Conventional wisdom says the bursting of the real estate bubble triggered the nation's latest recession. But a researcher at the University of Texas at Austin (UT) puts the blame on energy -- or rather the fact that citizens were forced to pay a greater percentage of their incomes for energy.
Higher consumer expenditures for electricity, natural gas, gasoline, heating oil and coal relative to income left less money available to pay home mortgages, UT's Carey King asserts in a paper published last month in Environmental Research Letters.
"Many economists don't think of energy as being a limiting factor to economic growth," said King, a research associate in the university's Center for International Energy and Environmental Policy. "They think continual improvements in technology and efficiency have completely decoupled the two factors. My research is part of a growing body of evidence that says that's just not true. Energy still plays a big role."
In economic terms, the quality of the nation's energy supply is referred to as energy return on energy investment (EROI). For example, if an oil company uses a 10th of a barrel of oil to drill, pump, transport and refine one barrel of oil, the EROI for the refined fuel is 10, King explained.
King has suggested a new way to measure energy quality, the Energy Intensity Ratio (EIR), which he said is easier to calculate, highly correlated to EROI and in some ways more powerful than EROI. EIR measures how much profit is obtained by energy consumers relative to energy producers. The higher the EIR, the more economic value consumers get from their energy.
The worst recessions of the last 65 years were preceded by declines in energy quality for oil, natural gas and coal, according to King's research.
Plotting EIR for various fuels every year since World War II reveals two large declines -- one preceding the recessions of the mid-1970s and early 1980s and the other during the 2000s, leading up to the latest recession. While the United States has had other recessions, the worst were preceded by sustained declines in EIR for all fossil fuels, according to King.
EIR and EROI rise and fall together, but the basic data behind the EIR calculations come out annually as opposed to every five years for EROI. EIR also gives insight into different parts of the supply chain such as at the refinery or at the gas pump, which are harder to study with EROI, King said.
The analysis suggests that if EIR falls below a certain threshold, the economy stops growing. In 1972 EIR for gasoline was 5.9 and in 2008 it was 5.5. During times of robust economic growth, such as the 1990s, EIR for gasoline was well over 8. Compare that to some estimates of EROI and EIR for corn ethanol of around 1, and it's clear why corn ethanol has been widely criticized as a low-quality energy source, King said.
According to King, the cure for a flagging economy is energy efficiency. Producing and using energy more efficiently is what the country did following the last energy crisis, King said. Fuel efficiency standards were raised for automobiles and power generators turned to natural gas for fuel. Enhanced oil recovery technologies also were developed.
"If we aren't fundamentally changing the way we produce or consume energy now, don't expect the economy to grow as much as the past two decades," King said.
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