# Presentation: 164096

## EMERGY & ENERGY SYSTEMS

**Session 5 **
**Short Course for ECO Interns, EPA and Partners**

**Notes:**
In the last session, we introduced some methods for evaluating natural systems, reading and creating emergy tables, and talked a little about the interface between natural systems and the economy of a region.  We introduced the concept of linking money flow to emergy flow in the second session.  

## Emergy and Economics

- Emergy to dollar ratios and Emdollars
- Cross boundary exchange
- Evaluating loans/interest, operating
- Evaluating assets, capital

**Notes:**
In this session, we will talk about using emergy to assess the real wealth of a region and the equity of trade with this region.  We will go into more detail about how to include some typical economic components in an emergy evaluation. Again, for more complete background in emergy theory and applications, refer to Environmental Accounting (Odum 1996).

## Emdollars

**Emdollars**

- Calculation for US: _(8 + 32 + 23 + 15) E23 sej/yr_ =  1.44 E12 sej/$
-                                                5.4 E12 $/yr

- 1992

**8**

**32**

**23 Fuel**
**15 G&S**

**GNP**
**5.4E12 $/yr**

- Environmental
- Production

- Economic
- Production

- Non-
- Renewable

- Renewable

- Assets

- $

- $

- Imports

- Fuels
- Goods &
- Services

**USA Macroeconomic**
**Overview**

- Exports

**Notes:**
Because emergy is a donor-based assessment, all of the natural resources that the economy is built upon can be evaluated by determining how much energy was required to concentrate the resource into useable form.  Theoretically, even the services paid for when retrieving or processing a raw material can be converted to a donated energy by determining the actual person-hours used and the level of training involved and using this data rather than the dollars paid.  However, because dollars (or any currency) are an accepted standard of comparison, and because data often only comes in monetary value, a ratio of emergy to currency is calculated for given points in time to allow both direct conversion of money to comparable emergy quantities, and to assess the changing connection between resources and the economy.  We introduced this topic in the second session and we will talk more about the use of this ratio as an indicator both in this and a later session.
To calculate this conversion factor, an evaluation just like the one you will be working on is completed for the country or region, quantifying the emergy in the renewable, non-renewable and import consumption and export.  This highly aggregated diagram shows that 8 E23 sej/yr are used within the US in the form of rain and tides, averaged over several decades.  Another 32 E23 sej were extracted in this particular year for use within the region.  These would mostly be coal, oil and ores, and this is the amount actually consumed within the region.  In addition, another 38 E23 sej are imported each year.  For this year, 1992, there were 78 E23 sej circulating (used) within the U.S.
Economists have a measure of economic activity known as the gross national product that measures currency in circulation for the year.  That this indicator is flawed is readily admitted by most economists.  However, there is no other common economic indicator at present proposed as its replacement.
What we have then is two values describing economic activity in any given year: one is the emergy value of the natural resources in circulation being used to support the economy, and the other, the gross national or state product, is the dollars circulating in the opposite direction processing or purchasing those resources in one form or another.  This ratio of emergy to dollars can be used to convert dollar data for a given year into solar emjoules or it can used to convert solar emjoules into a value – emdollars (em$) – that is comparable to dollars.  Dr. Pillet, a Swiss economist who uses emergy to assist with policy development in several European and African nations, has suggested that the inverse ratio might be easier to use.  This dollar to emergy ratio ($ per sej) is comparable to the ratios we see everywhere when we are shopping – dollars per pound or dollars per gallon, for example.

## Emergy to dollar ratios

- Other countries
- From 1980-87
- Currency converted to US $

- Switzerland            0.7
- Japan                     1.5
- World                      2.0
- Brazil                      8.4
- Liberia                  34.5

- E12 sej/$

- Countries living more on local resources than purchased goods have higher emergy to dollar ratios.

**Notes:**
Here is a comparison of emergy to dollar ratios for several countries.  All of these currencies have been converted to US dollars using average exchange rates for the year evaluated (another economic indicator with many assumptions built into it).  As this table implies, the emergy to dollar ratio increases the less developed a country is.  This is because developing areas rely heavily on natural resources for their lifestyle, and much less on imported goods that they often cannot afford.  These ratios are compared to other countries in Environmental Accounting (Odum 1996).

