Energy and money
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Transcript of Energy and money
George Mobus, Institute of Technology, University of
Washington Tacoma
Fourth Annual Biophysical
Economics Meeting
*
*Its all just biophysical process. Energy flow through the
system drives the transformation of high entropy material to
low entropy assets. Energy is continually dissipated.
Consumption
> 80% of Energy Consumption
Raw Energy (Fossil Fuels)
Extraction, Processing,
Delivery
Work
Processes
Material Resources
Real Assets
Waste Sink
Extraction, Processing,
Delivery
Entropic
Decay
Waste
Heat
Real assets include all
human generated
biomass and
inventions.
Ingenuity To the atmosphere
*
> 80% of Energy Consumption
Raw Energy (Fossil Fuels)
Extraction, Processing,
Delivery
Work
Processes
Material Resources
Real Assets
Waste Sink
Extraction, Processing,
Delivery
Consumption
Entropic
Decay
Currency (money) as flow regulation messages – Howard Odum, M.
King Hubbert, others
Money recycles as wages to
regulate human work. We pay others for work to be done on
stuff/services we want. We are paid to do work on
stuff/services that others want.
*
Short-term consumable
assets (foodstuffs)
Intermediate-term
consumable assets (clothing,
equipment)
Long-term fixed assets
(buildings, roads, etc.)
Long-term biomass assets
(humans, pets, ornamentals)
Real Assets (in embodied energy)
Circulating
currency
Savings deposits
Stocks &
bonds
Mortgages &
Consumer Loans
Debt (private)
Surrogate Assets (money)
to facilitate transactions
Derivatives &
Appreciation
Pseudo-money
Financial Assets
Public Debt =
Intangible assets (artifacts
of services rendered)
**Token used to denote value of goods and services (G&S) – Real
Assets
*Origins and history of development – cuneiform in clay to physical tokens to coinage with intrinsic value
*Layers of abstraction to another kind of commodity
*Components of valuation calculus in the physical world
* energy required to produce – a biophysical baseline
* utility value (strictly)
* hedonic value
* less opportunity costs
* less sunk costs
* In the modern world no one has any idea how to calculate most of these – we estimate based on presumed values of other G&Ls – let the markets decide!
*Financial pseudo-assets have become so abstracted from real assets that modern money is useless as a measure of wealth
**Useful (economic) work
*extracting materials and energy (incl. food)
*refining
*shaping and forming
*manufacturing, construction, transportation, etc.
*services
*Value of a product
*embedded work
*utility of the product, e.g. increasing the efficiency of useful work or increasing flow of energy (tools)
*Exergy is that portion of total energy required to obtain useful work (it depends on the nature of the work process as much as on the energy content of fuel)
*
100 BTUs 180 BTUs
extraction raw (gross) processing
& delivery
60
BTUs
use
12 BTUs
work
waste heat
– 48 BTUs waste heat
– 40 BTUs
fuels
exergy
100 BTUs 110 BTUs 50
BTUs 9 BTUs
work
waste heat
– 41 BTUs waste heat
– 50 BTUs
~100
years ago
today
100 BTUs 200 BTUs 61
BTUs 13 BTUs
work
waste heat
– 46 BTUs waste heat
– 39 BTUs
near
future
80 BTUs
expended
100 BTUs
expended
well head/mine
mouth boundary
non-energy
economy
improving
efficiency
declining
EROI
.082
.067
.065
ratio of
work to
extraction
exergy used potential energy delivered
Declining EROI as Compared with Increasing Work Efficiency
potential energy extracted
**Depletion and geophysical limits – e.g., Peak Oil
*Limiting supply driving up prices
*Declining EROI (mine mouth/well head)
* Increasing costs of extraction (e.g., non-conventional methods)
*Decreasing rate of efficiency improvements (e.g. Carnot’s limit)
*Increasing population (with increasing expectations)
*Decreasing net energy available per capita
*Lead to:
*Diminishing total work to produce real assets
*Less wealth per captia over time
* Increasing disparity between wealthy and poor?
**Similar to a “gold” standard in stabilizing value without
the silliness of gold fever
*Exergy resource – based on actual amount of work that
can be done in the near future
*Exergy embodied – based on actual amount of work
already done
*Value of assets can be computed from work done in past
*Total circulating currency + savings determined by
excess net energy available
*Borrowing from savings to invest in future returns
*When net energy peaks asset production peak will
follow – there will be no savings!
*
Based on two of the factors – Depletion and Declining EROI
*
*Future work
* Investigate the dynamics of all four factors
operating in the system
* Incorporate stocks and flows of money as a
regulation system – maybe a hybrid with agent-
based modeling
*Continue to watch the evolution of our global
system