Economies across the globe face increasing energy-related costs that stand to play pivotal roles in shaping future societies. The geophysical characteristics of stock-limited conventional primary energy resources play a central role here, with constrained gross production and diminishing energy return on investment (EROI) translating to declining marginal productivity of capital, increasing production costs, and expenditure on energy reducing consumers’ discretionary purchasing power. This cost pressure is compounded by the increasingly urgent need to internalize presently externalized environmental costs associated with fossil fuel production and use, especially those due to atmospheric GHG emissions. The view that renewable energy sources will, over time, both replace an expanding proportion of existing fossil fuel energy supply and displace future growth exerts an increasing influence on both energy-specific and broader economic policy at all levels. It is typically assumed that such a transition will mitigate increasing costs related to both resource and environmental limits. Growth in renewable energy supply is itself, however, subject to constraints associated with a) high capital cost; and b) rapidly diminishing marginal return on effort as “best first” development opportunities are exploited within resource limits determined by natural energy flows. Whereas energy demand patterns have, until recently, had significant scope to dictate supply, globally we are entering a world in which supply-related characteristics will increasingly shape energy demand expectations, and hence the economic scope for human societies.
This economic trend report is adapted from a version originally prepared for a national government client in 2014. Last updated in November 2014, the long-term nature of the trend means that data and analysis remains highly relevant in mid-2015.
Report author: Joshua Floyd