Thursday, January 31, 2013

EROEI for dummies

I meet little Prosper carrying fire wood on his head in Butare, Rwanda. I try to ask him, the mother and the two other children if it is for the household or for sale, but fail to communicate. My assumption in this case is that it is for sale. Most poor people in the work use fire wood for their cooking. When population grows people, mostly women and children, have to go further and further to collect it. This image is a simple way to understand the concept of Energy Return on Energy Invested (EROEI) and why it matters for us and the economy.

There is little work to cut down a tree in your backyard to use for fire wood.  As fewer and fewer trees remain in your courtyard, you have to walk to collect firewood, and you may gradually have to use twigs and bushes instead of logs as trees grow scarcer and scarcer. So you end up spending more and more energy on getting a lower and lower quality of energy for the family supper.   

The first fossil fuels were easily available and there were little efforts needed to bring it up, in a similar way as the first trees in the backyard. The Energy Return on Energy Invested (EROEI) was something like 100. That is it took one liter of oil to extract 100 liters of oil. Many oil sources now yield just 10 or 20 liters for each liter used. The net effect is that we have to increase the total energy use just to keep the net energy delivered to society on the same level.

EROEI is the ratio of the amount of usable energy acquired from a particular energy resource to the amount of energy expended to obtain that energy resource. When the EROEI of a resource is less than or equal to one, that energy source becomes an "energy sink", and can no longer be used as a primary source of energy. (Wikipedia)

EROEI is often showed with a diagram like this[i]:

What we see is that when EROEI approached 5 there is a dramatic increase in the amount of energy that has to be used to produce energy. In its early days, oil frequently yielded an EROEI in excess of 100:1, meaning that 1% or less of the energy contained in a barrel of oil had to be used to deliver that barrel of oil. Not a bad bargain. Oil production today more typically has an EROEI around 20:1, while tar sands and oil shale tend to be about 5:1 and 3:1, respectively. Perhaps the effect is better seen by re-writing the graph assuming that we want a constant supply of energy (set at 100 in the graph).

 Here we see very well the extreme effects of an EROEI going below 5. If we want to get energy corresponding to 100 barrels of oil from a process that has an EROEI at 3, like shale oil, we have to produce 150 barrels as energy corresponding to 50 barrels will be used in the production process. Some of the biofuels are have an EROEI under 2, which is a rather meaningless exercise, especially considering the huge environmental impact of their production. Solar energy from photovoltaic element are in the range of 3:1-10:1. Wind energy perhaps in the range of 15:1

This has big economic effects. As Richard Heinberg writes in End of Growth
“As EROEI declines over time, an ever-larger proportion of society’s energy and resources need to be diverted towards the energy production sector.” 
I will come back to this very soon in another post.
And it also has huge environmental effect. For instance, if the US is going to build its energy supply around shale oil and tar sand the gross energy use will increase tremendously, and also its emissions of green house gases.

EROEI is mostly discussed in the phase of energy production, i.e. at the well or mine head. Another aspect of EROEI is also to consider the whole system. For instance, for solar systems, one can calculate the EROEI directly in the panel, but one should include the storage and distribution systems that are an integral part of the system. Finally, one should look at the EROEI all the way to consumption. So if the EROEI of petrol at the pump is 10:1, the EROEI of the use of petrol in the car is only 3:1, as only a smaller part of the fuel is converted into the movement of the car (Garden Earth).

There are many other aspects of relevance when discussing energy systems, for example, the quality of the source and how it can be used. For solar and wind energy there are also big problems associated with intermittence and storage.

For a rather recent EROEI update, read A Review of the Past and Current State of EROI Data Ajay K. Gupta  and Charles A.S. Hall.

For related post on this blog

Energy squeeze, Is it a trap, a cliff or just a simple adjustment?
Burning food?
It takes more energy to eat than to farm
Energy and Agriculture
There will be no nuclear power without oil
our energy debt



[i] Mearns, E. In The global energy crises and its role in the pending collapse of the global economy, Royal Society of Chemists, Aberdeen, Scotland, October 29th, 2008; Aberdeen, Scotland, 2008

Wednesday, January 30, 2013

3000 readers

Just wanted to thank the increasing number of people reading my blog. December was the first month exceeding 2,500 page views and January has already beat 3,000. Stíll a blog dwarf, but growing. I expect that my book Garden Earth will drive more traffic in the future.

Graph of Blogger page views

Tuesday, January 29, 2013

Is commercialized farming the cure for smallholders' ills?

