Friday, November 12, 2010

Liebig and the carbon price

Economics is dynamic. All my ways of trying to understand it are static, like EROEI. So I often wonder whether I really understand. We get this in the EROEI discussion. So what happens to the money the company pays to the janitor (or the CEO). They spend it, and there is energy embodied in the stuff they receive. And the people receiving the money spend it and ...

This seems to have something to do with Liebig's Law. The thing that is in short supply is what counts. For 200+ years that thing has been skilled labour. Now, maybe temporarily, it is oil. So that suggests that for our infinite regression on the janitor's salary, each step has some embodied oil. And the sum of all those bits of embodied oil limits how much value you can get out of the dollar. Well this conveniently forgets that there is some time delay between receiving and spending money: the velocity of money.

So let's take a case relevant to saving the world: our carbon tax (whether it is done with a market or not). Proponents of this mostly say that it should be revenue neutral. All the money raised is returned to the public in some wonderfully fair way. Let's assume we have a closed system: Not much point if we just move the carbon emissions to another country. So the public buy energy (directly or indirectly) and part of the price is carbon tax. Then they get that back and they buy more stuff with embodied energy. Then they get that tax back. Well its doubtful if you can buy anything that doesn't have embodied energy, but only a proportion is carbon intensive. So how does this cycle play out? Are the infinities relevant or can we normalize or zenoize them?