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Energy Policy 122 (2018) 260–272

Contents lists available at ScienceDirect

Energy Policy
journal homepage: www.elsevier.com/locate/enpol

A review of EROEI-dynamics energy-transition models T



Craig D. Rye , Tim Jackson
Centre for the Understanding of Sustainable Prosperity (CUSP), University of Surrey, 388 Stag Hill, Guildford GU2 7XH, United Kingdom

A R T I C LE I N FO A B S T R A C T

Keywords: The need for an environmentally sustainable economy is indisputable but our understanding of the energy-
EROEI economy interactions (dynamics) that will occur during the transition is insufficient. This raises fascinating
Net-Energy questions on the future of economic growth, energy technology mix and energy availability. The crucial inter-
Model actions between energy and economy systems can be usefully described in terms of the Energy Returned on
Transition
Energy Invested (EROEI) metric (the energy cost of primary energy production). Multiple authors have used this
Dynamics
Biophysical
metric to explore the behaviour of the economy over the transition to lower carbon energy sources. The fol-
lowing text is a review of energy-economy models that incorporate the EROEI metric. In particular, the EROEI-
dynamics literature is found to describe a common set of dynamics associated with the transition to lower EROEI
primary energy resources. These include: the rising resource-cost of primary energy production, the short-term
misallocation of resources, the short-term overproduction of energy and the potential decline in economic
stability. The literature can be divided into groups of related models. Following the review, a number of key
areas for additional work are identified and discussed.

1. Introduction for society.


Energy Returned
The Energy Returned on Energy Invested (EROEI; aka efficiency) of EROEI =
Energy Invested (1)
primary energy production has declined markedly over recent decades
(Murphy, 2014). Furthermore, the EROEI of primary production is NE = Energy Returned − Energy Invested (2)
projected to decline further in the early half of the current century,
Many of the core insights of the EROEI (or NE) metric are intuitive
associated with the continuing depletion of fossil fuel reserves and the
but poorly accounted for. For example, an energy carrier (such as ga-
transition away from conventional fossil fuels (IPCC, 2014; Sterman,
soline) must provide more energy when it is used than it requires in
1982; Gagnon et al., 2009; Grandell et al., 2011; Murphy and Hall,
production. Otherwise, it would not make ‘economic sense’ to produce
2010). For example, Guilford et al., (2011) find that the EROEI for
it. The greater the energy return, or net energy, the greater the positive
United States Oil and Gas has declined by around a half, between 1930
effect on the economy. Unfortunately, this kind of argument is often
and present. The continuing decline of EROEI is a significant academic
neglected. For example, green energy subsidies typically support bio-
and political concern posing impacts on energy futures and the dy-
fuels and wind energy equally, however, wind power usually provides
namics of the transition to a low carbon economy.
significantly greater energy and economic return. Therefore subsidies
EROEI is estimated as the energy produced by an energy-gathering
are often biased towards low EROEI renewables. EROEI provides a
activity divided by the energy required for that production (Eq. (1)).
powerful approach for examining the efficiency of primary energy
The energy produced by energy gathering activity is refered to here as
generation technologies.
primary energy. Typical EROEI values are provided in Table 1. A si-
Charles Hall and collaborators provide many early works on EROEI
milar useful metric of primary energy efficiency is Net Energy (NE). NE
in economics (e.g. Hall and Cleveland, 1981; Cleveland et al., 1984;
is estimated as the energy produced by primary energy minus the en-
Hall et al., 2008; Hall et al., 2009). Notably, Murphy and Hall (2010)
ergy required for that production (Eq. (2)). Both the EROEI and NE
highlight that the relationship between Net Energy and the EROEI is
metrics indicate the efficiency of energy production. EROEI is a parti-
exponential where NE declines rapidly as EROEI falls below approxi-
cularly interesting term because its name explicitly refers to the energy
mately ~10:1. The relationship between EROEI and NE is commonly
that is ‘used up’ or ‘invested’ in the process of producing useful energy
referred to as the ‘Net Energy cliff’ (see Fig. 1). This relationship


Corresponding author.
E-mail address: craig.d.rye@gmail.com (C.D. Rye).

https://doi.org/10.1016/j.enpol.2018.06.041
Received 8 November 2017; Received in revised form 26 June 2018; Accepted 27 June 2018
0301-4215/ © 2018 Elsevier Ltd. All rights reserved.
C.D. Rye, T. Jackson Energy Policy 122 (2018) 260–272

Table 1 curve models. Each model is described (typically in 3 paragraphs) in


Typical EROEI values (derived from Hall and Klitgaard, 2011). terms of its novelty, technical detail and main findings. Section 4 pro-
Primary energy production technologies Approximate EROEI vides a discussion and Section 5 gives concluding remarks.

Hydropower > 100:1 2. Numerical models of EROEI-dynamics


Historic oil and gas 100:1
Coal 80:1
Current global oil and gas 20:1 In this section, we review the history of energy-economy models
Wind (no storage) 20:1 that specifically explore EROEI dynamics. Emphasis is given to seminal
Nuclear 15:1 works. There are unavoidably a number of limitations to this review.
Current US oil and gas 10:1
During the development of the literature, models are often documented
Solar (no storage) 10:1
Unconventional oil and gas 5:1 inconsistently therefore it is challenging to provide a consistent outline
Biofuels 2:1 of technical detail. Further, choosing the boundaries of the review is
challenging. For example, this review does not explore the broader
Integrated Assessment Modelling (IAM) literature. The accuracy of the
IAM literature in simulating EROEI-dynamics is debated (e.g. Dale
et al., 2013) and this discussion is beyond the scope of this review.
However, some of the EROEI-dynamics models may be considered as
belonging to the IAM literature and vice-versa. This review particularly
emphasises research that directly refers to EROEI.

