The Importance of Energy Return on Investment

1 / 2
These bars represent the estimated maximum energy return on investment of both renewables and fossil fuels. Oil's ratio has declined over time with the increased difficulty of bringing it to consumers. Note its EROI value in 1930, 1970, 2000, and 2005.
2 / 2
The energy return on investment for firewood includes what you spend cutting and splitting it. However, after some rest and a good meal it's 100 percent renewable!

The future of our finite supply of fossil fuels is uncertain at best, and development of new energy options continues to gain speed. It’s likely we’ll use a combination of renewable energies and fossil fuels for the foreseeable future.

If you listen to some representatives of the alternative energy industry, you’d think every renewable fuel source out there is the No. 1 candidate to meet the world’s future energy needs — the most qualified to replace oil, coal, and natural gas. So, which type of renewable energy will provide us with the highest net gain in energy?

Energy return on energy invested is more commonly stated as energy return on investment (EROI). The term was coined by Charles Hall, professor of environmental science and forestry at the State University of New York (SUNY), and is presented as a ratio of energy produced to the energy consumed during production. An energy source that yields positive net energy has an EROI ratio of more than 1:1. Anything less than that constitutes an energy sink, or net loss. 

Focusing on the Future

It takes energy to find, extract, refine and transport energy commodities. The energy cost of energy wasn’t a topic worthy of study throughout most of the era of fossil fuels because coal, oil, and natural gas were so accessible and easy to deliver that their EROI ratios were very high.

However, no longer can an oil company drill a hole on easily accessible, vacant land and get a gusher. Although new discoveries are announced regularly, most are small and many are difficult and increasingly expensive to extract. Consider the deep water oil wells in the Gulf of Mexico, the frozen shorelines of the Arctic Ocean, the tar sands in Alberta, Canada, or the shale oil deposits in Wyoming as examples. Oil’s EROI remains high compared with most renewables, but it’s continually declining. And, because the production and consumption of energy always has environmental impacts, the more energy that must be invested to produce usable energy, the greater the environmental cost of that source.

A cautionary example is the recent situation with corn ethanol. According to research from Hall and SUNY graduate student David Murphy, corn ethanol’s EROI is just barely positive on average at 1.1:1. This is the root of much of the controversy surrounding ethanol: Critics rightly wonder if it’s worthwhile to put so many resources into an energy source that yields such a small rate of return. The SUNY researchers indicate that a fuel should obtain a ratio of more than 5:1 to be worth pursuing. In contrast, Hall and John Day, ecologist and professor emeritus of oceanography at Louisiana State University, estimate hydropower’s potential return at roughly 40:1. 


The study of EROI ratios and the conclusions drawn from it are sometimes controversial because the outcome depends so much on the underlying assumptions. Hall adds that net energy numbers are hard to pinpoint because nearly all data on energy use in the U.S. economy is usually recorded in terms of dollars, not energy.

Still, Hall says, “EROI can be used to help evaluate which alternative fuels are likely to be the most viable economically in the future, especially if appropriate improvements are made in the quality of the inputs and outputs. There is consistency in the different analyses when the same boundaries are used.” He warns that we must be prepared for the possibility of a future with far less net energy, because most, if not all, our current alternative energy options have low EROI compared with that of fossil fuels.

The concept of EROI is one of the best tools to help us understand why the price of energy is relentlessly rising. Energy is no longer cheap, and likely never will be again.

Anyone who has cut, split, and stacked a cord of wood knows there is an energy cost of producing a fuel. In the case of firewood, it’s mostly human energy — a truly renewable resource. But the next time you hear about an energy source that will solve all our energy needs, think about the input required to bring it to the masses. Let’s focus our development efforts on the renewable fuels that will pack the most (net) punch. You can learn more about EROI at The Oil Drum website.

Need Help? Call 1-800-234-3368