## Emergy to dollar ratio

- Environmental
- Production

- Economic
- Production

- Non-
- Renewable

- Renewable

- Assets

- $

- $

- Imports

- Fuels
- Goods &
- Services

- Exports

**Emergy to dollar ratio**

- Update old economic data
- Use the right year
- Changes everything to sej, timeless

- GNP

**Notes:**
Remember from the second session, the emergy to dollar ratio changes every year, as well as being different for every country.  By recalculating the components that change significantly (the components highlighted with red boxes), a new economic basis for emergy used within a region can be determined every year more quickly than the initial evaluation.  While it is true that environmental conditions fluctuate between years in some ways similar to the fluctuation of economic activities, economies are built upon the longer term environmental conditions existing in a region.  Coal and forests for example are long term storages used for economic growth, and while annual growth or deposition may vary a little, it is the longer term average that determines the ability for a region to prosper based on exploitation of these resources.  Similarly, although the number of cloudy days varies from year to year in the tropics, tourists do not stop visiting just because the prior year had 5 more cloudy days than usual.
By using the appropriate emergy to dollar ratio for the year that data is collected, old economic data can be updated – converting to solar emjoules.  Emergy is a relatively time independent quantity.  There are points in a process where the emergy inputs change – at startup and when resources become scarce.  For most processes, however, there is a specific amount of specific inputs required to create a specific entity.  This is the whole basis for a donor based methodology.

## Calculating Benefits/Deficits

- Environmental
- Product sold

- Money from
- purchaser

- Price

-    _Emergy of product_       =      _(flow)(unit emergy)_       = benefit ratio
- Emergy of money paid        (price)(emergy/currency)      to purchaser

**Notes:**
One important use for the emergy to dollar ratio is as a tool for evaluating equity of exchange between countries or regions.  Because every region has a different amount of emergy circulating in relation to the money circulating, currency used as payment for goods carries with it an implied emergy amount indicative of the real wealth supporting the region.  Comparing the emergy values exchanged allows a direct assessment of the trade equity – is the purchaser getting a deal, is the seller making an inordinate profit, or are both parties getting fair value.  Although, in some ways, barter addresses this issue more fairly than money exchange, even direct exchange of different goods would benefit from an emergy analysis!  You will see this in the practice exercise at the end of this session.
This slide presents the actual calculation of this equity ratio for trades.  We are comparing the emergy of the product sold to the emergy of the money used to buy the product.  Multiply the flow of goods by the unit emergy to get the total emergy sold.  This is the numerator.  Multiply the money exchanged by the emergy to dollar ratio for the REGION DOING THE PURCHASING. This is the denominator.  If the ratio between these emergy values is 1, then the trade is equitable.  If the ratio is less than one, the seller is the beneficiary.  If the ratio is greater than one, the purchaser has the benefit.

## Calculating Benefits/Deficits

- Different emergy consumption leads to trading disparity

- Brazil
- 8.4E12 sej/$

- Japan
- 1.5E12 sej/$

- $1

- 8.4E12 sej

- $1

- 1.5E12 sej

- 5.6:1 Japan wins

**Notes:**
Using this method to compare trade, let’s look at trade between a highly developed nation, Japan, and a developing nation, Brazil.  The emergy to dollar ratio for Japan was 1.5 E12 sej/$ at the same time that Brazil’s ratio was 8.4 E12.  This means that Japan relies more on imported and purchased goods in order to maintain the natural resources necessary to support their economy than Brazil does.  You probably already knew, at least intuitively that this would be true, but emergy allows us to see quantitatively how big the difference is between the two countries. 
Now, let’s say that both countries want to exchange what they consider is an equal ECONOMIC value.  They sign a trade agreement that, after converting their respective currencies to US dollars, for every dollar that Brazil spends on Japanese goods, Japan will spend an equal amount on Brazilian goods.  If they keep this arrangement up for long, Brazil’s economy will falter, while Japan’s will become stronger and more affluent at Brazil’s expense (sound familiar?).  Why?  Because although the dollar exchange was equitable, the REAL WEALTH being exchanged was disparate with Japan getting almost 6 times more real wealth than Brazil for every dollar spent.
How did we calculate this?  Look at the slide just before this to remind yourself about the method for determining benefit and deficit of trade.

