That is an interesting thought of your, really nice.

Well what you are saying is that energy should not have any cost. In my view, nothing is priceless in the theory of economics as there is no free lunch. Yes energy is a resource, it is actually an asset for the country which digs it. But it is the finished form which is known to us as energy, as you have also mentioned that there are service charges. these materials in raw form are no use to us, first the places that they are found from are very low populated regions, second you need heavy machinery to be deployed, third you need labor to work around the clock in all climatic conditions, heavy transportation facility, infrastructure and lastly to take all kind of security measures. Doing all this needs alot of capital, putting so much cost on a thing and providing it for free, this can only be done by a Government, such action cannot be expected from an individual maximizing his utility.

We did not made these resources but actually they are made for the humans and it is actually the innovative mind of the humans that have made electricity from a particle (nuclear energy) and noticed that a mere black chalk (coal) can be utilized as energy. For me its more of a patent right but in the World of knowledge spillover its not possible. Technology can be easily copied.

Resources are exhausted, they change there shape and form and become useless like burning of coal emits energy and ends up in the form of carbon which is useless but the piece of paper which we call as money remain within the system

One more remark: Labor and Energy are very closely linked - and in fact it is the same sort of thing. Labor gets something done - and energy does so as well.

The difference is only that labor comes from a self reproducing biological machine (human machine) - and the energy runs a (from human labor) constructed technical machine.

And one point also is the EROEI - relation. "Energy return on energy invested."

If you start digging for a (fossil) energy ressource - you need energy to run the drills and machines ... and also human labor to control the machines.

At the end it is only a positive business if you get more energy out of the ground than you invested into diging the hole. A dry hole therefore is a negative invested sort of labor/energy.

But the labor and capital you invest is a given "service" which is available inside of the economic system. You give something for getting something.

But the project itself is hunting a formerly external "thing" (fossil energy) into the economic circle.

You want to get a formerly unknown ressource become a product which you can put on the market inside of the economy.

Everything you invest for this was already part of the economic circle - but the product or the energy you are hunting for was not ...

And since it was not inside of the economic circle it is coming from some external side - and how in hell you want to pay for this? There is nobody outside of our economic circle waiting for money ...

We just "take" everything which is a natural ressource ...

If you are an owner of something, would you give it others for free and do not charge anything. This is totally against the law of Economics. Resources such as petrol, gas, they may be buried inside but after all they belong to the country where they are found.

You are investing your money on these materials so that you can make them a part of the economic system. If you would move in this direction, then even crops are not in the economic system. You are hunting a formerly external thing into the economic circle. there is some fertile land which needs some labor to work on it and take care of it at every interval, only then the crop is raised. It does not raises by itself, after putting effort on it, we are able to make it a part of the economic system.

Unfortunately, your understanding of energy is flawed, both physically and economically. From a physics standpoint, energy can very well be created from mass and vice versa, but that is not the main problem with your argument. Newton's laws simply predict that the total amount of energy in the universe (in any form) must remain constant. However, there only a few types of "energy" that humans deem useful in certain forms at certain times (e.g. while electric "energy" used to power a computer server network is deemed useful, the caloric energy that is produced by the server farm is considered a burden because it requires cooling mechanisms).

This brings us back to the price of energy. In economics, energy must not be seen as a product, but as a service. Utility companies are in the business of providing the right amount of the right amount of energy at the right time. So while the heat energy from the sun is free for everyone to enjoy, we pay a utility company for the service of supplying this energy in the wanted form (heat, electricity, etc.) at the right time (electricity consumption in the U.S. is lower in the summer, but the sun shines nevertheless).

well, you are right with the mass into energy conversion ... (atom bomb) ... but that is, as far I know, also a limited form of energy - you can not "create" energy - only "reform" it from mass - the energy is in the matter. It is not a "creation" out of thin air, it is a convertion of energy from mass. So it is still not possible to create energy.

