organic expansion, and the remaining 63% was the cosmetic effect of pouring huge amounts of borrowed money into the system, and counting the ensuing transactions as ‘output’.

Fig. 2

We can ‘cut to the chase’ here by looking back at Fig. 1A and asking ourselves whether the pattern illustrated there is sustainable – in other words, can we carry on, indefinitely, adding more than $3 of debt for each $1 of “growth”, or does a point arrive at which it becomes apparent that this debt can never be repaid?

When that point does arrive – which, of course, it must, and perhaps now has – the result is a collapse in confidence, which happens at the moment when enough people realize that debts and other commitments owed to them cannot be honoured ‘for value’. This will trigger defaults, which may be ‘hard’ (reneging on debts), ‘soft’ (allowing inflation to destroy the real value of debt repayment), or a combination of the two. Since one person’s debt is another person’s asset, there is no cost-free way of simply writing off outstanding debts.

One thing is certain – we cannot create material economic value by borrowing, or by producing new money out of the ether.

The energy connection

For most purposes, the SEEDS calculation of C-GDP commences in 2000 – as we scroll back through the 1990s and beyond, necessary data for some economies is not available, and starting more than two decades ago provides a sufficiency of historic information for our purposes.

In a recent exercise, though, the SEEDS clock on global C-GDP was started, not in 2000, but in 1980, and the results of this investigation, when compared with energy use, were startling. As illustrated in Fig. 3, the relationship between underlying economic output (C-GDP) and primary energy consumption was not just linear but strikingly consistent (Fig. 3A).

The ratio of economic output and energy use, shown in Fig. 3B, didn’t vary by more than +/- 4% in any one of the forty-two years between 1980 and 2021. Given the vicissitudes experienced in both the economy and the supply of energy over that very lengthy period, this consistency is remarkable (and was completely unexpected before the calculations were made).

Fig. 3

This finding might seem surprising, because it implies that there has been no improvement, over a very long period, in the efficiency with which energy is converted into economic value.

There are a number of possible explanations, and these might repay investigation in the future. Just one of these may be that advances in efficiency are cancelled out by deterioration in the quality of non-energy raw materials. In minerals, for example, a decline in ore densities could easily offset any progress made in the efficiency of extraction and processing.

Be that as it may, the clear implication is that we cannot “de-couple” the generation of economic value from the quantitative use of energy. As you may know, the European Environmental Bureau dismissed the concept of de-coupling in a 2019 paper entitled Decoupling debunked: Why green growth is not enough. The report remarked that the case that has been made for de-coupling is “a haystack without a needle”.

Energy itself will be addressed later in this series, but the general conclusion is that the availability of primary energy is poised to decrease, mainly because the supply of alternatives, such as renewables, nuclear and hydroelectricity, will not be able to expand at rates sufficient to offset the impending decline in the production of fossil fuels.

From an environmental perspective, this is positive, but we should be in no doubt at all that a decreasing availability of primary energy means that economic output will contract. The economic outlook suggests broad re-prioritization, and this might provide a modest, and probably transitory, improvement in conversion efficiency (see Fig. 3C). But we should be in no doubt that reduced energy use will result in a smaller economy (Fig. 3D).

Starting from first principles, we have seen how economic output is a linear function of the energy available to the system. In the next article, we’ll look at how the cost of energy feeds into these equations, and how we can conclude – whisper it who dares – that prior growth in material prosperity has gone into reverse.

78 thoughts on “#246: The Surplus Energy Economy, part 1

  1. Thank you, Dr. Tim. Another tour de force. I agree that prosperity is declining quickly here in the UK. One has only to look around you as you walk the streets. My accountant, too, thinks that maybe as many of a quarter of his SME’s will fail by the end of 2023 as they are overwhelmed by weak balance sheets, declining turnover and profits and crushed by unaffordable debts. This decline is patently gaining momentum, sad to say for the individuals concerned (none of whom, I guess, ‘forgot’ a £3-5m tax liability).

    There is little capacity left for the ‘ordinary consumer’ to borrow yet more to maintain consumption of ‘stuff’, methinks, and people have long failed to see the current ‘financial repression’ as their income proves inadequate. Whilst the fabled 1% who ‘own’ most of the ‘stuff’ will likely be fine when they realise 1) You can only own so much ‘stuff’, and 2) We are all dead in the long-run, the 99% of us who, in truth, ‘own’ very little, will have to adapt, quite soon I think, to a far simpler way of life.

    I have always thought that the Georgians and Victorians were on the right lines when novelists wrote about money. They referred to income – “she’s worth £5,000 p.a., he’s worth £2,500 p.a.” – and not so much where that income came from (land, “the funds” (gilts), some stocks). As you have said there is not much return on capital today, and this will lead to a sharp decline in income, particularly in the retirement years, something that is already happening.

    • Thanks Mark. What I’m trying to do here is put this together over several articles. After ‘first principles’ and output, the plan is to cover energy in part 2, prosperity in part 3 and financial stuff in part 4.

      The UK is in extraordinarily bad way, with no direction, no plan, no leadership worth the name, and an economy that is falling apart. Even watching from a distance it’s a horror-show. I wish you all the best with trying to navigate it.

    • “…will have to adapt, quite soon I think, to a far simpler way of life.” No truer word said Mark. I have been rabbiting on about this ever since I read Tim’s book and wrote my own after the Cyprus bank robbery in 2013. But how do we adapt to a simpler way of life when almost all generations have known nothing but excess consumption? How will Gen Z understand that ‘less is more’?

      My solution is for local economies to emerge with short supply lines and a way of life more adapted to pre-industrial societies but with some appropriate modern supplements:

  2. Human population size ÷ energy availability = living standards

    This equation is applicable at both national and global scales.

    Energy availability is primarily restricted by expensive to access deposits of hydrocarbons and expensive to access critical materials required for renewable energy generation.

    As the human population grows, whether at the national or global level, the demand for energy inevitably increases which pushes up prices and makes energy bills unaffordable. Supply shocks do the same.

    To counteract diminishing per person energy availability, greater burdens of debt are facilitated to create the illusion of prosperity whilst debt temporarily enables living standards to be maintained.

    The reality is that the UK’s material footprint is trending downwards even as the human population grows.



