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Commerce · III.02 · MMXXVI · daylight

La Bourse  /  Volume III  /  Nº III.02  /  Ten concept briefs

TEN CONCEPT BRIEFS · Chapter III.02 — Energy as the Denominator

One page each. A reader who reads only these ten pages has the chapter.

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BRIEF 1 — Numeraire and Denominator

The idea. These are two different jobs and almost every argument about energy money confuses them.

A numeraire is what obligations are settled in. It has to do three things: serve as a unit of account two parties agree on, transfer to a third party, and carry value across a period. A denominator only has to do the first. It measures; it does not settle.

Worked example. Technocracy Incorporated's energy certificates, designed in the early 1930s, were non-transferable and expired at the end of a two-year balancing period. Score them:

  unit of account     kept
  medium of exchange  DROPPED
  store of value      DROPPED
                      1 of 3 = 33.3%

Why it matters. The experiment is usually reported as evidence that an energy standard cannot work. It is nothing of the kind. The energy standard was never tested — what was tested was the abolition of exchange and saving, and the verdict was misfiled. Every modern proposal that quietly drops transferability inherits the same result for the same reason.

You already know this because you have held an airline voucher that could not be given to anyone and expired in a year, and you did not confuse it with money, even though it was denominated in money.

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BRIEF 2 — Transformity, and the Baseline It Hangs On

The idea. Howard Odum's transformity is the solar energy required, directly and indirectly, to make one joule of something. It is measured in solar emjoules per joule, sej/J.

Worked example. Every one of those figures is quoted against a planetary emergy baseline. Odum put it at 9.44 × 10²⁴ sej/yr in 1996; a revision with Brown and Brandt-Williams in 2000 gave 15.83 × 10²⁴; Brown and Ulgiati settled on 12.00 × 10²⁴ in 2016. Those are multipliers of 1.271 and 1.677 on every published figure — and the two revisions differ from each other by 1.319.

Why it matters, in both directions. A transformity is not a physical constant; it is a measurement divided by a convention. But the ratios survive: electricity to coal is 3.99 on any baseline, because rebaselining multiplies numerator and denominator alike. Emergy is trustworthy as a comparative instrument and untrustworthy as an absolute one.

You already know this because you have seen a currency redenominated and understood instantly that your salary relative to your rent had not changed.

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BRIEF 3 — Exergy: a Joule Is Not a Joule

The idea. Energy is conserved; usefulness is not. The portion of a quantity of energy that can be turned into work is its exergy, and for heat it depends on the temperature difference available.

  eta = 1 - T0 / T        T0 = ambient, in kelvin

Worked example. At a 20 °C ambient — 293.15 K:

One megajoule of electricity does a megajoule of work. One megajoule of 40 °C water does 0.0639 megajoules. A factor of 15.7 between two identical quantities of energy.

Why it matters. Any account that adds joules without weighting them is adding things that differ by more than an order of magnitude in what they can do. The fix is cheap: publish a conversion table, with its ambient temperature and its version number, and weight before you add.

You already know this because you have stood in front of an open fridge on a hot day and noticed that the room did not get cooler. The energy was all still there. The useful part had gone.

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BRIEF 4 — The Emergy-to-Money Ratio

The idea. Emergy analysis has no physical route to the value of human labour and services, so it uses national emergy use divided by national GDP — of the order of 10¹² sej per dollar — and values services by multiplying their price by that ratio.

Worked example. Hold national emergy use flat and let real GDP grow 3 percent a year. The ratio falls by 2.91 percent a year, and 25.6 percent over a decade. An hour of engineering valued at 3.00 × 10¹³ sej today is 2.23 × 10¹³ sej in ten years — with nothing physical having changed about the engineer, the hour or the work.

Why it matters. This is the sharpest thing in the chapter and it should be held without triumph. The accounting system built to escape prices closes its books with a price. That is not fraud; it is disclosed practice. But it means the "non-arbitrary numeraire" is arbitrary at precisely the point where it touches people, and any claim of independence from the money economy is a claim the method itself contradicts.

You already know this because you have read a report that converted everything to a common unit and then found, in a footnote, that the conversion rate came from the thing the report was arguing against.

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BRIEF 5 — Energy Intensity of GDP

The idea. Primary energy per unit of output, at purchasing-power parity. Indicator 7.3.1 of the Sustainable Development Goals, maintained by the IEA and the World Bank, in megajoules per 2017 PPP dollar.

Worked example. The widest spread is 9.75 times. Both ends are accounting artefacts as much as physics: Iceland smelts aluminium with stranded geothermal and hydro, and Ireland's GDP carries booked profits of firms burning energy on other continents. Strip both and the defensible spread is 3.15 times — Russia against the United Kingdom.

Why it matters. The rate matters more than the level. Global intensity is improving at about 1.8 percent a year against a 2.6 percent target — 38.2 years to halve rather than 26.3. To hold total energy flat at 3 percent growth, intensity must fall 2.91 percent a year, 1.62 times the rate being achieved.

You already know this because you have compared two factories' energy bills per unit and discovered the difference was mostly which products each one made.

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BRIEF 6 — Barrels of Oil Equivalent

The idea. An energy numeraire already sitting inside audited accounts. Six thousand cubic feet of natural gas converts to one barrel of oil on an energy basis, and the result goes into reserve statements, lending covenants and valuations.

