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> But source A is much better investment than the source B You misunderstood me. Quote: "investment costs are one million dollars per watt generated." It wil

> But source A is much better investment than the source B You misunderstood me. Quote: "investment costs are one million dollars per watt generated." It will cost you a million dollars to get one watt of output It is much worse investment than B. > The EROEI would be an ultimate measure of where to put your effort (energy) if you were alone in the world and there were no other people. There are other factors of production than energy. Land use and time would be completely ignored even in the single person autarky model.

js8 10y ago
> You misunderstood me. I think you are in contradiction, then. What is the cost of energy in your example world? > It will cost you a million dollars to get one watt of output It is much worse investment than B. I don't think you can reconcile this claim with the EROEIs you used in your example. > There are other factors of production than energy. Land use and time would be completely ignored even in the single person autarky model. Yes, other factors that are possibly scarce are missing from that model. But that is the same deal for ROI calculations, too, as I already explained. The point is, just like money you have is the most important factor limiting investment, (thermodynamic free) energy is the most important factor limiting production.
- js8 10y ago
  > I think you are in contradiction, then. Let me explain a bit better where is the contradiction. The high cost of source A from your example indicates that this source requires some expensive fuel. If there is an unlimited (in practice) amount of this fuel, in other words, it's not scarce, then this high price indicates that it's very hard to obtain (takes a lot of effort). This contradicts to the claim that source A has high EROEI, because if it has high EROEI, then it means that the fuel for it can be obtained very easily (with very little energy investment). (You could see the contradiction the best if you were to actually set the cost of energy in your world.) The only way out of this contradiction is to assume that this "expensive fuel" is a very scarce (finite) resource, which cannot be readily produced from other things. For example, say it's platinum, and we would like to keep platinum to make other things out of it rather than burn it to make energy (and that's why it's expensive - people want to keep it). So that was my original interpretation of your example. In that case, source A is a better way to make energy than B, it's just you don't have enough fuel you would like to use for it, and so you can only use it in small volume. Just like with ROI - there can be excellent investments with very limited volume, and just ROI will not tell you anything about the volume. As a side note - I really recommend to stop thinking about economics in terms of money and start thinking in terms of means of production (which is where EROEI comes in). And only then, when you see the full economic picture on the process level (how things get transformed in the economy), introduce the actual monetary accounting. This way, you can avoid some pitfalls (such as simultaneously claiming that price of energy is both very low and very high).
  - beefield 10y ago
    > The high cost of source A from your example indicates that this source requires some expensive fuel. No. It indicates that there are other factors of production than input energy that causes the high price, and that EROEI is incapable to take those into account. To put this into more concrete (while still absurdly unrealistic to illustrate the point) numbers, assume we have a weird nuclear reactor, that is going to produce 1 kW of electricity for one million hours (somewhat more than 100 years). To create this generator, you need precicely two things. One kWh of energy, and because this is a bit unsafe reactor, you need to buy land worth one billion dollars to create a safe zone around the reactor. Now, this reactor has pretty much exactly the numbers of my original example A, this has EROEI of one million with investment costs of one million per Watt. So, a project with good ROI on properly priced (not subsidized) factors of production must have a decent EROEI. But there is no guarantee the other way round, a project with decent EROEI can have completely unfeasible ROI, so I still not understand why I should care about EROEI. It just produces zero value over ROI (with the usual disclaimer of correct prices) > I really recommend to stop thinking about economics in terms of money and start thinking in terms of means of production (which is where EROEI comes in) But if you want to think in terms of all means of production, not just some arbitrarily chosen ones, you end up with ROI.
    - js8 10y ago
      > EROEI is incapable to take those into account EROEI is capable of it, but you must be willing to do it. Why don't you figure out, in your example world, what makes the land for the reactor so expensive? Eventually, there is going to be an energy cost to having so much land dedicated for it (either that or there is only a finite amount of land that you're willing to use - which is akin to infinite cost, as I already explained in my previous comments); and you omit that from your EROEI calculation. (Also technically speaking, in your example, I could build more reactors next to each other, so I would need less land, it's only a fixed cost, but that's not so important here.) > But there is no guarantee the other way round, a project with decent EROEI can have completely unfeasible ROI, so I still not understand why I should care about EROEI. It just produces zero value over ROI (with the usual disclaimer of correct prices) I disagree, the same is true vice versa (if you exchange EROEI and ROI), if you correctly calculate the energy cost needed. EROEI is just ROI in different units, and all the same advantages and disadvantages apply (that's why I predicated my post on you accepting ROI). So whatever disadvantage you see in EROEI I can find analogue of (and I did in fact) in ROI. But the point of using EROEI is, nature cannot be fooled - if a process has a given EROEI, then nobody can cheat that number. But with ROI, individual investors can still cheat other people (society at large), if they have reason to use incorrectly priced ROI (it is incorrectly priced from society's perspective, but from their perspective it's correct), for example when subsidies are involved. > But if you want to think in terms of all means of production, not just some arbitrarily chosen ones, you end up with ROI. You are not doing it correctly for EROEI - you're not assigning price in energy for those additional means of production (as pjc50 already noted).