    Since energy is the essential input by which we produce goods and services, then no wonder we are feeling poorer. Similarly, per person energy availability has a direct relationship with productivity which is only mitigated by thermodynamically limited efficiency measures.

    Overall, energy availability is not increasing enough in order to keep up with national and global population growth. This means per person energy availability is decreasing, which is translating as reducing productivity and reducing living standards which in aggregate terms is causing people to feel poorer.

    In the main, the era of cheap energy is over and so governments are caught in a Malthusian trap which can only lead to more energy poverty and more poverty in relation to the affordability of goods and services. This in turn drives debt which can only ever be a temporary solution in a diminishing per person energy availability economic environment. Thus in the near future we can start expecting much greater political demands for greater redistribution in order to dampen grievances over income and wealth inequalities which facilitates unequal access to diminishing per person energy availability.

    • “Human population size ÷ energy availability = living standards

      “This equation is applicable at both national and global scales.”

      Yes, but the really critical issue is ECoE. If ECoEs are low, energy is abundantly affordable, output grows and prosperity expands. We’ll be getting into this in part 2.

      This technical point aside, agree with you entirely.

    • @Steve Gwynne

      “Thus in the near future we can start expecting much greater political demands for greater redistribution in order to dampen grievances over income and wealth inequalities which facilitates unequal access to diminishing per person energy availability.”

      I agree.

      Leaving it to “money” and “the market” to determine people’s access to energy, will be a disaster.

      Scapegoating will have limited effect. It only works when those being singled out are a small minority. Try telling the majority that they can’t feed their kids because they don’t work hard enough.

      The UK government have started down this road, as well as gaslighting the public. (“Can’t pay your energy bills? Then get a better paid job”)

      (I’m not convinced that a debt based money system can function during de-growth anyway)

    • On this topic, it’s fair to say that a country, like an individual, who is getting poorer, has to dispense with some luxuries. Extreme inequality is likely to be one of the luxuries that is no longer affordable. This isn’t some kind of “leftie” observation on my part, just logic.

      The UK economy is showing every sign of falling apart, and at an accelerating rate.

    • @drtimmorgan
      “…a country, like an individual, who is getting poorer, has to dispense with some luxuries.”

      Indeed. After reading around the recent slowdowns in car manufacturing, (and increasing defaults on car loans) I suspect the personal/household vehicle will become a ‘luxury item’ in the not too distant future. EVs will always be expensive to manufacture and cannot replace conventional vehicles on a 1:1 basis with input energy costs, let alone the need to replace expensive batteries with relatively short lives. Even old “used” EVs will be out of reach for many with declining discretionary incomes.

      I heard of a rural family who work in a nearby town, with kids in daycare/school etc, and have taken a 2nd mortgage on their house to buy an EV, as for them it worked out better with the increasing costs of fuel, and lack of public transport services. Others in cities in apartment blocks are now hitting unforeseen cost barriers because of the high costs of installing EV charging stations in apartment building carparks, and the need for separate metering for residents.

      However, with affordability compression, I just can’t see the EV becoming the everyday common household item that IC cars have been. Even picking up a cheap old 2nd-hand car is/was affordable for most in my lifetime — but I can’t see that continuing with either type of vehicle into the future. E-bikes, E-scooters perhaps will be more common but still likely to prove costly for personal use.

    • If we – meaning decision-makers – are determined to push EVs, then large numbers will be sold. But we can’t replace the world’s 1.1 billion ICE cars with them. EVs (and renewables) are subsidised, whereas gasoline and diesel are heavily taxed in many countries.

      In many places, people seldom actually ‘buy’ cars these days, but use lease-purchase schemes. Buying has already become impossible for a large proportion of the motoring public. Car ads often don’t even mention the purchase price, just the monthly payment. When an economy is being – no pun intended – driven over a cliff, like Britain is, how many people will even be able to lease and operate a car anyway?

    • Just to add.

      During feudal times, it was possible for an elite minority to control a much larger peasantry. Maybe restricting large chunks of the population, access to energy/resources will be a political option going forward?

      Maybe de-growth will be a process of incremental steps back to a feudal system.?

    • @ John Adams

      Feudalism gets a bad name. It was a reciprocal relation – if the lord couldn’t protect the peasants who relied on him, he was no longer their lord. Sure this opened the door to some abuses, but both groups relied on the other in far more intimate way than any modern arrangements that are often referred to as ‘neofuedalism’. The enclosure acts and land reforms that destroyed the rural commons and the landed life happened a long time after the end of feudalism, and were fuelled by the growth of cities and their demand for labour more than anything else.

    • @Dr Tim

      “Extreme inequality is likely to be one of the luxuries that is no longer affordable.”

      I like it!!! Well put!!!🤣

      Extreme inequality seems to be the norm for most of history though☹️

    • @rainsinger


      Great example of technology for technologies sake.

      And as for E-scooters………….

    • @PumpkinScone

      “Feudalism gets a bad name. It was a reciprocal relation –”

      Yeah. Right. Like the Peasants had a say in the arrangements!!!!!!!!

      Prior to the Black Death, presents were not allowed to move around and were tied to a perticular landowner. Serfs.

      I don’t think there was much “reciprocal relationshions” going on when the nobility put down the Peasants Revolt!!!!!

  3. Thank you, Tim, for another outstanding blog in this critical arena. I greatly look forward to your further blogs in this particular mini-series (which you mention will soon address energy issues).
    When doing so I seriously hope you will provide us with your insights into four energy-related areas that are under ongoing, but seemingly as yet inconclusive, debate:

    a) The harmonisation of data around ECoE (or, where I have encountered it, in related EROEI). David Murphy et al explore this in “Energy Return on Investment of Major Energy Carriers: Review and Harmonization” at https://www.mdpi.com/2071-1050/14/12/7098. (I respect Murphy’s case for the need for harmonisation and his efforts at achieving that, but feel his factoring grid efficiency into that process is an unfortunate step in the wrong direction);

    b) How we should factor efficiency of end use of energy into our overall sense of the energy needs of society. Murphy discusses that the shift from a fossil-fuel based economy to an electrified one is generally accompanied by a shift to far greater efficiency in the end use of energy once it reaches the “point of use”. (E.g. a given amount of energy in a car battery will deliver around three times the travel distance that the same amount of energy would in petrol in a car tank.) He then makes a provisional case that this has the potential to greatly shift the viability of renewable energy sources vis a vis fossil fuels, which of course impacts strongly on historical arguments about the catastrophic impacts of falling EROEI. Murphy’s colleague Marco Raugei summarises this in more readable form in “Energy Return on Investment: Setting the Record Straight” at https://www.sciencedirect.com/science/article/pii/S2542435119303642.