Worked example. One barrel holds about 5.8 MMBtu. At $80 oil and $3 gas, the energy-equal barrel of gas is worth 5.8 × $3.00 = $17.40, against $80.00 — the conversion is wrong by 4.60 times. In August 2022, European gas at €339.20 per MWh made the same energy-equal barrel worth €576.58 against oil near €95.00 — wrong by 6.07 times, in the opposite direction.

Why it matters. It is the whole chapter in one line item. The energy denominator is already in use, it is already known to be wrong by a factor of several, the direction of the error moves with the market, and the accounts carry it anyway — because it is still the most stable physical thing to count. That is the correct posture: use it, and state its error as a number.

You already know this because you have converted a foreign salary at a single annual average rate, known it was wrong, and done it anyway because it was the only way to compare two years.

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BRIEF 7 — Relative and Absolute Decoupling

The idea. Relative decoupling is resource use growing slower than output. Absolute decoupling is resource use falling while output grows. Only the second one closes a gap.

Worked example. United Kingdom territorial greenhouse gases: 810 MtCO₂e in 1990, 384 MtCO₂e in 2023 — a cut of 52.6 percent — while real output grew about 82 percent. Emissions per unit of output fell 73.95 percent. That is absolute decoupling, sustained for three decades, and it is real.

Against it: Thomas Wiedmann and colleagues found material footprint rising with an elasticity near 0.60 to GDP once trade is counted. Double output and material use rises 2^0.60 = 1.516, or 51.6 percent. Relative decoupling, absolute rise.

Why it matters. Both of those are true at once and an honest account holds both. Helmut Haberl and colleagues reviewed 835 studies: relative decoupling is common, absolute decoupling is rare, and decoupling at the rate actually required is essentially unevidenced.

You already know this because you have watched a business cut cost per unit every year while its total cost rose, and you knew which of those two numbers the bank would look at.

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BRIEF 8 — Consumption-Based Accounting

The idea. Territorial accounts count emissions inside a border. Consumption accounts count emissions embodied in what residents consume, wherever they were produced. The difference is the supply chain.

Worked example. Steven Davis and Ken Caldeira found 6.2 GtCO₂ embodied in international trade in 2004 — 22.96 percent of global fossil emissions. Glen Peters and colleagues traced net transfers from developing to developed economies rising from 0.4 GtCO₂ in 1990 to 1.6 GtCO₂ in 2008, a factor of 4.00.

Take the UK's 52.6 percent territorial cut. Assume — as a bound, not a measurement — that 46 percent of the footprint is embedded in imports and that the imported part did not fall at all. The consumption footprint then falls by 28.40 percent, and 54.00 percent of the headline survives.

Why it matters. The gap is not measurement noise. Multi-region input–output databases agree with each other to roughly 10 percent for most countries, so the gap is several times larger than the uncertainty of the instrument finding it. Publish both series, on the same date, with the same standing.

You already know this because you have seen a division hit its cost target by moving a cost to another division, and everyone in the room knew.

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BRIEF 9 — The Energy-Denominated Obligation

The idea. A statutory or contractual duty whose unit of account is energy rather than currency.

Worked example. France's certificats d'économies d'énergie have obliged energy suppliers since 2006 in kilowatt-hours cumac — kilowatt-hours saved, cumulated over the life of the measure and discounted. They are acquired, traded on a register, and used to discharge a legal duty. Italy's titoli di efficienza energetica do the same in tonnes of oil equivalent. Energy performance contracts settle in avoided kilowatt-hours verified under IPMVP.

Why it matters. It settles the terms of the debate before it starts. Energy already is a unit of account, in statute and in audited contracts, at scale. The live question is not whether it can be one; it is how far the unit can be pushed before it stops telling the truth, and that question has a measurable answer: a factor of 409.1 across hours, 11.54 across an ocean, 15.7 across thermodynamic grade.

You already know this because you have been paid in something that was not money — leave days, air miles, a share option — and you knew exactly which of them you could give to someone else.

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BRIEF 10 — The kWh Tranche and Its Breakeven Price

The idea. A facility advanced in currency, repaid out of verified kilowatt-hours converted to cash at a contracted index. The denominator moves from the price to the quantity, which is what makes it hedgeable.

Worked example. A site with a 120.0 GWh load. A £4,000,000 retrofit verified to save 14.0 GWh a year — 11.67 percent of load.

  annual value   14,000 MWh x £95.00  =  £1,330,000
  at a 75% share                      =    £997,500
  simple payback                      =   4.01 years
  simple return                       =      33.25%   vs 9.0% WACC

The one number. Breakeven energy price:

  £4,000,000 / (5 x 14,000 x 0.75)  =  £76.19 / MWh

Above £76.19 it repays; below it, it does not. Against the £95.00 index there is £18.81 of headroom, 24.7 percent. At £70.00 forward it recovers 91.9 percent of capital and fails.

The exergy check. If 60 percent of the saving is electricity and 40 percent is 80 °C heat, the exergy-equivalent saving is 9.35 GWh — the flat-joule figure overstates the tradeable saving by 49.71 percent. Decide whose that difference is in the term sheet, not in the dispute.

You already know this because you have signed a contract with a floor price in it, and you knew that the floor, not the headline rate, was the clause that decided whether the deal survived a bad year.