There's plenty I don't understand about physical vs. financial markets
example 1) ethanol is said to give a 25% return over inputs. But 25% would be an outstanding return for a financial investment
example 2) people spend $20,000 on rooftop solar to save $400 annually on electricity bills. That's a return of 2% yet the claimed energy payback period of 7 years implies a yield of 14%.
Hotelling theory in economics and maybe ergodic theory from physics suggest that physical and financial yields must converge. I dunno, it's all too hard.
example 1) ethanol is said to give a 25% return over inputs. But 25% would be an outstanding return for a financial investment
Two points here. First, I dont believe the return from corn ethanol is really 25% if we count ALL the inputs (including environmental impacts) in energy terms. Secondly, you are correct, a 25% return is excellent, but not when one is used to a 1000% return from crude oil. In this case we have care about what society has been built around and what we are replacing more than the absolute return.
You're ignoring all costs other than energy, that's all. The EROEI relates to only a portion of your costs; there is also the cost of all the equipment and the ongoing costs of maintenance and wages.
Consider the obvious example of pumping oil out of the ground. Sure, there may be even a 2,000% energy return on investment (20 barrels of oil extracted for each barrel of oil equivalent in energy expended) but the overall return on investment will be much lower, perhaps even negative. Suppose, for example, you spent $10,000,000 to find the oil and to set up all the equipment needed to pump it out. Great, now you've got yourself a money machine - put $1 worth of energy in and you get $20 out. But that's not the only cost. If the machine doesn't work fast enough you may be paying $20 in wages over the time it takes to get that $20 worth of oil out, in which case obviously you're losing money. Even if your net return on a barrel of oil is positive you may still have a very bad investment, because you just can't pump the oil fast enough to cover the opportunity cost of that $10,000,000. If that money were borrowed at 5%/year then you need to make $500,000 per year just to cover your borrowing costs.
As for the solar energy payback example - hey, that doesn't make sense to me either!
As we labored over Ethanol (or RR did, anyway) lately, I was trying to put into words another input, which is TIME.. as in 'time is money' When your energy return takes a long growing season and subsequent processing to arrive (Ethanol), or takes a regulatory process and long-term development to initiate (ANWR drilling, Nuclear), or finally, takes a lot of time to repay you for the investment (Solar Electric/Heat).. how does the wait affect the economics, as opposed to oil, which by most measures is fast in, fast out..
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example 1) ethanol is said to give a 25% return over inputs. But 25% would be an outstanding return for a financial investment
example 2) people spend $20,000 on rooftop solar to save $400 annually on electricity bills. That's a return of 2% yet the claimed energy payback period of 7 years implies a yield of 14%.
Hotelling theory in economics and maybe ergodic theory from physics suggest that physical and financial yields must converge. I dunno, it's all too hard.
Two points here. First, I dont believe the return from corn ethanol is really 25% if we count ALL the inputs (including environmental impacts) in energy terms. Secondly, you are correct, a 25% return is excellent, but not when one is used to a 1000% return from crude oil. In this case we have care about what society has been built around and what we are replacing more than the absolute return.
Consider the obvious example of pumping oil out of the ground. Sure, there may be even a 2,000% energy return on investment (20 barrels of oil extracted for each barrel of oil equivalent in energy expended) but the overall return on investment will be much lower, perhaps even negative. Suppose, for example, you spent $10,000,000 to find the oil and to set up all the equipment needed to pump it out. Great, now you've got yourself a money machine - put $1 worth of energy in and you get $20 out. But that's not the only cost. If the machine doesn't work fast enough you may be paying $20 in wages over the time it takes to get that $20 worth of oil out, in which case obviously you're losing money. Even if your net return on a barrel of oil is positive you may still have a very bad investment, because you just can't pump the oil fast enough to cover the opportunity cost of that $10,000,000. If that money were borrowed at 5%/year then you need to make $500,000 per year just to cover your borrowing costs.
As for the solar energy payback example - hey, that doesn't make sense to me either!
As we labored over Ethanol (or RR did, anyway) lately, I was trying to put into words another input, which is TIME.. as in 'time is money' When your energy return takes a long growing season and subsequent processing to arrive (Ethanol), or takes a regulatory process and long-term development to initiate (ANWR drilling, Nuclear), or finally, takes a lot of time to repay you for the investment (Solar Electric/Heat).. how does the wait affect the economics, as opposed to oil, which by most measures is fast in, fast out..