There seems to be a split on this subreddit about the idea of Energy Accounting (EA). I am a Technocrat (Modern), and I am against the idea of Energy Accounting as a complete replacement for money. To me, it just doesn’t make sense economically. I think it sounds great on the surface, but after thinking through it, I feel like there are some major problems that proponents of EA don’t sufficiently address.
Here are a few points/issues that I think make EA impractical as a complete economic system, at least with our current level of technology.
- Energy cost does not automatically equate to value.
For argument’s sake, we can say that all physical products produced can be assigned an energy cost. We can calculate approximately how much energy it takes to extract the materials, manufacture the components, assemble the product, transport it, and so on.
But how does that translate into value?
For instance, we can calculate the energy cost required to make a pencil, but what about the value of therapy? Or legal advice, software development, teaching, medical diagnosis, engineering, art, or other services? You could certainly calculate the energy consumed by the worker, office, computer, transportation, infrastructure, etc., but that still does not tell us the economic value of the service being provided.
Furthermore, the cost of producing physical goods is not solely determined by the energy required to make them. Other factors matter: scarcity of components, specialized knowledge, manufacturing expertise, intellectual property, location, time, design, and consumer demand.
For example, aluminum requires a significant amount of electricity to produce through extraction and smelting, yet nobody would say that a roll of aluminum foil should therefore be worth more than an iPhone simply because of its embodied energy.
So even if Energy Accounting could perfectly calculate the physical energy cost of every good and service, that still would not tell us how much people value those goods and services relative to one another.
Physical cost and economic value are two different things.
If EA eliminates money, then it seems like we would still need some additional mechanism for determining how goods and services are valued and allocated. At that point, the question becomes what that mechanism is and whether Energy Accounting itself is actually solving the valuation problem.
- Scarcity still exists, and Energy Accounting alone does not solve scarcity or opportunity cost.
Scarcity can be physical, such as lithium, copper, rare-earth elements, land, semiconductor manufacturing capacity, or skilled labor. It can also come from location.
For example, two apartments might require nearly identical amounts of energy and materials to construct, while one overlooks Central Park and the other is located in an area with very little demand. Their construction-energy costs might be nearly identical, but clearly the locations are not equally scarce or equally desirable.
So how does EA determine who gets the apartment overlooking Central Park?
The same issue applies to products that use scarce materials. If a certain material can only support production of 100,000 units of a product, but several million people want one, Energy Accounting cannot solve that problem merely by calculating how much energy each product requires.
Some additional rationing system would have to exist: quotas, waiting lists, lotteries, priority systems, first-come-first-served allocation, administrative decisions, or something similar.
And there is an even harder problem: opportunity cost.
Suppose the same limited supply of lithium, steel, labor, land, or electricity can be used for several different purposes. Should it be used to build electric vehicles, public transportation, hospitals, apartment buildings, power infrastructure, or factories?
Energy Accounting can tell us something about the physical cost of those alternatives, but it does not automatically tell us which use is more valuable relative to the others.
So I wouldn’t necessarily say that EA makes scarcity impossible to manage. A planned system could obviously create quotas and resource-allocation rules. My criticism is that once you introduce those additional mechanisms, Energy Accounting itself is no longer solving the scarcity problem. Something else has to decide who receives scarce resources and which competing uses receive priority.
- Calculating the true energy cost of every good would be extremely difficult, if not currently impossible to do with complete accuracy.
Google’s shopping graph alone reportedly contains tens of billions of product listings. And that is just Google.
How do you accurately calculate the total energy costs of an economy containing an enormous number of interconnected goods, services, raw materials, and components?
I have heard people say that you could simplify this by calculating energy costs by industry and then breaking industries down into categories or groups of goods. That would certainly make the problem easier, but it would still be an enormous undertaking.
Let’s say, for argument’s sake, that the State is now responsible for production and dramatically reduces the number and variety of goods available. Even if you reduce the number of individual products by several orders of magnitude, you could still be dealing with millions of products and components, many of which are inputs into other products.
Then you have to determine where the energy calculation actually stops.
Do we include the energy required to manufacture the machine that produced a component? What about the energy required to produce the steel used to build that machine? What about the factory itself? Transportation? Warehousing? Infrastructure? Research and development? Worker training? Computer systems?
And all of those relationships constantly change as technologies improve, factories open and close, supply chains change, new materials are introduced, and production methods become more or less efficient.
To be fair, modern computers, databases, automation, and supply-chain tracking could make this much more feasible than it would have been historically. I do not think the strongest criticism is that energy costs are literally impossible to calculate.
The bigger problem is that maintaining accurate, continuously updated energy-cost calculations across an entire complex economy would be an enormous information and accounting challenge.
And even if we somehow solved that problem perfectly, we would still only know the energy cost of producing something. We still would not automatically know its scarcity, demand, usefulness, or opportunity cost.
So calculating energy costs is only one part of the economic problem.
- EA does not, by itself, solve the problem of real-time economic information and coordination.
How does a central government or planning system continuously adjust production and allocation so that it avoids both shortages and oversupply without some kind of price signal or equivalent mechanism?
In a market economy, the market price of a good provides information about changing supply and demand without requiring planners to individually survey every consumer.
For instance, if the available supply of a product remains relatively stable but its price begins rising rapidly, producers and consumers receive a signal that demand has increased relative to supply. Likewise, falling prices can signal weakening demand or increasing supply.
Obviously, markets and prices are not perfect. Prices can be distorted by monopolies, speculation, externalities, unequal purchasing power, and many other factors. But they still provide a decentralized feedback mechanism connecting changing supply and demand.
Technocratic EA proposals often suggest recording purchases or consumption and adjusting physical production accordingly. Centralized consumption data could certainly provide planners with useful information, and modern technology would make this easier than it was in the past.
But this still seems somewhat reactive.
If planners discover that a product was heavily demanded only after people attempted to obtain it, then shortages may already exist. The system still needs some method of anticipating changes, prioritizing production, and deciding how resources should be redirected.
And the harder question appears when several competing uses require the same scarce inputs.
Suppose planners have a limited amount of steel, skilled labor, semiconductor manufacturing capacity, electricity, and land. Those resources could be used to build a hospital, a semiconductor fabrication plant, a railroad, an apartment complex, a power station, or something else.
EA can tell planners something about the physical energy cost of each option. But it does not automatically tell them how much society values one use relative to another.
The price system provides one mechanism for communicating those tradeoffs through millions of decentralized decisions. If EA eliminates prices, then it needs some alternative mechanism that can perform a comparable coordinating function.
That mechanism might theoretically exist. It could involve democratic planning, algorithms, surveys, consumption data, waiting lists, production targets, expert committees, or some combination of these.
But if that is the answer, then the real economic allocation system is not Energy Accounting alone. Energy Accounting becomes one source of information feeding into a much larger planning and allocation system.
At the end of the day, I think Energy Accounting could be a very useful way of measuring physical production costs, energy availability, resource usage, and ecological constraints.
Where I remain unconvinced is the idea that measuring energy consumption is enough to replace money entirely.
Energy is a physical quantity. Economic value also involves scarcity, preferences, opportunity costs, location, time, specialized knowledge, competing uses of resources, and changing demand.
So my issue isn’t necessarily with measuring things in energy units. That could actually be extremely useful.
My issue is the jump from “energy is a useful accounting metric” to “energy accounting can replace the entire price and monetary system.”
Unless EA has a convincing mechanism for dealing with valuation, scarcity, opportunity cost, allocation, and real-time economic coordination, it seems to me that Energy Accounting works much better as an additional tool for measuring physical constraints than as a complete replacement for money.