And economics do see energy in the wrong way. There is a difference between the energy and the energy containing form of matter (oil, coal, wood, food, etc.).

What you sell is a piece of matter containing some energy or the physical transaction of energy - not the energy itself.

The form of energy container or the transaction of energy through a net (electricity power) you can see as a process inside of the economic system.

But the real energy source is and will always have to come from outside of the economic system. There is no way of creating energy out of nothing.

And the price is irrelevant for this argument. Any price is and will forever be only a price of exchange (!) inside of the economic system ... 

... and not a price of paying the original source (nature) which is not possible since is is and will always be an external input factor which has to be somewhere we can reach it to pull it into the economic system.

Any economic system without a source of energy is dead - there is no business cycle, no economic cycle at all possible without the constant input of energy.

And I did not see energy as a product - or did I say that?And it is also not a service. It is what puts a "non existing economic system" into the possible situation of beeing an "existing economic system".

Without energy absolutely nothing is able to "be" - neither any natural thermodynamical process nor any econmic process.

The price, again, is only the price of exchanging the matter containing some energy or the transport of some electricity.

The economic theory is not at all dealing the energy picture in the right way. The economic theory (any) is incomplete without a real world definition of its size.

What "is" an economic system else than a thermodynamic open subsystem of all energy flows on earth? There is not a single small part of any economic system which is NOT seen in the thermodynamic picture. The price is irrelevant for this.

The same argument could be made for mass, light and space.

Well, seems to be the case in a first quick look. But energy IS different to matter (or light and space).

An economic system can (under some given circumstances) deal forever with a given amount of matter, of mass. (a 100% recycle economy) But it always will need a constant flow of energy to "exist" - the matter is necessary, but the energy is the only input which "enables" the economic doing, the economic system running.

That also leads to the conclusion that there is not at all an economic circle or cycle.

Economic doing, a running economic system, is a constantly running process of energy conversion. A process which must be stable in the amount of energy converted at each second over time. (ok, it can of course go up and down. But never to zero.)

The same is not possible to say with matter. You can pile up trillions of tons of matter of precious forms ... no economic system will ever start growing into existence - without energy.

That is a fact the economic theory not at all covers.

You mentioned also Light.

But Light is a form of energy transported and indeed has some characteristics of matter as well. (see above).

You mentioned also Space.

Bute Space is nothing "measurable" or real. To make it short, it is nothing but space. With space only it is difficult to start an economic system. It is not equal to the german "Boden" (engl. ground, soil, base, land) like the old economic theories argue ...

The proper new definition of any economic systems must be based on energy first - that is the logical conclusion of the thermodynamic laws and its role for every energetic system and subsystem.

The amount of energy which is converted into heat (entropy rise) is and will ever be the outer determining limit of whatever you ever will define as a thermodynamic subsystem. - includes any economic systems, since they are always an thermodynamic subsystem of the bigger system called earth or universe.

The Amount of Energy used to produce whatever kind of goods and services defines the physical size of any economic system.

The prices can and will forever only deal about the exchange of the produced products. The never can give any picture of physical inputs into the economic system.

The economic theory of today deals only with the "efficient exchange of rare goods".

The economic theory is bullshit if you talk about the limits of growth or any absolut size of economic systems. The monetary based econonomic theory is unable to deal with this or to get any kind of answer for these questions.

Ok, "cost" as a word has manyfold meanings ...

What you describe is the cost of propability or the resulting chance of a energy system failure - if we have such an energy system.

I would better name this a likely result of a loss of an important driver of our economic doing // our economic production system // a possible loss of the "driver // the fuel // the energy" that serves us in total as humankind as the energy slaves that the energy simply is.

Because:

The scenario you describe would be of no effect if we could easily drive the production processes // all services with our own muscle power.

But: We do not can replace the energy doing the job.

The most basic thing you need to run an economy is energy and matter.

The rest is a combination of both.

All production factors are a combination of energy an matter. The economic theory does not put this simple fact into account.