2.1. Early Models (~1970 to 1980)

World3 is perhaps the earliest model to (implicitly) simulate EROEI


dynamics (Meadows et al., 1972). It is associated with the Limits to
Growth study (Meadows et al., 1972) and was designed to explore the
integrated environmental challenges facing the global economy in the
21st century. The model was derived from the earlier work of Forester
(1970) on Industrial Dynamics and has had a defining impact on the
following energy-economy-environment debate.
The World3 model can be technically described as a globally ag-
gregated, system dynamics framework, where well-chosen simplified
equations are used to represent large complex systems. The model
Fig. 1. The relationship between Net Energy (expressed as a percentage) Energy
implicitly simulates EROEI-dynamics by assuming that the cost of ex-
Return on Energy Invested: ‘the net-energy cliff’ (Murphy 2013).
tracting non-renewable resources increases as resources are depleted.
Therefore as the model consumes non-renewable resources, their cost
suggests that advanced economies require EROEI values of at least 5 to increases and this drives a downward pressure on economic growth.
maintain key infrastructure and avoid economic decline. From a similar However, the model does not explicitly simulate energy systems.
argument, it is suggested that the Net Energy cliff could play a key role The main results (or dynamics) of World3 are relatively consistent
in the growth rate of an economy. for a range of reasonable model parameters. The ‘standard run’ of
Following the work of Hall and Murphy, numerous authors have World3 suggests that the current growth trend of the global economy is
conducted empirical analyses of the relationship between EROEI and unsustainable; leading to the encroachment of environmental limits and
other economic indicators. For example, Heun and de Wit (2012) King ultimately ‘overshoot and collapse’ (Fig. 2). In this case, industrial
and Hall (2011) and Brandt (2017) find interesting relationships be- output and food production peak around 2015 and decline thereafter.
tween EROEI and energy prices. Heun and de Wit (2012) suggest that Population and pollution peak around 2030 and decline thereafter. The
these relationships may break down as EROEI becomes small. Hall et al. simulation stabilises around the beginning of the 22nd century with a
(2008) suggest that during periods of energy shortage (i.e. low EROEI, global population of around a half of the peak value. However, ac-
such as the 1970s ‘energy crisis’ or the rising prices of 2000–2007) counting for the models’ uncertainty, its precise predictions are less
discretionary spending typically declines. Finally, Rubin (2012) and important than the underlying dynamics (Jackson and Webster, 2016).
Hamilton (2009) use empirical analysis to argue that the rising energy
prices (declining EROEI) of 2000–2007 contributed to the recent 2008
financial crisis. Empirical works therefore typically suggest an inverse
relationship between EROEI and energy prices, and a link between
EROEI and economic health.
Numerical models have been developed to explore the related set of
system behaviours accompanying the transition towards lower EROEI
(e.g. Sterman, 1982; Hounam, 1979; Baines and Peet, 1983; Bodger and
Baines, 1988). These models typically simulate the behaviour of the
energy-economy during a period of declining resource quality, or en-
ergy technology transition. The emergence, nuance, evolution and as-
sociation of these EROEI-dynamics models are the subject of this re-
view.
The structure of this review is as follows: Section 2 outlines the
history of EROEI-Dynamics models. Section 2.1: discusses formative
work (1970–1980). Section 2.2: covers a period of rapid development Fig. 2. The distribution of core variables for the World3 ‘Standard Run’, taken
from (Meadows et al., 1972).
(1980–2000). Section 2.3: highlights the most recent literature
(2000–2017). Section 3 outlines the closely related field of resource-

