Energy expenditure, economic growth, and the minimum EROI of society.

Summary We estimate energy expenditure for the US and world economies from 1850 to 2012. Periods of high energy expenditure relative to GDP (from 1850 to 1945), or spikes (1973–74 and 1978–79) are associated with low economic growth rates, and periods of low or falling energy expenditure are associated with high and rising economic growth rates (e.g. 1945–1973). Over the period 1960–2010 for which we have continuous year-to-year data for control variables (capital formation, population, and unemployment rate) we estimate that, statistically, in order to enjoy positive growth, the US economy cannot afford to spend more than 11% of its GDP on energy. Given the current energy intensity of the US economy, this translates in a minimum societal EROI of approximately 11:1 (or a maximum tolerable average price of energy of twice the current level). Granger tests consistently reveal a one way causality running from the level of energy expenditure (as a fraction of GDP) to economic growth in the US between 1960 and 2010. A coherent economic policy should be founded on improving net energy efficiency. This would yield a “double dividend”: increased societal EROI (through decreased energy intensity of capital investment), and decreased sensitivity to energy price volatility.