Criticisms of Energy Analysis by Economists
Revised 19 August 2021
Economists have two main criticisms against the encroachment of Energy Analysis into their field as follows (Pearson, 1977):
a) The price mechanism takes energy and other resource factors into account and is a better tool than Energy Analysis for allocation and decision making.
b) Energy Analysis gives no credit for capital and no allowance is made for improvements in technology.
The first criticism is easily countered. A process might be technically feasible, but is not necessarily viable. Energy Analysis compares different methods of energy generation at a comprehensive level by including externalities that are overlooked or ignored by conventional financial accounting methods. Energy Analysis can show whether a particular method of energy production is not only feasible, but also viable by being truly sustainable in the long term without the need for ongoing energy subsidies of fossil fuels. This applies especially to the technologies of nuclear fission, photovoltaics, wind turbines, battery storage, and bio-fuels.
With regards to the allocation and decision-making of our finite resources of fossil fuels, the price mechanism has clearly failed. The pricing of fossil fuels over the past 40 years has not provided adequate signals of the need to transition from fossil fuels to renewable energy, and nor has it provided any indication of an impending peaking of all forms of fossil fuels.
With regards to the second criticism, it is Energy Analysis and not Economics that indicates the need to transition from fossil fuel based infrastructure to that of infrastructure required by renewable energy. Economics alone cannot determine physical and thermodynamic limits to technology and access to resources. Both Economic Analysis and Energy Analysis are needed to guide a transition from fossil fuels to renewable energy and infrastructure and a sustainable future beyond.