And: the energy can not be created - it has to come from external sources outside from the economic system ... and since prices only do the exchange of thing internally ... there is no price for external inputs.

I agree that many things, enclosed the economic system, is embedded in the "big picture" of everything - and therefore everything is somehow causing effects on everything ...

but my aspect is to set a proper definition of the economic system as a subsystem of the universe, the earth, the nature on earth, ... at first.

Unless you have a proper valid (true physical) measurable definition or characterization of the total economic system - you simply are lost in the discussion somehow.

If you dont have an exact definition - where is the exact borderline between economic systems compare to nature systems? I mean, everything on earth is some kind of a system and a subsystem of the spaceship earth - thermodynamically spoken.

Your point of solving problems for better future is in my point of view much easier if you have a clear picture to discuss.

My intention is to answer the question of the physical characterizing determinating dimension or borderline of any econoimc system. Part of that answer is the insight that the real price of energy is zero - what we call energy price is only the exchange prize after the import of energy from the nature around for nothing - at zero cost. The only cost, the only prize is the handling of the catching mechanism, the effort to get the energy into the system.

Yes, I totally agree!

The problem with the economic theory(ies) for now is that they are not based on a proper definition describing the borders of any economic system. Ok, we have the time border (one year) which we use to follow up economic doing ... but economic systems as a subsystem of nature ... where is the physical borderline in between?

It may look like no problem ... "economics do work like they should" ... some say so ...

But: Any monetary arguing of econmic doing is describing the rubber lines inside of a ballon .... you can describe relative prices of the rubber inside of the ballon - but you never can describe the size of the ballon itself - in its dimension.

That problem I want to solve. That is one important supplement for any discussion of "what" to do for getting a "better" system ... embedded in the nature system ...

Unless you have a clear window it is not easy to look forward.

The evolution of electricity cost evaluation in different countries and economy systems fascinated me. Hope to publish the full research in English soon.

Article Evolution of methodological approaches to electricity cost a...

https://www.huffingtonpost.com/adnan-z-amin/the-real-cost-of-energy_b_9726230.html

http://full.io/the-real-cost-of-energy/

https://octopus.energy/blog/exposing-real-price-energy/

I would like to read an argument instead of just links ...

Economists have long undervalued energy: they have said its cost share (5-10 %) is small, hence its value is also small. But it is the low price of energy that makes it valuable, not un-valuable. Reiner Kummel has shown that when put into Cobb-Douglass type production functions that over time energy is far more important than either capital or labor in determining the growth of GDP, and eliminates the so called "Solow residual", previously attributed to innovation alone. In thermodynamic terms fossil energy provides hundreds to thousands of times more work (as Joules) per monetary cost than labor, and it is work that generates wealth. This has provided the affluence many of us currently enjoy.

Nature alone makes energy; we pay only to exploit it, not for the energy itself. Hence we pay only for that exploitation, the profitability of which depends in large part on the EROI. That is why it is cheap in monetary (but not necessarily in environmental or social terms). Early economists (physiocrats) believed that wealth came from land. Classical economists such as Smith and Ricardo believed wealth came from labor; Many neoclassical economists (e.g. Solow) believed wealth came from Capital. In fact they are all about the main energy sources of their times: land intercepted sunlight, the main preindustrial energy source; labor was the application of energy to transform the raw materials of nature into more valuable things in the early factory age; capital is the means of applying energy to that process more recently.

Money is a lien, a promissory note, on energy and the work it will do or has done. Otherwise it has no value. The cost of energy is far less than its value to the economy. We are lucky that is so, although in time the depletion and environmental costs may be very different. Neoclassical economics as a whole has treated energy as a commodity, not as the most critical input, one reason it is fatally flawed as a logical construct. We develop these ideas in two books from Springer: Energy Return on Investment and Energy and the Wealth of Nations (second edition available in January).

True!

