As Thomas Homer-Dixon, director of the Trudeau Center for Peace and Conflict Studies at the University of Toronto, notes:
A better measure of the cost of oil, or any energy source, is the amount of energy required to produce it. Just as we evaluate a financial investment by comparing the size of the return with the size of the original expenditure, we can evaluate any project that generates energy by dividing the amount of energy the project produces by the amount it consumes.
Economists and physicists call this quantity the “energy return on investment” or E.R.O.I. For a modern coal mine, for instance, we divide the useful energy in the coal that the mine produces by the total of all the energy needed to dig the coal from the ground and prepare it for burning – including the energy in the diesel fuel that powers the jackhammers, shovels and off-road dump trucks, the energy in the electricity that runs the machines that crush and sort the coal, as well as all the energy needed to build and maintain these machines.
As the average E.R.O.I. of an economy’s energy sources drops toward 1 to 1, an ever-larger fraction of the economy’s wealth must go to finding and producing energy. This means less wealth is left over for everything else that needs to be done, from building houses to moving around information to educating children. The energy return on investment for conventional oil, which provides about 40 percent of the world’s commercial energy and more than 95 percent of America’s transportation energy, has been falling for decades. The trend is most advanced in United States production, where petroleum resources have been exploited the longest and drillers have been forced to look for ever-smaller and ever-deeper pools of oil.