    c) The quantitative relationship between ECoE and flourishing societies. E.g. are there actual values of ECoE (or EROEI) we can correlate reliably with corresponding levels of societal activity/civilisation etc. (e.g. this was explored in “EROI of different fuels and the implications for society” by Charles Hall, Jessica Lambert and Stephen Balogh at https://www.sciencedirect.com/science/article/pii/S0301421513003856). We have found the shortage of robust information in this arena is one impediment to gaining traction at official levels (in New Zealand) to factoring ECoE/EROEI type approaches into energy planning, where the prevailing thinking is “we just need to build more wind turbines” or whatever.

    d) Relating to the last item, the scaling effect of rising ECoE on environmental harm. In a world pushing planetary boundaries in so many respects, there seems surprisingly little discussion about the compounding effect of rising ECoE on environmental and resource depletion problems . Other things being equal, a rising ECoE will have escalating impacts (on, I suspect, an exponential basis).

    Many thanks,


  4. Dear Dr. Morgan,

    Thank you for this strong and coherent start to your four part essay on Surplus Energy Economy. Although I have been following the SEE blog since 2019 and have read both your texts and the discussions of your respondents (often copy/pasting the main texts in Word so that I can read them more than once offline) I feel that I am not qualified to comment having no real world or academic background in economics. How can I express how grateful I am to be able to learn from you and the group? It is very difficult to get past the dominant paradigm as an outsider. I am also an avid reader of some ecological economists like Clive Spash who I think is a very insightful and honest thinker and teacher, but your work has an originality and focus that is unique.

    There is a small comment I would like to make on an observation in this essay, if I may. You wrote:

    The heirs to Watt created the huge and complex economy of modern times, accomplished on the basis of energy from fossil fuels. ‘

    It goes without saying that it is clear to you that the industrial economy was not created by Watt’s heirs and the FFs alone. It was built by and based on, human labour intertwined with the machinery and the fuels. The suffering and sacrifices of those who laboured in those ‘hellish’ mines and factories are an intrinsic part of the complex economy, which would not have succeeded without them. As I am sure you know, the powerful industrialists used measures to achieve of their goals that we might today call crimes against humanity. I do not want to sound political, but making the contribution of those who did the work invisible, as your sentence seems to do, somehow does not sit well. Please forgive me if I have been too critical on this point.

    You are very busy with the project and probably do not have time to think about this aspect. Just in case you do find the time, I am sending a monograph by Larry Lohmann and Nick Hildyard from 2014 that covers finance, energy and work that offers another kind of perspective. You might want to start on page 25 to save time.

    Once again, thanks and I am looking forward to the next 3 parts.

    Marion Troia

    • Thanks Marion. I think this is your first comment here, so welcome to SEE.

      You are right, of course, about the work and working conditions of people labouring in the industrial revolution. Perhaps the best sources on this, where the UK is concerned, are E.P. Thompson’s The Making of the English Working Class, and the same author’s essay Time, work discipine and industrial capitalism. I was surprised that the anniversary of the first Factory Act, passed in 1819, was not (so far as I’m aware) celebrated in 2019.

      What I do, though, is concentrate on the relationship between energy and prosperity – that fills all the hours available!

    • Dear Dr Tim,

      Thanks so much for taking the time to reply. The task you have set for yourself is extremely important and I, as others who follow the evolution of your ideas and findings, want to encourage you and show support. Let’s (try to) be confident that the established authorities learn about your work and engage with you. However, if the marginalisation of Herman Daly is any kind of sign, it will be an uphill climb.

      Actually, I have the Thompson book but have not gotten around to reading it. I will certainly crack it open now.



    • Thanks Marion.

      I don’t expect the authorities to understand or recognize the energy basis of the economy any time soon. That’s not my objective. The way I see things is that I, and like-minded people, want to know about this stuff. The SEEDS model was built ‘to see if it could be done’. Beyond intellectual curiosity, this understanding should help inform the decisions we make.

      The Thompson book is very good. I attended one of his seminars once, which was enlightening.

  5. Whilst not contesting the basic premise that as energy becomes scarcer and more expensive everything that depends on it will become scarcer and more expensive and thus using current yardsticks (perpetual) growth is an impossibility. However terms such as prosperity, well being and standards of living are all subjective. In the 1970s buying a house was within the reach of a person on an average income however a high end music centre or even a colour television would have been seen as a luxury. In the UK in 2023 buying a house on an average income is something of a dream but you can have access to all the music and moving images you want. A broadband connection won’t fill an empty tummy but makes life in a cramped bedsit somehow more tolerable. It is all about perceptions and managing the transition to valuing a whole new range of things in our post cheap energy economy.

  6. “and a litre of petrol is a litre of petrol, right?

    Wrong! Petrol just isn’t what it used to be. Indeed, in Britain since September 2021, a litre of petrol has five percent less petrol in it.
    As Paul Hudson at the Telegraph explained last year:

    “Concerns immediately arose about the fuel’s efficiency, with claims from the AA that fuel costs would rise by about 1.6 per cent purely as a result.

    “That’s because ethanol is about a third less energy dense than pure petrol. In the USA, research by the Environmental Protection Agency (EPA) showed between a three and four per cent reduction in fuel economy using E10 compared with pure oil-based petrol.”
    Nevertheless, the broad point stands – E10 petrol provides less exergy – the fraction of energy which is converted into useful work – than pure petrol. In this sense, a petrol car can be seen as a simple model for the way in which the economy as a whole uses energy. In short, the less energy that goes in, the less useful work that can be done.


  7. I’ve been meaning to ask this for many posts.
    Can you explain what is the difference between ‘prior growth’ and ‘growth’?

    • If we say that the economy grew between year A and year B, then started to contract, I call that ‘the reversal of prior growth’. I could say ‘previous’ instead of ‘prior’, I suppose. When I refer to “growth” in reported GDP, I put it in quote-marks, because most of it, over the past quarter-century, has been cosmetic.