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Shortly after publication World3 was heavily criticised (see Hall and
Day, 2009; Bardi, 2011; Jackson and Webster, 2016 for more details).
But the results of World3 were revisited by Turner (2008), who con-
cluded that the behaviour of the global economy 1972–2008 agrees
well with the ‘standard run’ scenario. Furthermore, World3 was re-
cently re-calibrated by Pasqualino et al. (2015), who argue that recent
improvements in pollution and food productivition may have delayed
but not negated Meadows et al. (1972) prediction of ‘overshoot and
collapse’.
Following World3, Roger Naill and collaborators (in association with
the U.S. Department of Energy; Naill, 1973) developed a progression of
Fig. 3. Schematic illustration of the structure of Gilliland (1978) theory, and
five models, COAL 1 and 2, FOSSIL 1 and 2, and IDEAS. Unfortunately,
the STER model (Hounam, 1979).
these models are sparsely documented. However, these models are well
cited and considered influential on following work (Sterman, 1982).
COAL and FOSSIL are perhaps the earliest System Dynamics models to dynamics framework that uses a nested, constant elasticity of sub-
incorporate energy market dynamics, investment time lags and price stitution production function in technology, capital, labour and en-
elasticities. Later iterations of the group, such as FOSSIL2 and IDEAS were ergy.1 The model characterises the energy sector in terms of two ag-
used by the U.S. Department of Energy between 1973 and 1995, as policy gregated technology groups, conventional and unconventional energy.
design and testing tools (Qudrat-Ullah, 2013). This simplification supports the inclusion of complex economic detail
From a technical perspective, early iterations of COAL follow an and allows the examination of many interesting energy-economy dy-
aggregated (‘top-down’) approach similar to World3. However, later namics. For example, the model includes inflation, monetary policy and
iterations of FOSSIL emphasise greater detail in primary energy pro- international trade. It also provides a complex representation of in-
duction (‘bottom-up’ approach). FOSSIL 2 and IDEAS may be classed vestment and capital depreciation. Conversely, for simplicity, the model
principally as bottom-up models (Qudrat-Ullah, 2013), where each excludes many interesting factors that may play important roles in
sector, and often subsectors are described explicitly with individual energy-transition dynamics, such as business inventories and environ-
behavioural equations. mental interactions.
Following World3, the COAL-FOSSIL studies, the STER (System, The Sterman model simulates EROEI-dynamics using two key as-
Time, Energy and Resources) model, documented by Hounam (1979), sumptions. In principle, it assumes that the cost of producing conven-
presents an innovative EROEI-dynamics approach. STER is one of the tional energy increases as reserves are depleted (whereas the reserves of
earliest models to explore the behaviour of the energy sector during a unconventional energy are infinite). Further, it assumes that the initial
period of resource depletion, and therefore also one of the first to di- EROEI of conventional fossil fuels is greater than the EROEI of un-
rectly focus on EROEI-dynamics. It may also be one of the earliest ex- conventional fossil fuels. Therefore, as the economy consumes con-
amples of a ‘biophysical’ EROEI model, where all capital flows and ventional energy or transitions from conventional to unconventional
production are defined in terms of energy. In addition, the research energy, the resource cost of energy production increases. This in-
question posed by STER is novel; STER is designed to determine the creasing demand for resources by the energy sector ‘crowds out’ in-
maximum possible (resource constrained) growth rate that an economy vestment in the non-energy economy and provides a downward pres-
can achieve in a given time period. In this regard, the model design sure on economic growth. It is noted that the EROEI-dynamics of the
avoids the uncertainty of many parameters by framing results in terms model follow from similar core assumptions made by the World3.
of the maximum economic potential. Unfortunately, STER is only The conclusions of Sterman (1982) emphasises three key energy-
documented by a single conference paper where it is described as a pilot economy dynamics:
study (Hounam, 1979).
It is difficult to discuss the technical detail of STER because of sparse 1. As previously stated, the depletion of conventional energy leads to
documentation. The structure is shown in Fig. 3. STER is a simplified, increasing resource requirements for the energy sector, leading to a
aggregated, top-down model with a production function articulated in downward pressure on economic growth by ‘crowding out’ invest-
terms of energy, capital, labour, and technology. The model simulates ment in the non-energy economy.
EROEI dynamics by assuming that the demand for resources by the 2. Energy price increases are expected to drive an increase in economy-
primary energy sector increases (i.e. the resource cost of primary en- wide energy efficiency, however, it is argued that this will occur
ergy production increases) as energy resources are depleted. more slowly than investment in energy production. Therefore, in the
The results of STER suggest that, if energy use is held constant, the short-term energy may be over-produced and capital misallocated.
relative resource consumption of the energy sector must increase as In the long run, the misallocation of capital will constitute in-
resources are depleted, so as to keep up with demand. The rising cost of efficiency.
energy production then leads to the crowding out of (non-energy) in- 3. Due to the capital-intensity of energy production, significant in-
dustrial production and the growth of the energy sector relative to the vestment will be required in the short-run at the start of the tran-
non-energy industry (Fig. 4). This (relative) expansion of the energy sition; the initial cost of transition will facilitate a short-term
sector during the transition to low EROEI is an important process dis- downward pressure on economic growth and may slow the transi-
cussed by the EROEI-dynamics literature. tion.
Directly following World3 and the COAL-FOSSIL studies, John
Sterman of the MIT System Dynamics group developed a seminal en-
ergy-economy model, referred to here as the Sterman model (e.g. 1
The constant elasticity of substitution (CES) production function is a simple
Sterman, 1982). In line with STER, the Sterman model is one of the
aggregate model of production (Solow, 1956). The function is characterised by
earliest models designed to specifically simulate the energy-economy
constant elasticity’s for its factors (e.g. capital and labour) regardless of pro-
dynamics associated with a transition from high to low EROEI primary duction scale. The role of energy in production is well discussed; authors such
energy. Furthermore, the model provides one of the earliest direct re- as Cantillon (1730) and Georgescu-Roegen (1971) make notable contributions.
ferences to EROEI-dynamics (Sterman, 1982; Section 2.1 para. 8). A Early modelling studies that incorporate energy as a factor of production in-
diagram of the structure of the Sterman model is shown in Fig. 5. clude: Tintner et al., 1974; Hudson and Jorgenson, 1974; Berndt and Wood,
The Sterman model is a globally aggregated, top-down, system 1979).

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C.D. Rye, T. Jackson Energy Policy 122 (2018) 260–272

Fig. 4. STER model output. Left: Sectorial percentage of capital. Right: capacities of energy sectors. Hounam (1979).

Fig. 6. An example of output from the Sterman model, highlighting the energy
transition envisioned by Sterman (1981).

