What’s the Economic Return On Energy Investment?

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This week’s edition includes these observations on the economic return on energy investment, an important but usually overlooked metric:

Writing for the Global Warming Policy Forum, Economics Professor Michael Kelly brings up an important concept that many writers on energy issues fail to consider: Economic Return on Energy Investment.

In the US, following the Civil War, fossil fuels such as coal quickly replaced biomass (wood) and muscle power (animal and human). The economy boomed. People found the care and feeding of a steam engine is much easier than the care and feeding of horses. City streets became much cleaner, and boots were no longer needed. What was important was not the number of people employed in a particular energy sector, but the employment the energy sector created in other economic sectors.

Kelly’s Economic Return on Energy Investment is a measure of the productivity of various energy types. He finds that 9% of the global GDP is tied up in energy, yielding a return of about 11:1. For coal and gas power plants, the return is about 50:1. For nuclear power plants it is about 70:1. The low values of traditional biomass, and other external issues bring the global value down to 11:1.

Applying this analysis to solar photovoltaics, he finds a return of less than 4:1; for wind power, a return of less than 8:1. In brief, there is not much opportunity for solar and wind to lift the third world to modern European standards.

(Emphasis added.) There is nothing good about producing energy inefficiently.

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