  8. I just watched this, Nate Hagens and Art Berman;

    you can skip to the 12 minute mark to avoid the preamble and get straight into the detail,

    it’s fascinating, I didn’t know that now 40% of the US oil industry output isn’t conventional or tight oil, it’s mainly natural gas plant liquids (NGPL) with additional ethanol, refinery gains and a dribble of bio diesel,

    40% of US oil production is lighter stuff with only about 67% of the energy content of conventional oil,
    this is reflected globally with around 20% being the lighter fractions,

    it’s not just the ECoE that’s rising, the calorific value of the liquids being produced is falling.

    • This really puts the so-called ‘energy independence’ of the US in question. It may keep US gas prices low for the moment for home heating and process heat customers, promoting strategic opportunities for US gas sales to Europe when its infrastructure ‘fails’, but it really highlights the lack of enough diesel in US hydrocarbon production. No wonder Russian oil can release itself from sanctions by being processed into open market diesel in India or wherever.
      As Europe discovers the energy cost of civilisation in higher hydrocarbon prices, we see how, as indigenous energy sources decline, ECoE is a comparatively nuanced viewpoint as nations reassess their prospects in resource scarcity.
      Back in 2017/8 Art Berman was predicting serious declines in US gas production for the early 2020s. He saw this coming.
      Rather than the question just being, “How do we carry on when we need more energy to keep on doing the same things?”, it becomes “Whose energy do we need to secure for ourselves, to prevent us not having the energy we need to survive?”
      And, as in degrowth there are no overall returns on investment, these questions will increasingly be answered not in commercial trade, but by force majeure as political economy and thermodynamics realign.
      Europeans are learning the hard way now, and it would be nice to think we could fashion an international consensus to share better responses to threats to the global energy economy.
      Thank you Tim, for your continuing work to this end.

    • Thanks Raymond. The ground plan is ‘principles and economic output’ in part one, ‘energy’ in part two, ‘prosperity’ in part three and ‘finance’ in part four. I haven’t ruled out a fifth part in the series, perhaps along the lines of ‘what happens next?’

    • @DrTim

      I for one would be very interested in a “what happens next (and beyond) article)

      Great article. Sets everything out in a concise way.

    • Thanks John, much appreciated.

      The aim is to set things out in a logical order, providing a comprehensive synopsis of the situation. This means that “what happens next?” has to be written after the other parts. I can see why it might be the most interesting of the five – I’m looking forward to it myself!

  9. Nothing new. While I agree with the observations, I don’t accept the first principals presented. The Sun generates tremendous energy but not in direct control of humans. My first principals include human activities and more broadly those of all life. While energy is fundamental to life, energy is meaningless without life. I also disagree with definition of prosperity. Measuring or defining prosperity mainly on terms of things is so dehumanizing to me. Creature comforts are nice and certainly ‘things’ especially energy are important. But as important for life is meaning, I am captivated by John Vereke’s study into his view that we are suffering from a ‘Meaning Crisis’ which he believes should be viewed through his theories around recursive relevance realization (RRR). I can map RRR with my views how I see at a macro level how life ‘thinks’ and consciousness may emerge.

    • Ken:

      I make a point of not discussing my personal philosophy here but, if I did, you might be surprised at how close it is to yours. Meaning, I think, can be found, but at a personal rather than at a collective level. For me, a collective ‘meaning crisis’ occurs where self-interest, which we might also call ‘greed’, is given priority over the best interests of the collective. This happens when people define their and others’ value in terms of earning and owning.

      But I do feel that trying to re-envision economics, as we do here, is not wholly detached from this. There is, I think, a legitimate interest in ensuring that the necessities are available and affordable for all.

    • nothing useful. you’re upset that poverty is discussed in pithy terms? you’re upset that the economy is not a source of meaning for most sane individuals? nope I don’t find your comment useful at all.

  10. Excellent Tim, as always, I learn so much from my reading here.

    I apologise for maybe ‘jumping ahead’ on a hopefully related issue, or perhaps better suited for a ‘what happens next’ discussion, I have also just finished re-watching an old 2005 BBC documentary on ‘Global Dimming’, investigating why the official global climate models, used by the IPCC may well have significantly underestimated the speed of global warming, due to the masking effect of global dimming.

    If we accept that global FF energy supply will decline anyway as we reach the planet’s L2G, then presumably global GHG (warming) and aerosol (cooling) emissions will also decline, and may even possibly reach the 2050, if not 2030, IPCC targets with or without ‘clean energy transitions’.

    While I suspect this process of decline/depletion will be devastating for economic ‘growth’, I am also reminded of the recent economic blows felt by Australia from 3 non-stop years over and over of ‘unprecedented’ rainfall and catastrophic flooding. As the rain has only recently slowed and stopped, the last of the walls of water, are only just now reaching the sea mouth and the ‘clean-up’ project is expected to take at least another year, and is just starting to clear the 1500kms long, of literal mountains of debris, gouged-out pools of toxic, stagnant, ‘black water pools’, repair of levees (which had previously withstood over a century of previous floods), lost crops, stock and pastureland, and at least 2 rural towns I know of, needing to be rebuilt or relocated. Which means an army of earthmoving equipment and more diesel !

    However, Oz is not Pakistan or Argentina etc – we can continue to mine and export our copious supplies of natural gas, metals and mineral resources. Hence Oz is generally considered a good ‘credit risk’, still considered ‘solvent’ in theory, despite high illiquidity, high structural deficits, and eye-watering escalating debt — and so will probably pay this enormous bill of climate loss/damages and repair, through more increased borrowing.

    Australia is no stranger to ‘natural disasters’, but for a long time could usually rely on 10-20+ years between them. With global warming potentially ‘speeding up’ and the IPCC models possibly underestimating the projections due to both historical data gaps in some drivers, and uncertainties in the models, the time gaps between such disasters may not be sufficient for recovery.

    While authorities are not putting any hard $ numbers on this particular recent disaster (yet), the losses in our agriculture alone must be a huge chunk of our ‘C-GDP’. The government is flagging a doubling of funding for our “contingency’ or ’emergency’ Budget next year. We are also massively increasing our military defence Budget in partnership with close geographical neighbours (the source of all our oil and refinery products), with China being just “over the back fence”, so to speak.

