# How Not to Use EROEI

This week I will be at the 2011 ASPO-USA Conference. I will deliver one talk on technical due diligence and one on our new energy reality. I will also participate in a roundtable discussion on investing.

On the talk on our new energy reality, I am going to have a slide on my general observations over the past few years. One of those observations is that the concept of Energy Return on Energy Invested — EROEI — is frequently misused. The most common example is when people simply dismiss a process because it has a low EROEI or a net negative energy return. So as I am finalizing my slides, I thought I would share my EROEI observations here.

What a net negative energy return really says is that a process is not sustainable. If you consume 1 BTU of fossil energy to create less than one BTU of a derivative of that fossil fuel, this is a process that will speed up the depletion of fossil fuel reserves. However, if the two forms of energy are not fungible (interchangeable), then economics can easily trump EROEI. For example, it might be economically attractive to consume 2 BTUs of coal to produce 1 BTU of ethanol (EROEI = 0.5). In that case the process speeds up the depletion of coal reserves, but economics (and potentially subsidies) — not EROEI — would dictate whether that process is commercialized.

The other major caveat is that there is no time factor involved in EROEI calculations. Thus, it is possible for a lower EROEI process to be more attractive than a higher EROEI process if the former returns the energy over a shorter time interval. Think of it in terms of interest. Consider an investment that returns 3% on a daily basis versus one that returns 50% on an annual basis. If you invested \$1 in each, the 3% daily return will earn you more than \$47,000 at the end of one year (assuming you reinvest the returns) while the 50% annual return will earn you 50 cents. But EROEI would simply say that one return is 1.03 to 1 and the other is 1.5 to 1. So, if someone says that a process has an EROEI of 1.5, the first question needs to be “Over what time interval?”

I have four examples that I will share in my ASPO presentation. Two will cover the aforementioned caveats of economics and time. The third will show how failure to account for biomass consumption in a process can skew EROEI calculations. The final example will be the infamous example showing that the EROEI of corn ethanol at 1.4 (or pick a number) is superior to gasoline’s EROEI which is given to be 0.8. I will show the problem with that calculation (it isn’t really an EROEI calculation).

Next Monday’s posting will most likely cover some aspect of the conference.