Key: Rob’s comments are in italics. Derek’s comments are normal font.

Our topic today is energy, which on the face of it may not seem to relate that obviously to sovereign finance, but we think it does. So where do we need to start?

Why We Need Energy

Let's start first off with why we actually need energy. We need energy first and foremost for staying alive in the form of food. We need energy for moving around and we need energy for moving things around and we need energy for manufacturing anything.

It's important to realise that until the Industrial Revolution, the sources of energy we had consisted of human muscle power, animal muscle power, and a little bit of energy from windmills and water mills, and the burning of wood.

If you think about it, all of that derives directly or indirectly from the sun. The energy from the sun is turned into organic matter by the action of photosynthesis in plants and algae. That is either directly consumed by animals or human beings, or else it's eaten by other things which in turn are eaten by animals or human beings. The wind power derives from the sun warming the atmosphere and creating currents of air as some parts of it rise and air moves from other places to move into it. The water flowing down a stream derives from the sun evaporating the seawater and lakes, going into the atmosphere, condensing as rain and falling, running into the water courses and eventually into a river where it drives a watermill. So the entire thing is from current sunlight.

Even tidal energy would come from the moon?

Well, no, that is actually an exception to it. The tidal energy really is tapping the angular momentum of the Earth and the Moon. The water is, if you like, lifted in a hump towards the Moon and to a lesser extent towards the Sun. As the Earth rotates underneath it, that hump in the water creates a high tide and as it passes it creates a low tide. So tidal energy comes from that angular momentum of the Earth and consequently, if you like, slowing the Earth down and slowing the orbit of the Moon very slightly. In fact, that is happening whether or not we put a Tide Mill somewhere and extract some of it in the form of useful energy.

The laws of thermodynamics

I just want to say briefly a few words about the two laws relating to conversion of energy. These are called the laws of thermodynamics, which makes it sound obscure and complicated. But in everyday terms, we'd say the laws of heat and movement. And in fact, it's slightly wider than that.

It was given that name because the initial interest was in relation to improving the efficiency of steam engines. The first law says that energy is neither created nor destroyed. Since Einstein discovered the principle of relativity and the equivalence of energy and mass, strictly speaking, we should say that the total amount of energy and mass is neither created nor destroyed. I'll come back to that in a minute when we talk briefly about nuclear power. But for all intents and purposes, the traditional law of conservation of energy is the first law. The second law has got various forms.

One way is that heat cannot of itself run from a cold body to a hotter one. Another way is to say that entropy always increases. Entropy is, although I think science courses never discuss this until you get to university level, in fact, something that we're all familiar with. We're all aware that if you watch a movie, it's usually pretty obvious whether the movie is running forwards or running backwards because things look ridiculous if the movie is running backwards. If you have a glass falling from a table to the floor and shattering, the energy at the end of that process is the same as at the beginning. But because there's a certain amount of energy by the fact that the glass is higher up in the gravitational field to start with, as it falls it gets faster and faster. That changes into the energy of movement. When it hits the floor it breaks into pieces, the pieces scatter around and they stop moving. The energy is now being transferred into a small amount of heat because all the molecules in the bits of broken glass are moving a bit faster on average than they were before it happened. But there's no way that energy is going to organise itself so that they all spontaneously move back together, stick together and jump up in the air and go onto the table.

Yeah, just like you can't un-bake a cake.

You can't unbake a cake, can't unscramble an omelette. These are all, if you like, equivalent ways of stating that second law in everyday terms. It also explains the processes of rot and corrosion and decay and erosion by wind and other natural processes. On the face of it, it seems that the phenomenon of life is a contradiction to that, which is why in the past there were various theories about the vital force and so forth. But it isn't actually an exception because whenever you get order happening, and probably the simplest example of this is if you've got a super concentrated solution of salt and something precipitates it's starting to crystallise. Obviously the crystals have got much more order than the solution because there's a structure there, there's a defined position subject to a little bit of vibration of all the atoms in the crystal, whereas in the liquid all the molecules could move around.

But there is heat released when something crystallises, when anything solidifies. Similarly, you have to put heat in in order to melt something. That actually balances it out because low grade heat, heat which is not significantly different from its surroundings is a higher entropy state than heat which is at a much higher temperature than its surroundings. The same thing happens with human beings. We need to take in something like 2000 kilocalories a day of chemical energy in the form of food. That is for the most part dissipated by the heat that we lose from our bodies to the surrounding environment. The heat that we lose from our bodies offsets the maintenance of the structure and the organisation of our bodies and it also offsets anything that we do, whether it's writing a poem or building a house. That obviously is creating order and it's offset by the disorder that we create by the heat that we radiate.

The entire phenomena of life on Earth and everything that living things do is because of that flow of energy from the sun. You've got the surface of the sun at around about 5,000 degrees centigrade. That arrives at the Earth every day and a similar amount of heat is radiated from the Earth on the dark side during the night time into deep space, which has got a temperature of approximately minus 270 degrees centigrade, three degrees absolute. So it's that flow of energy. Of course, the fossil fuels, that also is energy which came from sunlight. But the difference is it came from the sunlight three or four hundred million years ago, over a long period of time, many millions of years. We have burned through the overwhelming majority of that which is available to us from those sources in the last 300 years.

Of the easy pickings. Yeah.

Using Energy to Get Energy

It's not just a question of difficulty. It's also the question that it takes a certain amount of energy to extract those fossil fuels to transport them from wherever they are to wherever we're going to use them. Whereas 300 years ago, there were lots of coal fields where all you had to do was scrape the surface topsoil off them and dig the coal straight out of the ground. That's why they're called coal pits, even though, of course, before long, it was no longer a pit in the sense of a surface hole like a gravel pit or a chalk pit where you could just dig it up and cart it straight away but the veins were hundreds of feet under the ground. You needed to sink a deep mine shaft and send the miners down in a lift and bring the coal back up in the same haulage arrangement.

Similarly with oil, a hundred years ago you could dig through 20 or 30 feet of rock and the oil would be there under pressure, it would spurt out of the ground and you'd simply have to put a pipe and a valve on the top and run it from there into barrels. Whereas now of course we have to drill down thousands of feet under the ground, often in very inaccessible places on the bed of the sea. All that takes energy.

So you have what we call energy return on energy invested. Once we reach the point where the energy that it takes to get a kilowatt hour of energy worth of oil, once it takes as much energy to get to it as you're going to get back, you're no longer getting a net result. I think we must actually be very close to that because already, as you may well be aware, when you buy a tank full of petrol, 10% of that petrol is actually ethanol, ethyl alcohol.

That comes from the fermentation of cornstarch and then the distillation of that. All of those are pretty energy intensive processes, although the energy going into the cornstarch which you then get into the alcohol, is available to us. It's come from the sun. It's been captured by the leaves of the corn plant stored in the corn cobs. These need to be harvested, mashed, fermented. Heat needs to be put into it to distill the alcohol off. It's difficult for me to believe that that is actually a net energy gain.

The only reason for it is that the economics of it subsidise the cost of the crude oil and the processing of that. Anyway, what we're going to see is not a sudden running out but increasingly increasing difficulties and supply shortages and that and we've had little hints of that already, haven't we?

You've talked in the past about there being various inflection points in human history and the industrial revolution being the last major one of those. And these changes in energy consumption from things like water...

The Role of Energy in Value Creation

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