    My question now, is if some sort of climate loss/damage data are being considered for incorporating in the SEEDs modelling? I appreciate that making estimates, assumptions etc would be difficult or even impossible given how every year from here on is going to be random lottery for any given region, and may not make much difference to the overall trends.

    Any thoughts?

    • Thanks Rain. I have only recently become aware of ‘global dimming’ and the aerosol effect. There is a theory, as I understand it, that the use of fossil fuels, as well as causing the greenhouse effect, also increases cloud cover, without which the c1C heating effect would already have exceeded 5C (and I’ve seen even higher numbers). I’m aware of the increase in natural disasters, which doesn’t just mean big, headline events but more generalized effects as well.

      SEEDS can only look at these in a tangental way. For instance, there’s a SEEDS component which projects CO2 emissions. SEEDS also includes a mechanism which aims to include economic ‘compounding effects’ in C-GDP trends. The compound effects which this is designed to reflect include product and process simplification, delayering, loss of critical mass and dis-economies of scale.

      In effect, though, SEEDS cannot put costs on natural disasters. This said, recognition of the energy rather than the financial basis of the economy might take us nearer to being able to do so. Classical economics certainly can’t do this.

      The SEE conclusion is that we have two reasons for reducing our reliance on fossil fuels. First, and obviously, the environmental consequences of FF reliance. Second, and less obvious, an economy which continued to rely on FFs would face rapid degradation as ECoEs rise and supplies of FF diminish. On this basis, there is no real conflict between our economic and our environmental best interests.

    • In terms of “jumping ahead” – which is fine, by the way – the plan with The Surplus Energy Economy is pretty ambitious, and can evolve in response to discussions here. I would like to make supplementary data available for download.

      The planned running-order and state of preparation is:

      1. First principles, economic output (this article)
      2. Energy, outlook for supply, ECoE (ready for publication)
      3. Prosperity (combined implications of parts 1 and 2), segmental, regional differences (drafted)
      4. Financial – two economies divergence, scale of exposure
      5. (possible) ‘What happens next?’

  11. The Aerosols Issue
    This may sound like a conspiracy theory, but I think it fits the facts of the case. Guy McPherson began to beat the drums about aerosols a long time ago. The simple explanation is that fossil fuels enabled us to put aerosols of various kinds into the atmosphere. Mountains I could see a hundred miles away as a child were now hidden except on days when exceptionally clear Arctic air came down to my latitude. In the natural world, the aerosols were done by volcanic eruptions, which had measurable cooling effects…up to loss of agricultural production and red sunsets across the world.

    While it was hard to argue against the facts, with the evidence from the volcanos clearly showing what was possible, nobody in power wanted to upset all of the delicate negotiations in places like Paris by throwing an additional obstacle into the picture. Well, they all joined hands in Paris and made proclamations…but in the real world most did nothing. There was a temporary interruption during the Pandemic, but 2022 put the world right back on the previous track, as measured by the CO2 gauges on the volcanos in Hawaii.

    Meanwhile, James Hansen, the retired climate scientist from the US, had always been rather friendly to “non-ecoGreen” solutions such as nuclear and geo-engineering. Probably despairing that anything effective would be done, he assembled the team that put together the horror story of the potential for big, fast, increases in the temperature if we actually deplete fossil fuels or legislate them out of existence. While there are millions of people who might be involved in putting solar panels everywhere, using some sort of reflective material in the upper atmosphere would probably be a lot cheaper and would involve the existing relatively few people engaged in space missions. So the politics had always favored the millions putting up solar panels…millions of green jobs.

    The time was right for Hansen to highlight what he had been talking about for years, with very little interest being shown by governments or the IPCC crowd, or eco-activists. There is a recent interview on Nate Hagen’s series where Nate asks his guest whether it is moral to point to the likely “near term extinction” without giving people any hope of avoiding it. They gingerly walk around the question, but IMHO devoutly wish that McPherson and Hansen had not raised the issue.

    McPherson had also raised the issue of the “methane bomb” potential offered by melting permafrost (the Arctic is warming much faster than the rest of the world).

    So now we have two ugly ducklings that have to be dealt with, even in the polite halls of the international climate meetings. It’s not like nobody knew….it was just inconvenient.

    Don Stewart

    • Thanks Don, a good overview. I saw the following documentary back in 2006ish?, and I remember it being trashed, although global dimming from aerosols was sort-of accepted, but it was considered to have negligible or no effect on climate systems.

      I found it interesting, that global dimming reduced from around the 1970s/80s during a global push to clean-up the air-quality, those awful “killer smogs” and or the toxic haze over our cities, with better filters on smoke stacks, catalytic convertors in cars etc. And it did sort of work, our cities air-quality did improve over time. What they didn’t know was that it affected far more than local cityscapes.

      I recently stumbled over the documentary again, (looking for something else) and so watched it again – 17 years later, the data still holds up well. along with the prediction that climate change will “speed up” — as well as in recent years some climate events have been startling and surprising experts with more and more being published along the theme of “Faster Than Expected” . This wasn’t meant to happen until at least 2040 etc.

      One Australian example, was the monsoon rain system which “stalled” over a specific region. There was no wind with it, it just slowly circled in place for 3 days – the Tropical winds are slowing, braiding into smaller streams and veering or just “stalling”.

      And again, just yesterday in Auckland NZ, 3 months average rainfall fell in 3 hours.

  12. Regarding the Permafrost/ Methane Connection
    First, I’m no expert (ask my wife about that!). Second, I don’t follow the subject closely. But, third, it was a structural element in McPherson’s Near Term Human Extinction scenario. Back in the day a Russian scientist named Shakova was working at the University of Alaska in Fairbanks. She became alarmed when, during arctic summer expeditions she observed methane bubbling out of the ground, particularly in the permafrost areas of Siberia and the Siberian Shelf, which is relatively shallow water offshore in the Arctic Ocean. It was in the Siberian Shelf that the Russian oil company and Exxon-Mobil drilled successful oil wells a decade or so ago. The Russian government awarded Rex Tillerson, who was then the CEO of Exxon-Mobil, a medal for his part in the work. Tillerson proclaimed at the time that they weren’t worried about the high costs of drilling in the Arctic, because “oil will soon be 200 dollars a barrel”. But that was at the almost precise moment that the US began to label Russia as an “enemy”, a decision which ultimately evolved into the attempts to strangle Russia in various ways. I don’ think there is any serious attempt to produce oil in the Siberian shelf today.