## Calculating Benefits/Deficits

- Different emergy consumption leads to trading disparity

- Brazil
- 8.4E12 sej/$

- Japan
- 1.5E12 sej/$

- $5.60

- 8.4E12 sej

- $1.01

- 8.4E12 sej

- Equitable trades

**Notes:**
Using the same technique, we can determine what an equitable exchange between these two countries might actually look like.  The treaty should probably have been written to make emergy the tool for determining equity.....for every 8.4 E12 sejs Brazil provides to Japan as raw materials, Japan agrees to provide 8.4 E12 sej in trade, either as money or as finished goods.  The dollars are unequal, but the REAL WEALTH values are better matched.  This would lead to less exploitation of developing nations and a more level trading field.  

## Loans and Interest

**Loans and Interest**

- Environmental
- Production

- Non-
- Renewable

- Renewable

- Assets

- $

- $

- Debt

- External market
- Goods & Services
- Investments

- One way to represent

**Interest and **
**Principle**

**Imports**

**Exports**

**Notes:**
Loans and debt are ubiquitous in today’s economy.  Although developed nations encourage developing countries to go into debt in order to improve their living conditions, the opposite often comes true.  An emergy evaluation is useful for predicting this outcome as shown in the last few slides.  This diagram illustrates one way to include debt in an evaluation.  This particular presentation implies that both debt principal and interest are being paid off. This is represented by the arrow (in red) from the debt tank to the top of the interaction symbol on the money line headed towards the external market. This money line represents payment of debt and interest in proportion to the amount of debt. If in fact mostly interest is being paid, an interest tank should be added.
The other money lines represent money exchanged for goods or services other than debt. The path connecting non-renewables to the diamond connecting the money and goods paths indicates that the price for exchange on this coupled flow is governed by the quantity of resource available.  The small box on the non-renewable tank is called a sensor, and implies that this path controlling the price is in fact only “sensing” the quantity, not using any of it in serving its purpose which is the exchange of information.

## Goods and Services, Operating Expenses

- Sun
- Wind

- River
- Rain

- Soil

- Forest

- Harvest

- Fuel
- Fertilizer

- Services

- Market

**Goods and Services, ****Operating Expenses**

- Adding to diagrams
- Show interaction with purchased goods
- As data in evaluations
- Multiply by emergy to dollar ratio for year of study

**Notes:**
You will remember from the previous sessions that money is paid for the services required to extract or process natural resources, but not for the resources themselves.  This is why it is important to evaluate the energy and materials themselves rather than fall back on monetary data.  These services are another source driving the process and do need to be accounted for, however.  As presented in the session on diagramming, services are often shown with an interaction symbol on the path being purchased, or driven, by available money.  
The money spent on services is added at the end of emergy tables because the emergy to dollar ratio is high and it is this ratio that is used to convert the service money flow into emergy quantities.  Be careful that you are in fact counting services used and not double counting for raw materials also included in the evaluation.  For example, if you have evaluated the amount of steel in a piece of machinery, do not add in the money paid for it.  You can include the cost of transporting it, but not the purchase price.  If you cannot find the approximate weight of the machine, then use the purchase price (preferably the wholesale price) to estimate its emergy value, but do not include both the weight in steel and the cost.
Some examples of services to include might be the fees for a consulting engineer or a computer technician.  However, in a truly rigorous evaluation you would determine the number of hours each of these experts provides to the process and use the unit emergy appropriate for their level of education to get a more donor-based estimate of the emergy they are contributing.

## Assets and Capital

**Assets and Capital**

- Adding to diagrams

-   Calculating contributions
- Buildings,Equipment
- Divide total value by expected life or use
- Materials used preferred
- Sometimes $$ is best you can do

- Sun
- Wind

- River
- Rain

- Soil

- Forest

- Fuel
- Fertilizer
- Goods

- Services,
- Operating
- costs

- Market

- Lumber

- Assets

**Notes:**
In the third session, we talked about evaluating storages as a separate section for regional evaluations.  But what if a storage is created prior to the beginning of a process and used up in a process that we need to calculate a unit emergy ratio for?  Buildings and machinery are examples of these kind of storages.  These components need to be concentrated prior to use, and then are used until they no longer function or become obsolete.  They are one-time expenditures that contribute to the annual flows of the process under study.  Inside this black box” shown for the lumber production system, there is an implied connection between the assets and the process.  This is illustrated by the placement of the tank at the upper right hand corner of the box, and if the insides of this box were revealed there would be a path between the production interaction and the building and depleting of assets.
You will need an estimate of the life-span for these assets, along with the emergy value of the item.  In the case of a building for example, this would be the steel and glass and lumber used to build it, and its expected life span would be anywhere from 20 to 100 years or more.  The total emergy is divided by the years in use to provide an estimate of the contribution to the average annual flows.
Again, using actual materials in the evaluation make the results more rigorous, but sometimes money is the only data you will be able to find.  Document all your assumptions and sources.