And in addition:

Any production factor is only available to anybody when each single part of any production factor is made by or of energy.

Which makes the 100% of the real economy delivered as an result of the use of a dedicated given amount of energy.

The circulating money as the relative valuation tool ... is bound to this real world dimension.

Nothing of any economic system can ever become part of the Yearly Accounting without be part of the formal set with the condition "must be created by some energy before being sold for money".

Which makes energy a true dimension of any economic system, covering anything of the "what really is".

Clearly the worth of some things isn’t well-characterized, or even defined, in terms of money. Charles Hall says it well; " The cost of energy is far less than its value to the economy." I’d add that a useful analogy might be inputs of nutrients to agriculture. Plants need a variety of essential inputs to thrive. These include water, sunshine, air, and elements including calcium, magnesium, sulfur, phosphorous, potassium, nitrogen, and many others in trace quantities. Most of these can be measured in terms of mass, but the mass quantity alone isn’t sufficient to gauge the relative worth of these inputs. What’s important is whether there’s enough of each to meet the plants’ needs and grow a crop. A shortage of any of these essential nutrients can seriously limit the crop. In some environments, water is clearly limiting. In many situations, nitrogen is the limiting nutrient. When nitrogen is limiting, adding a few kg of nitrogen per hectare can boost a crop yield by hundreds of kg or more. For much of human society, cheap energy is probably the “limiting nutrient” and when cheap energy is in short supply, economic activity is seriously impacted.

Charles A.S. Hall rightly says: «Nature alone makes energy; we pay only to exploit it, not for the energy itself. Hence we pay only for that exploitation, the profitability of which depends in large part on the EROI. That is why it is cheap in monetary (but not necessarily in environmental or social terms). Early economists (physiocrats) believed that wealth came from land. Classical economists such as Smith and Ricardo believed wealth came from labor; Many neoclassical economists (e.g. Solow) believed wealth came from Capital. In fact they are all about the main energy sources of their times: land intercepted sunlight, the main preindustrial energy source; labor was the application of energy to transform the raw materials of nature into more valuable things in the early factory age; capital is the means of applying energy to that process more recently.»

But I would had: humans come into the picture consumming/ diverting (directly and indirectly) flows or stocks of environmental mass and energy; including providing energy flows as labour, as well as as material means (energy and mass) as capital, embodied in or to be converted into social infrastructure and social networking maintenance means (including social exchanges).

True, there are so many different single production factors which are important for the production of one given product that it is not even possible to judge which is the most valuable one.

Is it creativity or the plan of doing something or the matter necessary to build something ... or to deliver some kind of ingenious work ... ?

No idea. And even in the valueing process called "payments" ... it's still unclear if that is the fair valueing - directly pointing to the problem of a proper definition of "fair" - which is as well unclear how to judge that.

But - and that is a big but - energy is different to any production factors since it is the only dimension that is making the molecules or some electrons moving at all.

The thing is that without energy absolutely nothing at all will move not even by a micrometer.

The thing is that energy is the only force, power and so on that is in fact involved - and will always be involved - in absolutely any of any thinkable production factor.

That means the energy conversion is and will always be involved in absolutely any production process - and it defines as well always the very well 100 percent of any single process.

Think of any single smallest sub-process in any economic system - and you see energy doing some kind of work.

That means that it really is a naturally given typical and physical characteristic of any economic system whatsoever.

And the interesting thing is, it really covers anything of any production process - including delivery of any kind of service.

Or, short said, the relativity of valueing different single goods or services ends if you comoine everything together for the measuring - it will be always valueing up to 100% of the sum of values.

I agree with Olaf (and of course Rui and Mike!). The real value of energy to e.g. agriculture today is (within many limits) its versatility: if water is limited one can use energy to pump more groundwater or build a dam and irrigation project; if N is limiting one can run the Haber process and then trucks to get more N fertilizer; if P is limited one can dig up Florida or West Sahara to get P; etc. etc. But the rub is that the logical short term solution is often a longer term recipe for disaster or a huge cost to the politically less powerful. We do not understand how to use energy to truly improve social engineering. Given that money is a lien (a promissory note) on energy (otherwise it has no value) and given the fact we live in a plutocracy where money buys elections and politicians, it is the greatest failure of what is called Democracy. I am racking my brains as to how to solve that one.