2.2. Intermediate models (~1980 to 2000)

Following the Sterman model and the STER model, Baines and Peet
(1983), and Bodger and Baines (1988) developed a system dynamics
model to explore the role of historical energy transitions (e.g. from
biomass, to coal, to oil and gas) in long-run (inter-decadal) economic
variability (e.g. Kondratieff, 1979). This is referred to here as the BPB
model. A schematic of the BPB model and an illustration of the energy
availability over recent energy transitions are shown in Figs. 7 and 8
respectively (Baines and Peet, 1983).
In a technical regard, the BPB model is a globally aggregated, top-
down, biophysical approach that uses constant values for the EROEI of
energy technologies. The model simulates historical energy transitions
by assuming that the economy has a preference to consume the highest
Fig. 5. Schematic illustration of the Sterman model structure (Sterman, 1982). EROEI resources available. Therefore economies typically transition to
higher EROEI resources as they become available. The model contains a
similar level of energy production detail to the STER model. The BPB
The distribution of energy production over the transition as pro- model was not thoroughly calibrated to historical data (Dale, et al.,
jected by Sterman is illustrated by Fig. 6. Sterman concludes: ‘the road 2012). Furthermore, it does not appear to include a complex re-
to the economy freed from dependence on non-renewable energy presentation of the economy such as the Sterman model.
sources is likely to be quite long and rocky’ (Sterman, 1982, page 352). The results of the BPB model suggest that EROEI-dynamics have

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C.D. Rye, T. Jackson Energy Policy 122 (2018) 260–272

CORECCO explicitly simulates EROEI dynamics at an aggregate level.


The standard implementation of CORECCO suggests that industrial
output of the global economy will peak in the early half of the current
century and decline thereafter.
In the late 90s, Fiddaman (1997) developed the Feedback Rich
Energy Economy model (FREE) in association with the MIT System
Dynamics group that draws directly from World3 and the Sterman
model (Fig. 10). FREE is designed to highlight the role of complex non-
linear feedbacks in energy-economy systems, particularly over a period
of energy transition. Furthermore, it is designed to explore the response
of the energy-economy to policy proposals.
The FREE model simulates a large range of economy-energy-en-
vironment interactions, it therefore can be considered an Integrated
Assessment Model, as well as an EROEI-dynamics model. The economy
structure of FREE is derived from the highly cited DICE Integrated
Assessment Model (Nordhaus, 1992). The energy systems and energy-
economy coupling of FREE is derived from the Sterman model (e.g.
Sterman, 1982). FREE uses a Cobb-Douglas production function with
factors in Labour, Capital, Energy and Technology. Unlike the Sterman
and World3 models, the population and total factor productivity are
Fig. 7. A schematic showing the BPB model view of EROEI dynamics (Bodger
and Baines, 1988).
estimated exogenously. FREE explicitly accounts for EROEI dynamics
and resource constraints, as well as climate interactions (Fiddaman,
1997, 1998).
The ‘business as usual’ results of the FREE model suggest that the
net energy output of the global economy will decline between 2020 and
2045. However, unlike the Sterman or World3 models, the GDP of the
economy does not appear to decline. This distinction for GDP highlights
a potential rigidity in the model that may be associated with exogenous
parameters, such as population or total factor productivity growth.
Similar to Sterman (1982), Fiddaman argues: ‘Much of the harm from
Fig. 8. A schematic showing the distribution of capital between competing
depletion actually arises from the difficult period of transition away
energy technologies over a series of transitions, as Envisioned by Bodger and
from oil and gas, rather than from the long-run effects of losing the
Baines (1988), associated with the BPB Model.
services of those fuels’. This is due to the cost of building new and
retiring old energy systems (pg. 15, Fiddaman, 1997). Fiddaman
played a plausible role in long-run (inter-decadal) economic variability, therefore additionally supports Sterman (1982)’s emphasis on the role
particularly in association with energy technology transitions. This ar- of the misallocation of capital during the transition, both in the energy
gument is supported by the work of other notable authors, such as industry and in the none-energy industry. Fiddaman argues ‘Depletion
Schumpeter (e.g. Schumpeter, 1939), Sterman (1985) and King et al. leads to suboptimal capacity utilization in the goods producing sector,
(2015). because energy prices are far from the levels for which the capital stock
In the early 90s Malcolm Slesser and colleagues developed the was designed. In extreme scenarios, when depletion suddenly becomes
Enhancement of Carrying Capacity Options (ECCO) modelling frame- severe, a near-shutdown of the economy is possible.’ (pg. 15, Fiddaman,
work in association with UNESCO (e.g. Slesser, 1992). ECCO was ori- 1997). Fiddamen argues that a depletion tax on oil and gas improves
ginally developed to assist supply-side growth in low-GDP nations and the economic stability of the transition by increasing the price of oil and
has been applied to a range of economies including Kenya (Owino, gas earlier; therefore, by spreading the economic cost and risk of sys-
1991), China (Wenhua, 1991; Xiaohui, 1995) and the Netherlands temic failure.
(Noorman, 1990, 1995). ECCO is a biophysical system dynamics ap-
proach that draws directly from the approaches of World3, FOSSIL2, 2.3. Recent models (2000–2017)
and STER (Gilliland, 1978). In particular, following STER, it is designed
to determine the maximum growth potential of an economy as a Following from STER and ECCO, the Global Energy Modelling – a
function of its resource constraints. Biophysical Approach model (GEMBA; Dale et al., 2012) is a recent
The core ECCO model is a top-down aggregated simulation of a direct effort to explore EROEI dynamics over the renewable energy
national economy. The structure of ECCO follows the Natural Capital transition. GEMBA’s description of EROEI-dynamics is highly intuitive
Accounting methods of Slesser (1989). This basis leads to a strong and engaging. Furthermore, GEMBA is notably well constructed for
emphasis on the efficiency of primary resource production, and there- calibration with empirical data.
fore emphasis on EROEI. The model defines three types of natural ca- GEMBA can be technically described as a globally aggregated top-
pital, depletable (e.g. fossil fuels), recyclable (e.g. aluminum) and re- down, biophysical model that utilises a highly simplified economy
newable (e.g. solar power). Similar to STER, ECCO is classed as a model with a production function in terms of capital and a capital to
biophysical model and describes all the interactions in the economy in output ratio (Fig. 11). In particular, GEMBA simulates a detailed range
terms of energy. Following Dürr (1994), ECCO has a novel production of production technologies, including coal, oil, gas, wind, hydro and
function with factors in terms of operational energy and capital-em- solar. GEMBA estimates
bedded energy. The ECCO production function interestingly neglects EROEI in terms of resource depletion and technological develop-
the role of labour. Further, ECCO explicitly calculates the EROEI of ment (Dale et al., 2010).
multiple primary resources, including energy resources. The main results of the GEMBA model suggest that the relative
ECCO models typically incorporate an aggregated world model, capital requirement of the energy sector may increase over the energy
referred to as CORECCO or GlobECCO. A diagram of the CORECCO transition to around half the capital in the economy (Fig. 12a; similar to
structure is shown in Fig. 9. Similar to the ECCO national models, STER and the Sterman model). Over the same period, the total available

