Analysts should understand energy's fundamental role in supporting human endeavor, its increasing scarcity, and its environmental impact. Consumers (all of us—including energy analysts) should encounter energy prices that tell the truth. Charles A. S. Hall is a leading and indefatigable exponent of this understanding, and when he teams up with economist Kent A. Klitgaard, one would expect some detail on how energy realities translate into responsive economic policies. But the book Energy and the Wealth of Nations: Understanding the Biophysical Economy does not deliver on this. At times, it is exasperatingly diffuse and repetitive, but it does offer a broad range of compelling arguments—and diverse data—to emphasize energy's deep significance to the world's economic health.
In summary, the book's message is that today's neoclassical economics (NCE) fails to convey, firmly and quickly enough, that we are running out of easily accessed energy, fossil or renewable, especially oil. NCE hides and ignores this truth through myriad subsidies and mantras of substitution, yet despite institutional and societal denial, the consequences are emerging—and our eventual accommodation will be wrenching. Using production theory that explicitly recognizes energy's essential role and the proper metric of net—rather than gross—energy tells the straight story.
As a long-time energy analyst, I agree with these declarations, but I wish that they had been made more systematically and concisely and that a translation to practical, adaptive economic policies had been laid out more clearly. In Energy and the Wealth of Nations, there are sharply written and brilliantly focused criticisms of NCE; sections on net energy and its most popular metric, EROI (energy return on energy invested, which is generally declining over time); various graphical demonstrations to connect energy-price variations to economic expansion or contraction; and a discussion of peak oil (a well-deserved topic to spotlight). In particular, the implication of declining EROI is vividly shown (hypothetically) in chapter 15, in which an increasing fraction of extracted energy must be directed back to the energy industries. However, any creative economic measures (e.g., subsidies reform, energy or carbon taxes or caps with rebates to low-income households) that could guide a smooth transition are scarcely mentioned. Key words such as cap and trade, taxes, equity, policy, transition, time scale, and distribution are absent from the index, although several of these terms appear very briefly in the text.
Throughout the book, I found myself implicitly faulting Klitgaard, perhaps unfairly, for the lack of a strong economist's voice. (The voice seems primarily Hall's.) My point of view as a veteran analyst is that appropriate, aggressive pricing of energy is necessary, and I had wanted the authors to illustrate how to do that strongly, fairly, and gradually enough to minimize the pain. But in the preface, they say that the book is “an economics text like no other” (p. viii). There is much here on economic history as seen through an energy lens; perhaps, for some readers, that is enough. Puzzlingly, the authors make no recommendation as to the intended reader's level of proficiency in economics or energy analysis, and the assumed level of understanding varies widely from chapter to chapter.
Almost everything from the golden age of energy analysis (from around 1970 to the present) is here but in scattershot form and with no solid roadmap. Within the 14 pages of chapter 12 (“The required quantitative skills”), the book discusses linear, nonlinear, and exponential functions; statistics; correlation; econometrics; calculus; and analytic versus numerical modeling and is interspersed with repeated denouncements (largely justified, but once per chapter is enough) of economics' infatuation with mathematics at the expense of real data. The well-known formula I = PAT is given much later in chapter 19 (“Environmental considerations”) but is also not listed in the index. There are no numerical problems in the book, but extensive tables and graphs are included.
Energy and the Wealth of Nations is an engaging, stimulating, and laudably agitating read, but it is too disjointed to serve as a textbook. I am both fascinated by the breadth of its references and frustrated by the writing's unevenness, casual editing, and personal indulgences. (How can the authors repeatedly call gross domestic product “wealth” throughout the text when they have explained the difference between wealth [stock] and income [flow] in chapter 1?) The book is basically a collection of transcripts of illustrated lectures, written in an informal classroom style. (I can see the authors leaning on the lectern and holding forth, with anecdotes.) What was needed to make this a textbook, or at least a more accessible and usable reference, was an editor's attention to enforce consistency, focus, and coherence.
The final chapter (“Living the good life in a lower EROI future”) is a quick overview of the potential issues and the distinct possibility of a lower-energy but more fulfilling life, to which I personally subscribe. It is a soft landing after the hard delivery in much of the book but leaves us short on details. The final thought that I carry, however, is from chapter 15, which shows the EROI diagrams mentioned above. In making the diagrams, the authors assumed that the world energy system had an EROI of 20 in 2005, which, they say, will sink to 5 by 2050. (An EROI of 1 means a zero net energy yield.) They admit to an arbitrary value, but by putting it out, they reinforce the question of what minimum EROI is needed to run a modern society—not the society we have now, but the one we want. We do not know now what that minimum value is, but we will have to know by, say, 2050.
If you are ready to embrace this bedrock problem, reading Energy and the Wealth of Nations is a place to start. You will either hate it or (maybe) love it, but you will not sleep through it.