Dear all,

I share most of your arguments about the incommensurability of energy as a physical resource (complete substitution of energy is not possible in the real world), and the mainstream economic treatment of energy as a service (most of natural resources are treated in such a way, and those not are being commodified in this way by the Ecosystem Services Approach through different methods under the Total Economic Value approach), in which price is associated to human-human relationships. Then, my question is Do we really need “right” energy prices in monetary terms? Is it not based on the faith that markets will do everything to work in an efficient way? Will the markets manage non-commercial objects in a real efficient way (even commercial objects) beyond some Economic textbooks? Do we really want to find our most efficient extiction rate? Trying to transform everything in monetary terms is a headache. And, when you invent methods to do it (acrobatic accounting methods, like the Total Economic Value approach), figures are just mathematical artifacts without any relation to the real world, so useless in most of the cases. This has been also the case for the reverse side of the problem, i.e., trying to transform everything to energy terms, as early noticed (e.g. Nicholas Georgescu-Roegen). I suspect that one indicator method (mono-criterial approaches like monetary cost-benefit approach) has no future for complex problems without win-win solutions, many trade-offs and dimensions involved. Probably, decision-makers (including markets) should understand that more indicators than prices or GDPs are needed, and most dimensions must be considered when decisions are taken (if possible before reaching the efficient extinction rate). A multi-criteria framework for decision-making could be adopted with different valuation languages and indicators, not only one magical monetary or biophysical indicator annually increasing or decreasing, and we might learn to live with complexity. Thank you for this interesting debate, Mr. Schilgen.

Dear Mr. Lomas,

thanks for your compliment!

My question is only a subpart of my bigger question "what is the physical dimension of economic systems?".

And coming from this question from hovering high in the sky above the economic discussions more down to earth into this question I would like to comment some of your questions and sentences.

First one: "Trying to transform everything in monetary terms is a headache."

Answer: True! And because of the headache I want to avoid and will not do that.

Secon one: "This has been also the case for the reverse side of the problem, i.e., trying to transform everything to energy terms, as early noticed (e.g. Nicholas Georgescu-Roegen). I suspect that one indicator method [...] has no future for complex problems [...]."

Answer:

That is perhaps as well true, and because of that I did not want to do that as well.

My thesis is backed by the simple physical reality and truth that any (!) production process was, is and ever will totally (!) determinded by the energy conversion involved in this very production process.

And this question about the real price of energy (which is always zero since it must come from outside of the economic system) is to make that clear.

I state that there is one common characteristic - and defining dimension - in any part of economic systems - and this dimension is and always will be existing as a stable physical reference for the money circeling around to buy all the newly produced products in a given timeframe.

It is the energy which is used to produce and kind of product ... it is the true dimension of each economic system. 100% of each years GDP will always equal the 100% of the energy totally used. There is no need for a basket of (some) goods for finding the inflation rate.

But it is not equal to the idea that each single good has some sort of measurable value inside of the economic system because there was an amount of energy of xyz used to produce it.

The only true link is that the value of each produced product must be bigger that zero if it shall be part of the economic system. (Zero value products are not piling up the GDP).

So, the monetary value is always a percentage.

First, it is a monetary value percentage of the total monetary sum of all products produced;

Second, it has as well always a percentage of the total sum of all energy used to produce all products.

The physical dimension is the framing physical reference of all produced products.

https://www.ospe.on.ca/public/documents/presentations/real-cost-electrical-energy.pdf

It depends on your country.

In 2021, the U.S. annual average retail price of electricity was about 11.18¢ per kilowatthour (kWh).