The Rising Costs of Fossil‐Fuel Extraction: An Energy Crisis That Will Not Go Away

• Author: Bart Hawkins Kreps
• Published date: 01 May 2020
• DOI: http://doi.org/10.1111/ajes.12336
• Date: 01 May 2020

The Rising Costs of Fossil-Fuel Extraction:

An Energy Crisis That Will Not Go Away

By Bart Hawkins kreps*

aBstract. In biophysical terms, such as energy return on investment

(EROI), energy sources for the global economy have grown more

expensive over the last few decades. This trend is likely to be more

pronounced in the near-term future as conventional oil and gas are

depleted and difficult-to-extract unconventional oil and gas become

a larger part of the fossil-fuel supply. On the one hand, this will lead

to “energy sprawl”—the growth of the energy sector, as this sector

consumes a much larger portion of the energy it extracts—leaving

less energy surplus for other sectors. On the other hand, we will see

an unsustainable imbalance between the fuel prices that fossil-fuel

companies will need to meet their costs and the fuel prices that the

larger economy can afford to pay. This article reviews the historical role

of inexpensive energy in economic growth, discusses the declining

availability of conventional oil resources, and examines the increasing

reliance on expensive, unconventional petroleum resources such as

shale oil in the United States.

Introduction

The world now faces a huge challenge: how to make the transition

to a world of climate instability and rising energy costs. The need to

adapt to climate change is widely accepted. Nearly all climate sci-

entists, and a majority of citizens in most countries, accept that the

global climate is warming and that collective responses are required.

By contrast, the need to adapt to rising energy costs is neither widely

accepted nor widely understood. While business media usually focus

on the short-term gyrations of the market price for fuels, there is

American Journal of Economics and Sociology, Vol. 79, No. 3 (May, 2020).

DOI: 10.1111/ajes.12336

© 2020 American Journal of Economics and Sociology, Inc.

*Worked as newspaper editor. Also financial controller and geographic information

manager for the Gwich’in Tribal Council in the Canadian arctic. Four-season cyclist for

40 years. BA in philosophy from Calvin College, Michigan. Lives near Toronto. Email:

bart@anoutsidechance.com

696 The American Journal of Economics and Sociology

little attention given to the more fundamental long-term issue of the

increasing difficulty of extracting energy in the quantities the world

economy has come to expect. This article will explore this long-term

ongoing rise in energy costs and its implications, particularly a decline

in per capita energy consumption.

The first section of this article will explore the foundational role

that energy production and consumption plays in the global econo-

my—a role that is downplayed or misunderstood in dominant schools

of economic theory in recent generations. The second section will

summarize evidence that inexpensive fossil fuels are growing scarcer

both on a global basis and in North America, while much more ex-

pensive fossil fuels are becoming proportionately more important.

Rising costs are already having ripple effects throughout economies

and societies, presenting severe challenges to national governments in

many countries as well as to the global financial order.

Section One: Energy Return on Investment

as an Economic Fundamental

The economic boom of the past two centuries relied on readily acces-

sible fossil-fuel sources. The extraction of that fuel required very little

energy input compared with its high energy output. The resulting

energy surplus facilitated nearly continuous economic growth. The

most energy-rich and accessible fossil fuels have been extracted, and

the world has begun an energy descent pathway. As a result, eco-

nomic growth is faltering and cannot be sustained.

The viewpoint expressed in that short summary of the energy de-

scent pathway is a world apart from the mainstream economic the-

ories that have guided policymakers. So, a brief explanation of the

guiding economic principles of energy descent is in order.

The views expressed here are strongly informed by researchers

working under the rubrics “biophysical economics” and “ecological

economics.”1 A key concept for this discussion is “energy return on

investment” (EROI), an idea pioneered by Charles A. S. Hall and ex-

plored at length by Hall and Klitgaard (2018). (Some authors prefer

“EROEI” or “energy return on energy invested,” which clarifies that

energy, not money, is the investment metric here.) The concept is