OUR WORK

The primary activities of the Institute are: research & research sponsorship; the development and dissemination of data standards, analytical tools to bring the natural sciences into economic analysis and decision making; education about these concepts and tools, leading to certifications of proficiency; and support for corporate officers and policymakers in the evaluation of projects and policies designed to promote energy efficiency and reduce CO2 emissions.

Companies continuously make investment choices that carry serious ramifications for our physical world and economic future. Evaluating the long-term consequences of these decisions in today’s rapidly changing world is difficult. Evolving market dynamics, inconsistent government policies, trade restrictions, subsidies and changing consumer preferences expose the limits to traditional decision tools, which rely on forecasting future cash flows. BioPhysical economics offers an alternative – and often sharper – lens with which to analyze investment opportunities. Evaluating underlying physical realities, which are rooted in the laws of science and nature, can provide a penetrating perspective that is not clouded by current market dynamics, media hype, or greenwashing. Investments that create or save significantly more energy than they use, will less exposed to the adverse effects of commodity price swings, government regulations, taxes, etc. Such investments are not just financially, but biophysically and hence climatologically more robust, and will be the likely winners in the coming energy transition. Conversely, investments that entail poor biophysical tradeoffs may follow the path of corn-based ethanol, which requires as much energy to produce as it yields for society. Many such investments can survive only on the basis of government mandates and subsidies. Tools such as energy return on energy invested (EROI) and energy saved on investment (ESOI), used in conjunction with traditional metrics, can enhance the quality of investment analysis and corporate risk management. These tools can be applied not only to large-scale projects such as the construction of a hydrogen plant, but also in day-to-day comparisons of technology options for purchasing materials. BPEI actualizes the large body of biophysical economics research, accumulated over 40 years, on behalf of corporate decision makers. By establishing clear, practical and consistent standards for data capture, units of measurement, boundary conditions and sector-specific considerations, we help practitioners make objective decisions that make the best use – on behalf of their stakeholders, and the broader society – of our precious energy resources.

The investment management community, spurred by growing demands for responsible business stewardship, has gravitated towards a more holistic set of criteria to assess corporate performance. Environmental Social & Governance (ESG) criteria are useful as principles, but can be difficult to operationalize given varying standards of measurement, the inherent tradeoffs among criteria, and the subjective nature of many of these values. This reality is readily apparent from the wide divergence among ESG scores promulgated for the same companies by different rating agencies (see articles by Damodaran and Berg in the Resources page). Thus it can be difficult for investors to achieve clarity on these important considerations, and for companies to respond to legitimate investor concerns.

Figure 1: These are rough estimates of EROI values for various energy sources. For greater precision, please see the source publications below. It is important to realize that these are simplified representations of complicated situations. For example, there is tremendous variation for some of the energy sources such as dams, which involve large dispersion in the cost of construction & energy generated. The high value for coal reflects countries such as the United States or Australia where coal is abundant. Values are as low as 5:1 in England where the resource is mostly depleted. EROI values for renewable resources reflect the higher quality of electricity vs. inputs–so they have been “corrected” by a factor of roughly 3 to adjust for that. Since many of these sources are intermittent it’s important to consider additional costs in the denominator of EROI, to reflect the challenge of systems integration.

BioPhysical economics offers a structured approach that looks beyond financial criteria to examine the underlying economic and physical realities guiding corporate operations, to produce a more penetrating assessment of resource stewardship and sustainability. The Energy Return on Energy Invested (EROI) in different alternatives to fossil fuels varies widely, and is sensitive to assumptions regarding their underlying energy sources, which of their production costs should be considered in the analysis, and how these alternatives will be integrated into the grid. We translate an extensive body of biophysical economic research into practical standards and a common language to help investors peel back layers of corporate greenwashing and marketing spin.

*Sources
– King et al. 20??
– Hall, Charles A.S., Jessica G. Lambert, Stephen B. Balogh. 2014. “EROI of different fuels and the implications for society Energy Policy Energy Policy.“ 64,: 141–152.

The BioPhysical Economics Institute has developed a set of analytical tools (data & measurement standards, computational methods and boundary criteria) that will allow corporate executives and investment analysts to draw their own conclusions about which projects and companies are the best stewards of scarce energy resources. We are synthesizing these methods, research materials and case studies into a rigorous curriculum and certification course that will establish a set of “best practices” for EROI/ESOI analysis. 

BPEI membership events bring together interested individuals and groups to learn from one another and advance the Institute’s educational mission.

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