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C.D. Rye, T. Jackson Energy Policy 122 (2018) 260–272

Fig. 9. Outline of CORECCO (Slesser, 1992) taken from Dale (2010).

Fig. 10. A schematic of the FREE model, taken from Fidderman (1997).

energy is suggested to peak mid-21st century, eventually stabilising at Energy Scenarios (SRES; IPCC) with the GEMBA projections. GEMBA’s
around half current values in 2200 (Fig. 12b). projections provide lower future estimates of energy availability then
Dale et al. (2013) compare the MESSAGE (common Integrated As- MESSAGE. It is argued that this is because GEMBA utilises more rea-
sessment Model) projections, associated with the Special Report on listic primary resource estimates.

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C.D. Rye, T. Jackson Energy Policy 122 (2018) 260–272

Fig. 11. A schematic of the GEMBA model (Dale et al., 2013).

Finally, a recent work by Brandt (2017) focuses on the dynamics of EROEI, typically ~7, the material wealth of the economy declines ra-
the ‘Net Energy Cliff’. The Brandt approach is novel for the distinction pidly.
that it makes between GDP and ‘material prosperity’. This emphasis on
‘material prosperity’ provides a strong link with the Biophysical ap- 3. Resource curve methods
proach, however, the Brandt model is not biophysical.
The Brandt model is a bottom-up globally aggregated model that In addition to the EROEI-dynamics models, a related body of lit-
uses a neoclassical production function, with factors in, capital, labour, erature utilises resource curve methods (e.g. Hubbert, 1956) to explore
energy and resources. The economy component of the Brandt model is 21st century energy futures. Studies within this group include: Brecha
derived from the KLEMS economy model (Van Ark et al., 2007) and its (2008), Doose (2004), Nel and Cooper (2009), Macías and Matilla-
representation of energy production uses an input-output model of the García (2015). Resource curve methods simulate resource depletion but
energy industry. The Brandt model explicitly simulates EROEI-dy- do not explicitly include EROEI-dynamics. The approach uses empirical
namics, where a decline in the EROEI of production is shown to drive a observations of resource depletion and global geological data to esti-
decline in the material prosperity of the economy. mate the future global depletion of resources. Resource curve methods
The results of Brandt (2017) are used to explore the concept of a typically apply these distributions as exogenous constraints. The re-
minimum EROEI. As suggested by Hall and Murphy (2011) Brandt finds source curve literature is extensive and often overlaps with EROEI-dy-
a consistent behaviour in all runs, where below a specific level of namics models, it includes some influential studies that are well cited

Fig. 12. GEMBA model output: Left (a): the distribution of capital between the energy sector and the industrial sector. Right (b): the projected energy production of
the global economy (Dale et al., 2013).