    Back to the main thread of this particular story. Shakova told McPherson that she was “very, very afraid” of what some people came to call the Methane Bomb. Shallow water and low lying marshy land on shore with methane held in place by permafrost. Let the temperature warm by a couple of degrees and the permafrost could very suddenly melt and release a huge amount of methane. There is really not much of a flywheel to slow things down.

    About that same time, James Hansen visited out local university to receive an award. I was there on a frigid arctic night when he said, with a straight face, that what any fool could see who went outdoors was just a statistical fluke. We began to call those events Siberian Expresses. The air in Chapel Hill, North Carolin was coming across the pole from central Siberia. But Hansen stood by his story…we were facing a long term, gradual challenge which could be met with measured responses. Shakova apparently “realized that she was wrong” and claimed to have never told McPherson what she had plainly said to him. (In her defense, maybe the alternative is years at Guantanamo accused of being a Russian Spy). I see that she is publishing again, but I haven’t digested all of that…and probably never will. So you will have to make up your own mind on that.

    But if you are James Hansen and you perceive an existential threat to humanity, and you are near the end of your career and life and will do what you can to calm “the storms of my grandchildren”, and if you believed that geo-engineering and nuclear are ways to ease the path…would you publish a frankly alarmist paper?

    Don Stewart

  13. Evidence of that reversal may already be apparent.

    Flybe has gone into administration today.

    I was expecting airlines to fail way before now.

    Goodness knows what type of accounting gimmicks the industry has used to get through the pandemic.

    This is a trend I expect to see more of in the next few years.

    • I don’t know the specifics about Flybe. But airlines’ operations were severely impacted by pandemic restrictions and, worldwide, very large support was provided by governments. The outlook obviously is pretty grim, though this doesn’t seem to have stopped some operators from ordering new aircraft.

      From what I could work out pre-crisis, the industry was expecting volume growth of around 3% annually in the future, roughly in line with the lower end of consensus GDP expectations. Clearly air travel is a discretionary, subject to worsening pressure given the compression of discretionary affordability as demonstrated by SEEDS. There are environmental issues, too.

      Two factors might mitigate these pressures, at least for a while. The first is the priority that a lot of people put on foreign holidays, often being willing to make other sacrifices to keep their “fortnight in the sun”. This is reinforced by the high costs of holidaying at home. The second is the remarkable (and worrying) availability of credit to the household sector. Banks won’t lend to people who can’t prove an ability to repay, but other lenders seemingly will.

  14. As we have jumped on to permafrost/methane, by pure chance Paul Beckwith has released a You Tube video focusing on the science and impact in Canada – it don’t look good shall we say, still, not to worry, even if global temps raise by 6 degrees we’ll be OK according to Junk Nobel prize winning economist Nordhaus: https://youtu.be/tH2Rv8JKX_E

  15. @Christopher Rogers
    Beckwith has favored geoengineering for some years now, as I recall. The people looking at ALL of the evidence tend to think that just cutting back on emissions is not going to work. Just as the Eat Less/ Move More program has not stopped the epidemic of obesity.

    Even the people promoting biochar are advocating for geoengineering. The biochar essentially buries lots of carbon in the soil, making the soil more productive of crops, which cycle lots of CO2.

    The “official” line has been that emissions are the only game in town…just as the health officials are saying that “calories in and calories out is the only game in town”.

    Similarities don’t prove too much, of course, but the resemblance between the failing official programs should give us pause for thinking about the forces which created the official programs. And I suggest that the official program will always contain some processes with high profit potential for those close to the seats of power.

    Don Stewart

  16. A good post from Albert Bates on the Climate Change/ Energy dilemma. He contrast Rockstroms “we have the tools” message at Davos to the cautious people who do the arithmetic and find lots of problems.

    PS. Albert flies an inordinate amount trying to spread the gospel, but his personal life is either very frugal or poverty stricken. He has lunch with Prince Charles in a palace and uses his shampoo water to fertilize his garden.

  17. @Lindsay Wood
    I don’t disagree with anyone who says that EROEI measurements are very slippery. As I see it, the analysis needs to begin with an analysis of electricity and what it can do well and what it can’t do well. The Peak Oil movement of the mid-2010s well understood that “there are lots of ways to produce electricity”…but then stated that electricity was not the solution to most of the ways that the economy was using primary energy.

    Suppose, just for the sake of analyzing our situation, that those ancient Peak Oilers were correct. Then we have to envision some sort of economy and society which actually operates on electricity with only some incidental uses of fuels such as wood or grass (sunlight feeding cows). And that takes us to Nate Hagens’ summation that he could think of economies operating on electricity…just not this economy.

    As one example, it would be possible (in theory, if not in real world politics) to take the federal government’s revenue collected through fuel taxes and devote the entire amount to building a very low impact transportation system involving walking, bicycling (both entirely human powered and battery assisted), golf carts, and electrified buses. But the environment we have actually built (at least in the US, with which I am most familiar), is not very well suited to such a transportation system.

    Where I come down is somewhat different than Dr. Morgan, who emphasizes the shrinkage of optional sectors to continue to power necessities. I see the basic problem as redefining HOW we provide necessities, and the extent to which we prune away things we consider necessary but which are optional in terms of human flourishing. That last sentence puts me closer to Albert Bates and his frugal life style, and also with those who say that if we had cheap fusion energy we would just more completely and quickly ravage the world.

    Don Stewart

    • We’ll be looking at energy issues in part two, but here’s something to think about.

      Back in 1903, Orville and Wilbur didn’t invent the first aeroplane and then sit around waiting for someone to discover petroleum. Technologies develop on the basis of the existing sources of energy, not the other way around. Cars, like aircraft, were responses to the availability of high-density, portable energy in the form of petroleum products. So the question was: we have oil, what shall we do with it?