In the period 1996 to 2011 I worked a lot with various efforts to link smallholder farmers to markets, mainly organic, in developed countries. The biggest engagement was in EPOPA:

"By 2008, 80,000 farmers contracted by EPOPA have sold organic products to exporters for approximately US$ 15 million per year. All farmers received higher prices due to the organic premium, which ranges from 10-25% over the conventional price. Taking into account the size of households, 600,000 people have benefited from the programme."
This is how the Export Promotion of Organic Products from Africa is presented as one of a limited number of case studies of "Evidence of Impact" on the joint donor web site. 

The cost of the programme for the Swedish taxpayers is one cup of coffee per taxpayer. You can read a whole book about this successful project here.

Overall EPOPA was a success. Today, linking farmers to markets is an overarching policy for almost all development agencies as well as governments. It also fits very well with a development model that assumes that more markets and more capitalism is the best path to development. Considering that small-scale farming is a main component of the livelihood of something like a third of the worlds population, and most of the worlds very poor it is only natural that there is a huge interest in how to improve livelihood of them. While I do think it works quite well, it has, unfortunately, been oversold.

A recent report from Hivos, Small Producer Agency in the Globalized Market, looks deeper into if and how smallholders can benefit from globalized markets. In short the answer is that a few of them will - and they will soon not be smallholders as the recipe for success is to grow, mechanize and buy up your neighbours farms. This should be no surprise, this is how the farm sector developed in other parts of the world. The report estimates that linking farmers into modern value chains (be they organic, fair trade or normal) may benefit only about 2-10 percent of the farms - and it will be those with the greatest assets.

The reality is that commercialization of farming is good for the economy and for a few so called progressive farms, but that most of the farms will not benefit from it. Some will become farm labourers at the farms of the more successful, or in huge agri-business plantations, other will only get a better life if there is some place for them to go. 

The report does a good job in demonstrating how diverse the group of small farmers is and therefore also their coping strategies:
"multifaceted livelihoods that use diversity of economic activities to hedge risks and make the most of scarce land, cash and other resources. Farmers may rent various plots and grow multiple crops; move in and out of different informal (and sometimes formal) markets; and combine farm income with off-farm jobs and remittances from migrant family members. With more rural people, especially youth, moving back and forth from farm to city, there are fluid frontiers between urban and rural markets, boosting the vibrancy of local economies."
The report recognise that the informal economy may actually be very important for most farmers and that the army of middlemen, often considered parasites, can play a positive role in markets for small-holders by offering easy market access and intensive competition for supply, rather than tying farmers into integrated value-chains. Those trade links are also the ones that supply the hordes of urban poor. In many parts of the world the informal economy is on the rise according to OECD reports.

The authors, Bill Vorley, Ethel del Pozo-Vergnes and Anna Barnett, concludes that
"we should not continue to expect multiple wins — on poverty reduction, food security, security of supply, ecosystem services and rural development — from the single-minded approach of including farmers and their organisations in value chains and ‘empowering’ them in markets as beneficiaries of external initiatives. to get the future right for the majority of small-scale producers who cannot readily participate in modern value chains, or for the many youth with aspirations out of farming, we must recognise other layers of the picture."

See a video from the launch of  Small Producer Agency in the Globalized Market

Other posts of relevance:
The road to food security: What works and what doesn’t?
Don't buy organic instead of changing the world - do it as part of changing the world
Traditions, Western Union, Churches and Taro
Will there be farmers?

Tuesday, January 22, 2013

Economy of the Common Good

According to an opinion poll in Germany and Austria, nearly 90 per cent of the population want an “alternative economic order”.  The author and political activist Christian Felber developed the basis for the Economy of the Common Good in his book Neue Werte für die Wirtschaft. Eine Alternative zu Kommunismus und Kapitalismus (New Values for the Economy. An Alternative to Communism and Capitalism) in 2008. In response to this publication, numerous entrepreneurs have come together in order to refine the model together with Christian Felber and have termed it “Economy of the Common Good”.
The Economy of the Common Good (ECG) want to change the driving entrepreneurial motivation shift from the pursuit of profit towards the pursuit of the common good and from competition to cooperation.

You can download a short summary of the 20 most important elements of the ECG.

And listen to an informative lecture by Christian Felber here

Some 200 companies are now busy implementing the concept. Initially they hope to attract consumers to buy the products from the companies voluntarily. However, a market based on profit-seeking and competition will not be able to reward good behaviours fully, so the initiative also promotes incentives and tax benefits for companies that follow the code of the Economy of the Common Good. 

While the proposal sounds reformist and not so radical, they don't fall far from being a "revolution" as they suggest abolishment of financial markets, private profit and want to redistribute wealth and income radically. Christian Felber underlines that any change should take place in a constitutional and democratic way. I appreciate in particular the clear analysis of the combined damage by profit-seeking and competition, which I also state in my book Garden Earth.

