Wednesday, July 4, 2012

The Generation of Useful Physical Work, Not Primary Energy Consumption, Drives The Economy


As stated in the previous post, the average rate of real GDP growth in the US between 1965 and 2011 was 2.9%/yr. The average rate of growth the useful physical work (electricity, mechanical work, and chemical/thermal work) was roughly 2.7%/yr for the same time period. For example, in 1965, the US produced roughly 2133 TWh of useful work and in 2011 the US produced 7181 TWh of useful work (most of this being the generation of electricity and the generation of mechanical work against road/air friction in cars, trucks, and airplanes.) In other words, the economy is simply a means of taking useful physical work and converting it into more useful physical work.  The question always is:  how can I achieve the highest rate of return on investment of the physical work at my disposal?
It’s important to note that the driver of growth in the economy is the rate of return on work invested, not the consumption of primary energy/exergy. Using the same data from the 2012 BP Statistical Review of World Energy, one can disprove the hypothesis that primary energy/exergy consumption is the driver of the economy. For example, in 1965, the US consumed approximately 1291 MToe (millions of tons of oil equivalent) of natural gas, petroleum, coal, nuclear, and renewable energy sources…though, including the solar input into farming.) In 2011, the US consumed 2269 MToe of primary energy /exergy sources. This averages to a growth rate of primary energy/exergy consumption of only 1.2%/yr. This is far below the average growth rate of the real economy (~2.8%/yr), as measured either in real GDP [$] or Total Useful Work [TWh]. This can be seen graphically in the picture below. The reason for this gap (as seen below) is that it’s not the growth rate of primary energy/exergy consumption that is important; it’s the growth rate of the capacity to do work that is important. Improvements in the amount of electrical and mechanical work per unit of primary energy has increased between 1865 and 2011.

The goal of life is to increase our capability to generate useful physical work, and this does not necessarily mean an increase in the consumption of primary energy/exergy sources. For example, improvements in power plant efficiency can increase the generation of useful physical work while decreasing the consumption of primary energy/exergy source. (Though, it should be noted that power plant improvements should only done if the rate of return on work invested for the power plant improvements is greater than the rate of return on investment of other projects that a company could pursue.)
So, the goal of this short post is simply to use the data from the 2012 BP Statistical Review of World Energy to disprove the hypothesis that the driver of the economy is the consumption of energy/exergy sources. Instead, it is the generation of useful physical work that is the driver of the economy. In the US in 2011, we generated 7181 TWh of useful work. The question is: how will we spend that useful work in the future? Will we spend it on projects with negative return on work invested (such as cash-for-clunkers, corn-ethanol, solar rooftop panels, or the war in Afghanistan) or will we invest that useful physical work on projects with positive rates of return on work invested (natural gas combined cycle power plants, oil/gas wells, municipal solid waste to energy plants, and cost-effective improvements in transportation vehicles)?     {Note that we can achieve large rates of return on work invested by building chemical plants that convert solid municipal wastes to methane and electricity using conventional gasification technologies (such as Lurgi high-pressure, fixed bed gasifiers. This will be the focus of some future blog posts. It’s mind-boggling to me why we pay between $30 and $80 per ton of MSW to landfills and why we pay ~$10 per ton of CO2 to pull CO2 out of the ground in Utah (for use in Texas for enhanced oil recovery, EOR) when we could be sending municipal solid waste to Lurgi gasifiers to be converted in to methane, CO2 and electricity (in any number of different possible system configurations). While municipal solid waste could only provide a small fraction of the electricity or natural gas for the US, Europe, China, India or Japan, it’s still mind boggling that there are no companies in any of these countries that convert waste to electricity or natural gas using high pressure gasification reactors. My initial calculations suggest values of IRR above 20%/yr when using sales prices of $50/MWh for electricity, $3/GJ for natural gas and $10/tonCO2 for EOR.}
In summary, ask yourself the question:   how are you going to spend your share of the useful physical work generated in the world?  Are you going to spend it on projects by which the amount of useful physical work decreases with time? Are you going to use it to buy a fancy new car? Are you going to use it buy a fancy new house? Or are you going to invest it into projects that can grow the amount of useful physical work we can generate in society? For example, are you going to invest your money in the stock market or you going to spend it our a vacation to New Zealand? Are you going to spend it on a new plasma TV or you going to invest it into drilling oil wells in North Dakota? The choice on how to spend your hard earned physical work is completely up to you. Positive role models (i.e. people who have successfully demonstrated how to earn high rates of return on work invested) include people such as Andrew Carnegie, John D. Rockefeller, Thomas Alva Edison, George Westinghouse, J. Paul Getty, Bill Gates, and Steve Jobs. Remember that you don’t have to directly work in the energy industry in order to help grow society; you just need to know how to invest your money (i.e. work) as wisely as possible.

No comments:

Post a Comment