      If you were planning an economy powered by electricity, you’d start with electric trains and trams. Electric motors are light and simple, but storing electricity is problematic, so you’d go for mains power. US oil storage is measured in months of consumption, but power storage is measured in seconds. If power distributors bought up an entire year’s output from the huge Tesla battery plant in Nevada, they could store two minutes of US power consumption.

    • People just don’t understand EROI and it’s not the “energy return” bit that is totally wrong, it’s the “on investment” bit.

      Every single one of these EROI (or EROEI, or ECOE) calculations misses the largest energy input of the background system, because they either think it’s too hard to include, or know it destroys the viability of their pet man made energy producer.

      For example anyone can go and look at what the Nuclear industry claims are the energy costs of building nuclear..

      Nuclear power plant designers and engineers do not come out of thin air. They have a large background cost of education and experience to be able to design and build these plants. There is no energy allowance in the calculations for this. Even the person pouring the concrete in the foundations needs to know what he’s doing, again education and experience over a long period of time which is all energy cost in this world, but never counted in EROI calculations.

      As money is a proxy for energy use in the modern world, then the capital cost of building, including financing costs, is the only method we have for going close to estimating the real energy cost that’s invested. Then we have to decide what the energy price is. Luckily this is roughly available as various papers have estimated that for over 50 years about 8% of GDP (plus or minus 2%) has been the primary energy cost of the world economy in stability.

      Click to access an_exploration_of_energy_cost_ranges_limits_and_adjustment_process_2_0.pdf

      Inversing this gives an EROI of 12.5:1 on average over 50 years for what we have been using, and as fossil fuels have been over 80% of primary energy used over that period, the EROI of FFs is a lot lower than most have worked out in the past. Again this is mainly due people ignoring the background energy cost of the system.

      You can’t just get a kid straight off the street to build the underground supports for a coal mine with no experience and no ability to read plans and engineering specs etc. He/she would need to be educated, which means schools and teachers which all have energy costs, before that kid can do the necessary work.

      Hence the best estimate of the energy cost is the capital and operating costs of EVERY type of energy, and the man made energy machines (nuclear, solar and wind, geo thermal) just do not go close to stacking up to the fossil fuels we’ve been using. In fact they tend to all be energy sinks, producing no net energy overall, and often turning valuable liquid oil energy into a less energy in the form of electricity.

      To highlight the problem overall, no-one ever bothers to work out the energy cost of making things like synthetic fuels, coke (not the drink!), fertilizers, explosives and plastics from just electricity….

      The nearest example we have to turning renewable electricity to synthetic fuels is the Haru Oni scam. This project that has so far cost $US74m to build, will hopefully produce 130,000 litres of synthetic fuel per year for 20 years, a process efficiency of just 5.8% on the input wind energy.

      Even the 5.8% ‘efficiency’ doesn’t count the workers needed to operate the facility, the number of which the proponents have not disclosed publicly. My guess is that even the process including operating and maintenance costs has a negative return on energy invested, before counting the capital costs. The fact that many organizations and people are promoting this scam as ‘the future’ clearly shows how delusional people have become, basing the future on hope instead of cold hard facts of physics..

      Everyone looking at the problem is in denial of the reality of our situation. Continued civilization is not possible without cheap fossil fuels, and even if we found a lot more would destroy the climate and environment anyway, both of which are possibly beyond ‘saving’ already. For 250 years we have been ‘building more’ of everything. To think ‘building more’ is the answer to the problem of ‘building more’, is clearly delusional. Billions of people though believe in deity’s so yes humans have a proclivity towards delusion.

      When anyone states we need to build more of ………… as an answer, they are wrong. We need to stop building to save the climate and the environment, but that is against the modern economics, so it simply wont happen. Which means we keep building and the climate gets worse, until we don’t have the fossil fuel energy to continue growing, so it all collapses . It’s been the trend of multiple civilizations before ours, so we wont be unique, but will be the largest civilization collapse forever, on Earth.

    • There are chains involved, of course, and we can say much the same about the Industrial Revolution – without the foundation skills created by the agricultural system, industry could not have been developed, and the hunter-gather society couldn’t have produced, i.e. educated, a James Watt. If we’re not careful, this could become an endlessly circular proposition.

      What I think we have to look for is ‘best fit’ relationships. For example, I used SEEDS to calculate C-GDP back as far as data would allow, and only then compared it with energy use, finding a remarkable fit between the two.

      Conventional economics isn’t likely to survive the onset of economic contraction without going through major changes, at the very least. It says that ‘growth happens, because………..’ and, since growth has been happening, few have gone on to ask questions about causality. But when economics carries on saying ‘there will always be growth, because….’, yet the economy is visibly shrinking, questions will get asked.

      We don’t carry on building (etc) because that’s what classical economics says it’s what we should be doing, but because building (etc) is profitable. When expansion ceases to be profitable, it will stop, or at least decrease.

    • @dr. Morgan
      apparently, expansion can be kept going on life support (e.g., credit expansion) for longer than many of us thought possible.
      Don Stewart

    • Perhaps, but let me mention something that’s really worrying right now.

      We know that struggling households are getting deeper into debt – some are doing so to carry on purchasing discretionaries that they can no longer afford, others simply to keep up with the cost of necessities. But where are they getting this credit?

      This is not the kind of lending that appeals to conventional banks. If somebody is struggling financially right now, how is he/she ever going to cope with the additional burden of servicing/repaying debt?

    • @Hideaway.
      ‘misses the largest energy input of the background system’…

      Indeed, and highlighted – inadvertently, and not extensively- in this ode to the ‘free-market’…