As a result of my long experience in the organic market and other sustainability markets I am less optimistic about how useful the various indicators and measurements they propose are in this context. Even more so as it is proposed to tie advantages such as:
‐ Lower taxes
‐ Reduced customs duties (e.g Fair Trade)
‐ Loans on more favorable terms
‐ Priority in public procurement
‐ Research cooperation with public universities
to companies based on their score in the Common Welfare Score. I simply don't believe in those kinds of ranking and scoring systems, and even less to have them as a basis for policies.

Friday, January 18, 2013

Thinking fast and slow about the world

Did you know that if you make people think about old age, they will walk more slowly? Or if you have a poll about more money to the schooling system more people will support that proposal if the poll is in a school than in the municipal building? Those are effects of what is called priming

I just read Thinking Fast and Slow by Daniel Kahneman, recipient of the Nobel Prize in Economic Sciences. He shows that if you make people think about ”money”, even by simply having dollar bills in your screen saver, people don’t only become more interested in money they also become more selfish, they are less inclined to help someone in need and show more preference for being alone. In short, the thought of money feeds individualism.

Most of the book is about how we make choices and how we form our views. Kahneman shows how intuition and emotion, stereotypes, often rule our behaviour, also when we believe that we are acting ”rationally”. Here he also deliver a criticism of the idea that people are governed by rational economic assessments, which is a cornerstone of the neo-liberal ideas, in particular those expressed by Milton Friedman at the Chicago School of Economics.

Actually, not even in the very heartland of economics are people very rational. Kahneman cites research that examined 10,000 individual private investors over seven years. On average, the shares that individual traders sold did better than those they bought, by a very substantial margin: 3.2 percentage points per year. “It is clear,” concludes Kahneman, “that for the large majority of individual investors, taking a shower and doing nothing would have been a better policy than implementing the ideas that came to their mind.”

Cabbies in New York work fewer hours in rainy days despite the fact that they earn the most per hour those days, while they sit and sweat in empty cabs in sunny days instead of going to the beach. And even when it comes to simple buying and selling we all have a tendency to value an item we have higher than what we would be willing to offer to buy it.

Kahneman says that the robots of neoliberal economics, Econs he calls them, are not real Humans. I believe that most economists and their study objects are subject to ”priming” which makes them much inclined to see all aspects of society from the perspective of classic economic theory. The bigger tragedy is that by the constant bombardment of economistic messages combined with the commercialism of the market place taking over almost all space and time of our lives, the idea that we all act as Econs is self-fulfilling to some extent.I write about this in Garden Earth:

Simpleton economicists and their popularizers want to explain all human actions by economic drivers. Also, many Marxists tend to see the acts of different groups to be fully dependent on their economic standing in relation to production factors—here the concept of ‘class’ is critical. The reasoning goes from self-evident things to very cumber­some explanatory models. ... The basic error is the perception that economic drivers are superior to all other drivers and that all other drivers can be ‘trans­lated’ into money. The strength in the reasoning is that the economic driver is a forceful paradigm with many self-reinforcing loops. And as a society is built along this paradigm, human beings consciously and subconsciously create a world that rewards exactly this; in such a way it becomes self-fulfilling. But this is not truer than the statement that the most important driver for human development is the ability of an individual to throw a spear farther than anyone else. This ability was most likely very important in a hunter society or a war society, much more important than the ability to amass wealth.

The book
Thinking Fast and Slow is very comprehensive, even though Kahneman, in typical modesty, says the target for the book is to be relevant for the gossip at the water cooler. The largest part of the book is about two sorts of thought processes, which Kahneman calls System 1 and System 2, or “fast” and “slow” in the words of the title of the book. System 1 is intuitive, often unconscious, relying on past association of ideas. System 2 is conscious, reasoning, full of effort but often lazy. For instance, even experts are rarely basing their reasoning of consideration of statistical evidence, and even scientists make a lot of errors. Kahneman readily admits that he himself is also a victim. While we might believe that it would be best to suppress System 1 and let System 2 take command all the time, Kahneman thinks that System 1 is the “hero of the book”; the skilled craftsman or professional certainly couldn’t be what they are if they didn’t work also with intuition.  

We hugely underestimate the role of chance in life. As the example of fund managers above shows you'd do just as well if you entrusted your financial decisions to a monkey throwing darts at a board. And again and again, we are fooled by our low understanding of sampling and statistics. The fact that most of the best performing schools are small is taken as a proof that small schools are better, while in reality, Kahneman says, smaller samples will always produce more variation. Not only are the best schools small, also the worst are small. Bigger schools represent a bigger sample and therefore they tend to move towards the average. The same goes for incidences of a disease; the highest rates will always come from small population groups. There are certainly a lot of interesting facts in the book.

