Biophysical Economics: Putting Energy at the Center

Many scientists have long complained that standard economics fails to account for the biological and physical systems that form the basis of the economy. In short, the economy is a subset of the environment and governed by the same biological and physical laws as every other system on the planet.

In 1850 when the total world population was 1.26 billion, the idea that resources critical to industrial society would decline or even run out seemed far-fetched. Fast forward to today where threats of fossil fuel depletion, mineral depletion, groundwater depletion, fisheries destruction, soil erosion and decline in soil fertility are being seriously discussed in scientific, policy and journalistic circles. The population has reached almost 6.8 billion, and there are questions about whether current rates of consumption can continue without threatening the resource base vital to modern society as well as the stability of the climate and critical ecosystems.

The human footprint on the planet has increased enormously, not merely by the factor of about 5.3 times suggested by population growth, but more like the 45 times suggested by the rise in total consumption of energy. (See slide number 13 in David Hughes’ excellent presentation before the Association for the Study of Peak Oil & Gas – USA 2008 conference.)

Neoclassical economists have long held that industrial societies will not run out of needed resources for two reasons: 1) Rising prices for scarce resources will lead to more efficient use of them, and 2) those same rising prices will spur innovation that will end the need for the scarce resource or find a more abundant substitute. Many of the same economists have also embraced the idea that exponential growth of the world economy can go on indefinitely, in part because of the effect of prices on efficient use of resources and substitution for them.

These claims are not easily dismissed for historical reasons. History has recorded case after case of more abundant resources being substituted for increasingly scarce ones. And, human civilization has experienced almost continuous economic growth since the dawn of the industrial age.

Still, some scientists and even a few economists are concerned enough to propose an entirely different basis for economics. First, they point to the impossibility of perpetual economic growth. Since the economy is a subset of the environment, it cannot grow larger than that environment. Yes, we may learn to do things more efficiently and more intelligently over time. But at some point the physical throughput of the economy will cease to grow. We simply cannot process more material than is contained in the entire biosphere. And, the limit of what we can process is undoubtedly only a fraction of the total biosphere since human life depends on the proper functioning of many other ecosystems which must have access to resources from the biosphere as well.

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