js8 10y ago

> You misunderstood me. I think you are in contradiction, then. What is the cost of energy in your example world? > It will cost you a million dollars to get one watt of output It is much worse investment than B. I don't think you can reconcile this claim with the EROEIs you used in your example. > There are other factors of production than energy. Land use and time would be completely ignored even in the single person autarky model. Yes, other factors that are possibly scarce are missing from that model. But that is the same deal for ROI calculations, too, as I already explained. The point is, just like money you have is the most important factor limiting investment, (thermodynamic free) energy is the most important factor limiting production.

js8 10y ago
> I think you are in contradiction, then. Let me explain a bit better where is the contradiction. The high cost of source A from your example indicates that this source requires some expensive fuel. If there is an unlimited (in practice) amount of this fuel, in other words, it's not scarce, then this high price indicates that it's very hard to obtain (takes a lot of effort). This contradicts to the claim that source A has high EROEI, because if it has high EROEI, then it means that the fuel for it can be obtained very easily (with very little energy investment). (You could see the contradiction the best if you were to actually set the cost of energy in your world.) The only way out of this contradiction is to assume that this "expensive fuel" is a very scarce (finite) resource, which cannot be readily produced from other things. For example, say it's platinum, and we would like to keep platinum to make other things out of it rather than burn it to make energy (and that's why it's expensive - people want to keep it). So that was my original interpretation of your example. In that case, source A is a better way to make energy than B, it's just you don't have enough fuel you would like to use for it, and so you can only use it in small volume. Just like with ROI - there can be excellent investments with very limited volume, and just ROI will not tell you anything about the volume. As a side note - I really recommend to stop thinking about economics in terms of money and start thinking in terms of means of production (which is where EROEI comes in). And only then, when you see the full economic picture on the process level (how things get transformed in the economy), introduce the actual monetary accounting. This way, you can avoid some pitfalls (such as simultaneously claiming that price of energy is both very low and very high).
- beefield 10y ago
  > The high cost of source A from your example indicates that this source requires some expensive fuel. No. It indicates that there are other factors of production than input energy that causes the high price, and that EROEI is incapable to take those into account. To put this into more concrete (while still absurdly unrealistic to illustrate the point) numbers, assume we have a weird nuclear reactor, that is going to produce 1 kW of electricity for one million hours (somewhat more than 100 years). To create this generator, you need precicely two things. One kWh of energy, and because this is a bit unsafe reactor, you need to buy land worth one billion dollars to create a safe zone around the reactor. Now, this reactor has pretty much exactly the numbers of my original example A, this has EROEI of one million with investment costs of one million per Watt. So, a project with good ROI on properly priced (not subsidized) factors of production must have a decent EROEI. But there is no guarantee the other way round, a project with decent EROEI can have completely unfeasible ROI, so I still not understand why I should care about EROEI. It just produces zero value over ROI (with the usual disclaimer of correct prices) > I really recommend to stop thinking about economics in terms of money and start thinking in terms of means of production (which is where EROEI comes in) But if you want to think in terms of all means of production, not just some arbitrarily chosen ones, you end up with ROI.
  - js8 10y ago
    > EROEI is incapable to take those into account EROEI is capable of it, but you must be willing to do it. Why don't you figure out, in your example world, what makes the land for the reactor so expensive? Eventually, there is going to be an energy cost to having so much land dedicated for it (either that or there is only a finite amount of land that you're willing to use - which is akin to infinite cost, as I already explained in my previous comments); and you omit that from your EROEI calculation. (Also technically speaking, in your example, I could build more reactors next to each other, so I would need less land, it's only a fixed cost, but that's not so important here.) > But there is no guarantee the other way round, a project with decent EROEI can have completely unfeasible ROI, so I still not understand why I should care about EROEI. It just produces zero value over ROI (with the usual disclaimer of correct prices) I disagree, the same is true vice versa (if you exchange EROEI and ROI), if you correctly calculate the energy cost needed. EROEI is just ROI in different units, and all the same advantages and disadvantages apply (that's why I predicated my post on you accepting ROI). So whatever disadvantage you see in EROEI I can find analogue of (and I did in fact) in ROI. But the point of using EROEI is, nature cannot be fooled - if a process has a given EROEI, then nobody can cheat that number. But with ROI, individual investors can still cheat other people (society at large), if they have reason to use incorrectly priced ROI (it is incorrectly priced from society's perspective, but from their perspective it's correct), for example when subsidies are involved. > But if you want to think in terms of all means of production, not just some arbitrarily chosen ones, you end up with ROI. You are not doing it correctly for EROEI - you're not assigning price in energy for those additional means of production (as pjc50 already noted).