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three core pre-conditions. First, carbon emissions must not surpass le-
vels chosen to limit global warming to 2 °C (between 510-1505 Gt CO2;
IPCC, 2014). Second, energy availability must not decline below levels
deemed as unrealistic (between 600 and 6000 Watts per person). Third,
the rate of transition to low-carbon technologies should not exceed that
which fully depletes none-renewable resources.
The results of the NETSET model suggest that there are a number of
biophysically feasible pathways to transition to a low carbon economy
(Fig. 15). Sgouris et al. (2016) uses a ‘feasibility indicator’ to determine
which pathways are most likely. It intuitively suggests that the transi-
tion becomes more difficult if it is delayed, or if the carbon emission
targets are relatively stringent. However, the model does not simulate
macro-economic variables. The model, therefore, does not discuss the
Fig. 13. A comparison of a global carbon emissions scenario estimated by economic or social implications of the projected energy pathways.
Brecha (2008) and the IPCC Integrated Assesment Model scenarios. Brecha
(2008) scenarios are shown by full lines, IPCC scenarios are shown by dashed 4. Discussion
lines.
In the spirit of organising our discussion, it is useful to present a
by the EROEI-dynamics modelling literature. The following section historical synthesis of the models discussed in this paper. An overview
outlines a number of notable studies that use these methods. of the key literature is shown in Fig. 16 and a summary table is shown
Following World3, Capellán-Pérez and collaborators (e.g. Capellán- in Appendix I. Four model groups are evident: the MIT System Dy-
Pérez et al., 2014; Mediavilla et al., 2013) developed the World Limits namics group (red), the US department of energy group (blue), the BPB
Model (WoLiM). WoLiM is a biophysical system dynamics model that group (green), and the STER-ECCO group (orange). These four groups
uses resource curve methods. WoLiM is designed to explore the feasi- can be additionally linked. The red and blue groups are interconnected
bility of 20th century growth trends (Fig. 13). through the work of authors such as Sterman and Fidderman. The green
WoLiM is a bottom-up model with notable detail in primary energy and orange groups show strong association both through common au-
production (Fig. 14). The model is driven primarily by a group of GDP thors and model design.
and population scenarios that are set externally (exogenous). Therefore As previously stated, the World3 model is one of the earliest models
EROEI decline is not able to influence GDP and the model is not able to to directly explore the inter-related global challenges associated with
properly simulate EROEI dynamics. The model simulates the depletion unsustainable 20th century growth trends, having a defining impact on
of resources with resource depletion curves (e.g. Mohr, 2012, Patzek following work. It is also perhaps one of the earliest models that im-
and Croft, 2010). WoLiM’s results typically predict resource constraints plicitly simulates EROEI dynamics. It is important to note that World3
in the early half of the 21st century. The majority of WoLiM runs exceed follows World2 and the formative work of Forester in Industrial
environmental limits leading to dangerous climate change. WoLiM Dynamics (Forrester, 1970).
maybe be thought of as a model that is designed to test for resource Following World3, the development of EROEI models can be de-
limitations as a result of optimistic 21st century growth projections. scribed in terms of the MIT (red-blue) group and the Biophysical (or-
Kumhof and Muir (2014) and Benes et al. (2015) provide related ange-green) group. A divergence between the MIT and Biophysical
modelling studies that are more closely aligned with resource curve groups occurs around 1980 associated with the STER model and the
models then with the EROEI dynamics models. Kumhof and Muir Sterman model. These models are perhaps the earliest to directly si-
(2014) use a top-down, Dynamic Stochastic General Equilibrium Model mulate EROEI dynamics; both make significant contributions to the
to explore the behaviour of the global economy responding to a decline literature.
in oil production. The model simulates energy scarcity using a resource The Sterman model signifies a more direct development of World3
depletion curve, which is expressed in terms of the oil price. Benes et al. but also draws influence from the COAL and FOSSIL models. The model
(2015) use an econometric model of the global oil market to explore the has a stylised description of the energy sector and a more complex re-
response of the economy to a decline in oil production. The Benes presentation of the economy that provides a good platform for ex-
model simulates EROEI dynamics through a rising oil price, associated ploring energy-economy interactions. One may argue that many fea-
with a depletion curve. The Kumhof model suggests that a realistic tures of the Sterman model, such as the misallocation of capital, or the
decline in the global oil production may drive a significant decline in role of inflation and unemployment have been insufficiently explored
the GDP growth rate of both importer and exporter countries. This following its publication. The Sterman model is followed by the FREE
decline is notable since the growth rates of the high GDP countries are model, which integrates the Sterman approach with recent economic
currently declining and additional decline may constitute stagnation or theory and explores a range of policy options.
decline (Summers 2011). The Benes model similarly predicts that re- At a similar time to the Sterman model, the STER model introduces
source depletion with drive oil prices to almost double over the coming multiple novel features to EROEI modelling, including the biophysical
decade. Benes notes that this scale of increase would have a dramatic approach. It is unfortunate that the STER model is only documented by
impact on the global GDP, further supporting the arguments of Kumhof a brief preliminary paper. STER is followed by a series of biophysical
and Muir (2014) and the EROEI dynamics models. models: BPB, ECCO and GEMBA (green and yellow). The BPB model
Finally, Sgouris et al. (2016) developed the NETSET resource curve uses a similar approach to STER but explores a distinctive question on
model. The NETSET model uses a novel inverse approach to simulate a the role of EROEI in historical inter-decadal energy transitions. The
range of feasible transition pathways. The framing of the approach is ECCO framework develops the STER approach and applies it to a range
well illustrated by the title: ‘… quantifying the narrowing net-energy of national economies, with a particular interest in understanding the
pathways to a global energy transition’ (Sgouris et al., 2016). resource constraints of economic growth. Finally, GEMBA continues the
The NETSET model is a globally aggregated, top-down, biophysical approach of this group but returns to focus directly on the renewable
simulation model. The model uses an exogenous projection of future energy transition and provides an intuitive structure that is well de-
population to estimate future energy demand. It then integrates back- signed for calibration with empirical data. Of this group, the GEMBA
wards to estimate a range of transition pathways that satisfy emissions model is perhaps the most directly interested in EROEI dynamics and
targets and minimum energy per capita requirements. NETSET uses provides a critique of the highly cited integrated assessment models