    • @Don Stewart
      Thanks to many for engagement in this.
      To tie back to my original point about possibly pointing in the wrong direction, Raugei (and his colleague Murphy – in turn, as I understand it, a protegee of founding EROI proponent Charles Hall) makes the point that, if the relative efficiency of electric motors is factored in, the EROI that will sustain society could be a fraction (say 1/3 – roughly relating the efficiency of an electric motor to a fossil fuelled one) of that which has conventionally been assessed as needed (such as by Jessica Lambert, or by the energy/economy ratio of 8% or EROI of 12.5 put forward by @Hideaway).
      However, the relative efficiency of electrical equipment generally comes into play after the traditional “point of use” end point of many/most EROI calculations, thus not appearing in the conventional view of EROIsoc etc.
      Using the above EROI of 12.5 derived from the energy/economy ratio, if Raugei and Murphy are in the right zone, then the EROIsoc for an electrified society might, say , be just 4.2 (12.5/3), which throws at least some renewables into a very different and more viable light.
      But, sadly, a likely consequence is that we would then continue longer on the careering path towards resource depletion and collapse with which @hideaway concluded.
      @drtimmorgan, thanks for your comment re energy storage. That is a debate I am ill-equipped to contribute to, as my mind turns, with limited understanding, to the differences between energy sources and delivery mechanisms, resilience under disaster etc. Electricity generally being much more available on demand (once the infrastructure is in place and provided, say, the hydro dam has water) whereas oil, for example, has major refining and more cumbersome distribution processes in the sequence to point of use (and hence the need for more storage at several points). But that in turn leaves an electrified economy, especially with limited distributed generation, more vulnerable to disaster, especially in the short term…

      Lindsay Wood

  18. To your point 5 – what comes next,
    this article by Blair Fix “The Cause of Stagflation”


    It seems to me that he is making the argument that business interests will use the constrained energy supply to increase profits.
    That the constrained energy supply will change the power dynamic in society with business interest gaining a great deal of power.

    his perspective does not fit easily in the SEEDs perspective (in my opinion) but i think it might be useful to think about.

    • Interesting, and always a good read, but it doesn’t seem to me to conflict with the SEEDS reading of the situation. For one thing, it seems to correlate reported real GDP with CPI inflation. The SEEDS metrics are C-GDP (discussed here in part 1), prosperity (part 3) and RRCI inflation.

      The point about ‘herd behaviour’ is well made, but I wonder about what happens under, for example, conditions of severe sector compression. This is when businesses will need to break from the pack to succeed, i.e. front-run our ‘taxonomy of de-growth’.

  19. @Dr. Morgan
    “who is loaning the money?”
    ShadowStats reports that M1 money supply is up 119 percent compared to pre-pandemic. This money was directly created by government…at least in the US.

    So I guess it is the government that made a huge loan to consumers which has not been repaid in the form of higher taxes.

    My suspicion is that SOME consumers may be in financial distress, but compared to the actual output they are producing, many are still flush with money. That is driving inflation.

    For consumers who are not well positioned for one reason or another, and have gone through whatever money they got as a handout…there is only suffering from the inflation.

    As for what will happen next? My crystal ball is cloudy but I do believe that inflation will be with us until the M1 bubble is popped. If M1 is cut in half in order to regain the balance between money and supply (as Milton Friedman would have argue all those years ago), then a Depression is likely.

    Scary charts being produced show the huge drop in the GROWTH of M1, but nothing much in the way of contraction. Monetarists of a physical economics persuasion will likely think that M1 MUST be cut in half if we want price stability in a world no longer growing.

    Don Stewart

  20. Whither Aerosols?
    View at Medium.com

    Is injecting more aerosols into the upper atmosphere a really smart and necessary thing to do….or a suicidal desperate last action by a doomed species?

    This question just wouldn’t stay hidden under the rug. Hansen and others have shoved it into the light of day.

    Don Stewart

    • Just finished reading Neal Stephenson’s latest- a near future sci fi novel about a plausible reaction to global warming/ocean rise. It’s a fun read where unsanctioned aerosol (sulphur dioxide) is massively injected into the upper atmosphere. Overton’s window is shifting as we speak.

  21. Thank you Dr Morgan for another brilliant description of our current economic state.

    There is however an issue that I find difficult yo understand.

    We all agree on this platform about the problems associated with energy costs and future shortages.

    However, so much information due to improvements in IT and data processing that has become in recent years. But the real economic situation is little understood.

    In all fairness one doesn’t need a degree in maths to understand the problems and yet with all of today’s spreadsheets, Google search engines and database systems no one seems to understand the energy problem.

    We have never had so much free information and somehow the reasoning, and use of the information, is lost.

    • Thanks.

      There is a deeply entrenched orthodoxy in economics, which states that we can explain the economy in terms of money alone, and that it’s perfectly possible to enjoy infinite growth on a finite planet. You don’t need a degree in maths to understand the reality, but you do need an open and enquiring mind. The orthodoxy informs decision-makers in government, business and finance, and opinion-formers in the media and beyond. There’s also a persuasion which states that technology can resolve any and every problem.

    • From a long-time lurker (and appreciative fan, Dr T).
      It is impossible that at least the very top level of TPTB do know, and I would argue that everything the WEF Great Reset is pushing in the name of climate change is identical to that which needs to be pushed because of the surplus energy problem: Net Zero; 15-minute cities; CBDCs to control behaviour so that crime is kept under control; medical passports to allow the “necessary vaccines” when population exceeds resources, etc. All to maintain law and order in a degrowth system in which there is not enough to go round and rationing is necessary.
      If the restrictions are imposed because of Climate Change necessity, people won’t panic, and be more compliant.

    • It seems to me that there are two distinct issues here:

      A. What is happening to the economy (and the financial system)?

      B. What do TPTB know about, think about, are doing about, what is happening to the economy?

      The aim here is to concentrate on A. This is something we can work out, using logic, data and modelling. It is surely important, not least because it contradicts established economic orthodoxy. We can best add value to the broader debate if we stick to the task of interpreting, explaining and predicting.

  22. @ Dr Tim,

    I’m just catching up with this latest article. I think it’s excellent in the way it brings clarity and focus to a complex set of circumstances, which can easily be obscured by the smoke and mirrors of conventional economic analysis.

    Like many others who read this blog, I’m looking forward to the rest of the series. Part 5 that you are toying with, will be a very worthy addition in my opinion.

    Are you planning to release the series as PDF’s?

    • Thanks Neill, much appreciated. So much of the situation is indeed obscured, so it seems important that we clarify it as much as we can.

      Part two (energy) is imminent, part three (prosperity) is nearly complete, and right now I’m putting together part four (finance). I’m almost sure there will be a part five.

      My plan had been to put the thing together as a single PDF, but I like your idea of doing each part as a PDF, and might well do that.

  23. Pingback: #247: The Surplus Energy Economy, part two | Surplus Energy Economics

  24. Pingback: #248: The Surplus Energy Economy, part 3 | Surplus Energy Economics

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