But frankly, the book is hyped. It is described as an ”immediate classic”, ”groundbreaking”, and is compared to the works of Darwin, Smith or Kopernikus etc.  There is not much new in the book for those that have read their behaviour psychology and biology. The discussion about System 1 and System 2 are long-winded while the examples given are predominantly tests in simple game and choice experiments from universities.

The examples from real life situations are just so more interesting. For instance, the fact that Israeli parole judges would grant parole to almost 65 per cent of the cases after the judges had eaten a meal, but almost zero by the time the next meal was due! Or that the only thing that is worse at work than being alone is that your boss is with you. 

While too much text is spent on the two systems, Kahneman takes up very interesting topics towards the end of the book, but here in a too rhapsodic manner. He discusses risk assessment as well as happiness and well-being. In particular the latter deserves a better analysis than the one in Kahneman’s book. Still, the book is worth reading, and Kahneman has a humble and human attitude and sound scepticism towards overconfident science.  And you can always discuss it with your colleagues at the water cooler.  

Some reviews of the book
Svenska Dagbladet (Swedish)
Aftonbladet (Swedish)

Friday, January 4, 2013

Who says gaps are closing?

I just wrote about the distribution of wealth in the world. Below you can see the development of agriculture value added per worker. As you can see the gap between the rich countries and the poor countries is increasing a lot. Not even China has kept pace in agriculture productivity with the OECD countries. It has indeed increased value added per worker three times in thirty years, but France increased it 5.5 times in the same period. In Africa it was more or less constant for thirty years.

The development is perhaps better visible in a logarithmic diagram:

Apart from debunking the myth that "business-as-usual" will help the poor, it also puts into question who is benefiting from the increased global competition in agriculture commodities.

Agriculture value added per worker is a measure of agricultural productivity. Value added in agriculture measures the output of the agricultural sector (ISIC divisions 1-5) less the value of intermediate inputs. Agriculture comprises value added from forestry, hunting, and fishing as well as cultivation of crops and livestock production. Data are in constant 2000 U.S. dollars.

Looking at yield per hectare the picture is not as straight-forward. But then again, yield per hectare has never been a strong indicator of development, even if some agronomists are obsessed by it. 
Check here how it looks at Gapminder 

Read also: 

Stop pretending there are only winners in the global market

Agriculture: How cheap energy (and capitalism) increased the gaps between rich and poor


We are the world - or?

The richest 10 percent have almost 90 percent of the total assets in the world, while the poorest half of the global population has a mere 1 percent of the assets. The richest percent alone controls 46 percent, almost half of the world.
 This and a lot more can be found in the Credit Suisse Global Wealth Databook 2012*. Their figures show that global household wealth totaled USD 222.7 trillion in mid-2012, equivalent to USD 48,500 for each of the 4.6 billion adults in the world. The corresponding values for the end of the year 2000 are USD 113.4 trillion in aggregate and an average of USD 30,700 for the 3.6 billion adults alive at that time. Thus global household wealth rose by 96% between end-2000 and mid-2012 and wealth per adult climbed 58%.   
"To be among the wealthiest half of the world, an adult needs only USD 3,700 in assets, once debts have been subtracted."

Averages are deceitful, especially when it comes to distribution of wealth. Some are dirt poor while others are stinking rich. 

Credit Suisse estimates that there are 84,500 Ultra High Net Worth (UHNW) individuals worldwide with net assets exceeding USD 50 million each. North America dominates the regional ranking, with 40,000 UHNW residents (47%), while Europe hosts 22,000 individuals (26%), and 12,800 (15%) reside in Asia-Pacific countries, excluding China and India.

The enormous Indian middle class. really? 95% of the population in India have assets below 10,000 dollars.

First, it is even hard to comprehend how such a skewed distribution of wealth is at all possible. Second, it is astounding that there is not more attention to it, Third, I think is is absolutely clear that redistribution of wealth is  the easiest, the quickest and the most morally just approach to global poverty. Not the only approach of course;  over time it is essential that wealth creation is reaching everybody. But even to start that process presupposes that the dirt poor get access to resources, which equals wealth.

Read also:
Growing inequality, between people, between countries, between region, between urban and rural.
Who gave you your property?
The wealth Pyramid - a sign of poverty
And of course, I write a lot about this in Garden Earth. 

*Credit Suisse Global Wealth Databook. – an in-depth project that offers investors the most
comprehensive study of world wealth, and which remains the only study that analyzes the wealth of all the world's 4.6 billion adults.