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C.D. Rye, T. Jackson Energy Policy 122 (2018) 260–272

Fig. 14. Schematic illustration of the structure of the WoLiM model (Capellan-Perez et al., 2014) IB stands for Industrial Buildings sector. The WoLiM structure can be
described as follows: GDP growth drives energy demand. Energy demand is divided into three categories. Demand drives production through a number of technology
options. The optimal pathway for generation is a function of resource limits and environmental pollution.

that appear to neglect EROEI dynamics. requires increasing resources (including energy) to maintain supply
Following the progression of the MIT, and the biophysical modelling with demand (Hounam, 1979; Sterman, 1982; Slesser, 1992;
groups, a number of relatively independent models have made sig- Fiddaman, 1997; Dale, 2010; Capellán-Pérez et al., 2014; Kumhof
nificant contributions. For example, WoLiM provides an alternative and Muir, 2014; Benes, 2015).
approach to the problem outlined by World3. It utilises more recent 3. Short-term confusion - during the transition to low-carbon tech-
approaches to economic theory and highlights that current resource nology, a short-term misallocation of capital and labour occurs due
consumption growth trends are unsustainable, both in terms of resource to imperfect information (Sterman, 1982; Fiddaman, 1997).
and pollution limits. 4. Short-term over production - energy scarcity drives both an increase in
Despite the diversity in the EROEI-dynamics literature, there are energy efficiency and investment in energy production. Sterman
seven key arguments or dynamics that run through all material. These (1982) argues that this leads to a short-term overproduction of
dynamics are listed below, along with the dates of their first doc- primary energy.
umentation. 5. Short-term scarcity - a decline in EROEI is expected to drive scarcity
and inflation (Sterman, 1982).
1. EROEI declines during the low carbon transition – during the transition 6. Energy transition ‘long wave’ - ‘long wave’ (inter-decadal) economic
to low carbon technology, primary energy production becomes less variability may be associated with energy transitions and EROEI
efficient (this is first implied by Meadows et al., 1972; this is fun- (Baines and Peet, 1983).
damental to all models in this review except the BPB model). 7. ‘Net Energy Cliff’ - economic systems become unstable as EROEI
2. The energy sector outgrows the economy (aka. energy cannibalism) - as declines below 10:1 associated with the ‘Net Energy Cliff’ (Brandt,
the EROEI of primary energy production declines, the energy sector 2017; Murphy and Hall, 2010).

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Capellán-Pérez et al., 2014). This behaviour is similar to the ‘system


collapse’ described by World3 and CORECCO (Meadows et al., 1972;
Slesser, 1992). However, models such as the Sterman (1982) and Fid-
derman (1997) predict short-term instability instead of long-run de-
cline. Here, it is important to account for model design factors and
consider the research questions being explored by given papers. For
example, the Sterman model is highly idealised. It is not designed to
predict future energy availability from empirical data. The models that
are more directly designed to explore empirical estimates of resource
constraints such as CORECCO, GEMBA and WoLiM typically predict a
long-run decline in energy availability in the mid 21st century
(Meadows et al., 1972; Slesser, 1992; Dale, 2013; Capellán-Pérez et al.,
2014). Here it is argued that this issue requires further direct analyses
of model code and empirical data.
Following models such as GEMBA and WoLiM, multiple authors
have expressed concern that the highly cited Integrated Assessment
Modelling or Energy-Economy modelling literature does not effectively
Fig. 15. An example of a NETSET simulated energy future, providing 2000 W simulate or discuss EROEI-dynamics (e.g. Dale et al., 2013) and
average net power per capita by 2100 to a population of 10.8 billion. Fossil fuel therefore presents optimistic scenarios for future energy availability.
emissions do not exceed 990 GtCO2. The dashed line represents the net avail- Moreover, Keepin and Wynne (1984), Schneider (1997) and Schneider
able energy. Values above this line represent energy invested. and Lane (2005) argue that the subcomponents of Integrated Assess-
ment Models are often poorly coupled suggesting EROEI dynamics are
poorly simulated. This concern is also crucial, requiring directed re-
search and review. It is argued that it is beyond the scope of this review.
The Energy-Economy modelling literature is critiqued in general for
documentation issues (Pindyck, 2015; Beck and Krueger, 2016;
Pfenninger, 2017; Schneider, 1997). It is argued that the EROEI-dy-
namics literature could also benefit from improved documentation and
archiving. For example, research papers (and/or manuals) for COAL,
FOSSIL and STER are not readily accessible. However, these models are
highly cited by later work. Model descriptions, terminology and sche-
matics are often used inconsistently. For example, common challenging
terms include, ‘Top-Down’, ‘Bottom-Up’, ‘Hybrid’, ‘Simulation’, ‘Opti-
misation’ and ‘General Equilibrium’. This issue is compounded by the
concern that model code is rarely available for scrutiny, even decades
after original research publications. It is further suggested that the lit-
erature may benefit greatly from an improved effort in review and
Fig. 16. The recent history of EROEI models. Colours denote studies with the synthesis.
same or related authors. Relatively independent models are black. Full line: Further research in energy-economy dynamics is vital, considering
strong link between authors. Dotted line: significant influence from a paper.
the urgency of the transition to a sustainable economy (IPCC, 2014;
Sverdrup et al., 2015). Particularly considering that the current eco-
These dynamics may be usefully re-framed into three groups: nomic climate is characterised by declining economic growth rates
Scarcity (1, 2, 6), Instability (5, 6, 7) and Uncertainty (3, 4). From this (Summers, 2013), increasing instability (Rye and Jackson, 2016) and
view, ‘Scarcity’ encompasses the driving dynamics that lead to a decline increasing uncertainty (Baker et al., 2016), all of which are plausibly
in resource availability. Dynamics 1 and 2 of this group are the most related to EROEI dynamics. There is therefore a notable requirement for
consistent across the literature. ‘Instability’ encompasses potential sys- further empirical studies in EROEI-dynamics. For example, it may be
temic failures where systems are forced to sustain unanticipated re- possible to find signatures of EROEI dynamics in Secular Stagnation, or
source constraints. Finally, ‘Uncertainty’ encompasses the period of in international trade. Further work is required to provide an improved
change or adjustment, where unavoidable unknowns (imperfect in- link between empirical work, such as Heun and de Wit (2012) and the
formation) lead to the misallocation of capital. Scarcity is the primary modelling literature.
driver of Instability and Uncertainty, however, these dynamics are There are multiple a-priori EROEI dynamics identified by our dis-
inter-related and constitute feedbacks that are difficult to simulate. cussion that are not discussed by the current literature. These provide
From this framework, the issues of Instability and Uncertainty in en- interesting subjects for further research. Examples of these dynamics
ergy-economy dynamics are notably poorly understood. include:
The issue of instability is an interesting topic of divergence in the
literature. Multiple authors, particularly in the MIT group, suggest that
the low carbon transition is likely to drive a period of instability
• The role of EROEI in financial instability – e.g. As EROEI declines
currently highly valued resources may become unprofitable to ex-
(Sterman, 1982, Fiddaman, 1997). However, dedicated modelling stu- tract. A sudden loss in value would provide a significant destabi-
dies such as Jackson and Victor (2015), Jackson (2017), suggest that lising perturbation/s to financial systems (e.g. stranded assets:
the transition to a steady state or low carbon economy does not ne- Carbon Tracker, 2013).
cessitate instability. Further work is required to explore the role of
EROEI in systemic instability and the macro policy levers available to
• The role of EROEI in Secular Stagnation – Following e.g. Slesser
(1992), EROEI plays a significant role in determining the growth
facilitate a stable energy transition. rate of an economy. Therefore, the decline in EROEI over recent
In addition, the issue of late 21st century energy availability is an decades may have played a primary role in Secular Stagnation.
important topic in the literature. Models such as GEMBA and WoLiM
predict a mid 21st century decline in energy availability (Dale, 2013;
• The role of international trade in global EROEI and global energy prices –
Resource exploitation and international trade strategies are likely to

