A BUSINESS MAY HAVE high gross receipts and still go broke; it is the net, the profit after costs are subtracted, that determines viability. For any potential energy resource, the fundamentals are the same. How much energy is available after subtracting the energy costs to extract, process, and deliver the resource? To know how much energy from a particular source can actually be deployed by society, we must factor in both the production costs and the system costs—that is, the energy required to make energy available to the end user. With gasoline, for instance, this calculation would include energy costs related to oil exploration, drilling, refining, transportation, and the infrastructure that supports each step of the process. With coal-derived electricity, the calculation would include the life cycle from mine to power plant to electric grid.
Experts who study this use the terms “net energy ratio” or “energy returned on energy invested” (EROEI). Decades ago when the most accessible reserves were drilled, an oil company might produce 100 barrels of oil or more for each barrel’s worth of energy invested. Declining oil field productivity has brought the average net energy ratio for conventional oil down to approximately 20:1 globally, with more remote or hard-to-refine oil significantly worse. For fossil energy generally, the trend is downward despite technological advances in exploration and drilling. For biofuels, the net energy ratio is lower still. Some studies suggest that corn-derived ethanol actually has a negative net energy ratio—that is, more energy than a gallon of ethanol can deliver is used to produce a gallon of ethanol. Sugarcane-based ethanol has a superior net energy ratio, but it is still low compared to fossil fuels.
Any produced energy resource can be analyzed for its net energy ratio, although the process raises a difficult question: What are the boundaries of consideration? For example, when tallying the energy required to build a solar photovoltaic panel, what should be included in the accounting? The energy needed to mine the bauxite for the aluminum frame? The energy needed to manufacture the heavy equipment that did the mining? The energy needed to construct the factory that produced the panel? Where the boundaries are drawn affects the final net energy ratios.
A society that depends on inexpensive energy to maintain a high standard of living and constant growth faces a predicament—it cannot maintain itself over the long run without high net energy fuels. Oil, natural gas, and coal have provided a huge, high-quality energy subsidy to the modern world. That subsidy, which has enabled human population and wealth to grow exponentially, is based on finite resources and cannot continue indefinitely. Renewable energy sources, excluding hydropower, are generally more diffuse and have lower net energy ratios than fossil fuels. If high net energy sources are in decline, and no reasonable replacements are available, the result may be a painful restructuring as society rearranges economic activity to fit a diminishing energy supply.