## Practice Exercises

- What is the ratio of EMERGY benefit to expenditure in buying oil at $17.50/barrel if oil has 7E9 J/barrel, a transformity of 5 E4 sej/J and the emergy to dollar ratio that year is 2 E12 sej/$?
- A farmer in Mexico sells 1000 lb of tomatoes to an Arizona grocer and receives $500.  Another Mexican farmer exchanges 1000 lb of tomatoes for 500 lb of soybeans.  If tomatoes have an emergy per mass ratio of 2 E9 sej/g wet weight, soybeans have an emergy per mass ratio of 7 E9 sej/g wet weight, and the US emergy to dollar ratio is 1 E12 sej/$, which farmer got the better deal?  What would the trade have to be in both cases for the exchange to be completely equitable?

**Notes:**
These three exercises will hopefully give you a better feel for using emergy to evaluate trading options.

## Practice Exercises

- From the diagram above, calculate the emergy to dollar ratio for the US in 1994 and answer these questions.
- What was the environmental contribution to the emergy that year?
- What was the annual emergy production that did not go into assets because of the $$s in interest going abroad on US debt?

**Production**

**Envr.**

**Soil**
**Fuels**

**Assets**

**Debt**

**Overseas**
**$**

**GNP**
**6.7E12**
**$/yr**

**$**

**44**

**17**

**27**

**35**

**62**

**8**

**E12 $/yr**
**Other countries**

**0.3**

**0.42**

**0.46**

**0.58**

**E23 sej/year**

**Notes:**
Be careful not to add pathway values more than once in this emergy evaluation, and you might not need all the values provided.

## AnswersRemember, I make mistakes, too....check mine to make sure its right if you don’t get the same thing

- What is the ratio of EMERGY benefit to expenditure in buying oil at $17.50/barrel if oil has 7E9 J/barrel, a transformity of 5 E4 sej/J and the emergy to dollar ratio that year is 2 E12 sej/$?
- Emergy in: 7E9 J/bbl x 5E4 sej/J = 35 E13 sej/bbl
- Expenditure out: $17.50/bbl  x 2E12 sej/$ = 35E12 sej/bbl
- Ratio: 35E13sej/35E12sej = 10
- What does this mean?

**Notes:**
Questions?  Send an e-mail.

## Answers

- A farmer in Mexico sells 1000 lb of tomatoes to an Arizona grocer and receives $500.  Another Mexican farmer exchanges 1000 lb of tomatoes for 500 lb of soybeans.  If tomatoes have an emergy per mass ratio of 2 E9 sej/g wet weight, soybeans have an emergy per mass ratio of 7 E9 sej/g wet weight, and the US emergy to dollar ratio is 1 E12 sej/$, which farmer got the better deal?  What would the trade have to be in both cases for the exchange to be completely equitable?
- Tomato emergy: 1000 lb x 454 g/lb x 2E9 sej/lb = 9.08 E14 sej
- $$ emergy :                 500$ x 1E12 sej/$           = 5 E14 sej
- Soybean emergy: 500 lb x 454 g/lb x 7E9 sej/g  = 1.59E15sej
- The Arizona grocer and the soybean farmer are getting more in trade than they are giving.
- Equitability: 1000 lb tomatoes = $908 US = 2/7 x 1000 lb soybeans (285.7 lb)

**Notes:**
Questions?  Send an e-mail.

## Answers

- From the diagram above, calculate the emergy to dollar ratio for the US in 1994 and answer these questions.
- _44 + 35 + 8 E23 sej/yr_     =  1.33 E12 sej/$
-       6.7 E12   $/yr
- What was the environmental contribution to the emergy that year?
- 8 + 35 = 43 E23 sej
- What was the annual emergy production that did not go into assets because of the $$s in interest going abroad on US debt?
- 0.3 E12 $/yr  x  1.33 E12 sej/$ = 3.99 E23 sej

**Notes:**
Questions?  Send an e-mail.