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change as EROEI declines and the nation state’s concerns of resource Greater research is required to explore this concern.
scarcity increase. It is possible that changes in trade may lead to a Regardless of this concern many of the immediate-term policy im-
decline in oil price during a period of declining EROEI. plications are consistent throughout the literature. These suggest that
rapid investment in renewable energy and energy efficiency are re-
5. Concluding remarks quired, some form of carbon or resource tax would be beneficial and
delayed actions are likely to increase the chance of dangerous climate
The literature discussed by this review is diverse and spans almost change. Further, there is a significant risk of systemic collapse.
50 years from the initial publications of the Limits to Growth study. It is However, policy implications differ in the medium to long-term, where
possible to map the development of the EROEI-dynamics models over the EROEI-dynamics literature often advocates a low-growth or steady
this period, to identify seminal works and provide a historical catalogue state economy. This is discussed both in terms of a mitigation strategy
of blueprints for future work. Notable early works include: Meadows and a biophysical inevitability. It is clear that greater research is re-
(1973), Hounam (1979) and Sterman (1982). The consistency of the quired to explore the dynamics of the steady state economy, as the
key arguments stemming from these papers and running through the EROEI-dynamics literature consistently projects that it may become a
EROEI-dynamics literature is strongly supportive of their validity. The prominent feature of the current century.
most widely established arguments suggest that geological resource
constraints will drive a relative expansion of the energy sector in the Acknowledgements
coming century, and a downward pressure on material prosperity (ar-
guments 1, 2, 3 and 5). The financial support of the Economic and Social Research Council
It is clear that considerable work is required to further our under- for the Centre for the Understanding of Sustanable Prosperity (ESRC
standing of EROEI-dynamics. Perhaps the most significant concern grant no: ES/M010163/1) is gratefully acknowledged. We would also
following this review is the divergence in the literature, where the like to thank researchers at the Centre for the Understanding of
widely cited Integrated Assessment Modelling literature poorly cites Sustainable Prosperity (CUSP.ac.uk) for their support. We would like to
EROEI-dynamics literature. It is possible that better integration of thank Iñigo Capellán-Pérez, Roberto Pasqualino, Sarah Hafner and
EROEI-dynamics could have a significant impact on the discussion of Angela Druckman for their insightful comments and support
energy futures and therefore a significant impact on government policy. throughout.

Appendix I. Model Summary Table

Summary of models discussed by the review. The models are classified by the year of their first major publication as well as the development
group assigned by this review. Red: MIT group. Blue: US government group. Orange: STER-ECCO group. Green: BPB group. Grey: no clear group. The
models are also classified by the key dynamics. Further, by novel conclusions and their earliest reference.

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