EME 444
Global Energy Enterprise

Energy Return on Investment (EROI)


Energy Return on Energy Invested, usually phrased as "Energy Return on Investment" (EROI) is the ratio of energy returned to society divided by the energy required to get that energy.


EROI = Energy returned to society over energy required to get that energy

What does this mean? Charles A.S. Hall, generally recognized as the father of this concept, explains it this way, "EROI is simply the energy gained from an energy-obtaining effort divided by the energy used to get that energy. For example, one barrel of oil invested into getting oil out of the ground might return fifty, thirty, ten or one barrel, depending when and where the process is taking place." (Synthesis to Special Issue on New Studies in EROI (Energy Rertun on Investment), Sustainability, Charles A.S. Hall, 2011) EROI is also referred to as "energy profit".

In other words, it takes energy to acquire energy. "To make economic use of a barrel of oil requires not only drilling the well but also transporting the oil to a refinery, concerting it to a variety of petroleum products, and shipping them to end users--as well as expending energy to make the drilling rig, the steel in the refinery equipment, the tank trucks that take gasoline to service stations, the automobiles that burn the fuel, and so on." This is the energy expense, the "energy required to get that energy." (Energy as Master Resource, State of the World 2013, Eric Zencey, p 78) How does this energy expense compare to the energy in the barrel of oil, the "energy returned to society"? This is the ratio, EROI.

The higher the EROI, the higher the energy profit. The higher the EROI, the more energy is returned to society compared to the energy cost of getting that energy.

Many of you may be familiar with the controversy surrounding corn-derived ethanol, does it take more energy to produce than is available in the final product? Many argue yes. If so, the EROI of corn-based ethanol is less than 1.


"The concept of Energy Return on Investment (EROI) is a concept originally derived in ecology but increasingly applied to oil and other industrial energies. It had precedents in the idea of 'net energy analysis' used by Leslie White, Kenneth Boulding and especially Howard Odum [1,2]. Similar but less explicit and focused ideas can be found in the newer field of 'life cycle analysis' that is better developed in Europe than in the US. The word investment usually means energy investment but sometimes may also include financial, environmental and/or other kinds of investments. Some people like the term EROEI as a more explicit term, but we find it less useful and harder to pronounce. The term EROI has been around since at least 1970, but it gained relatively little traction until the last five or ten years. Now there is an explosion of interest as peak oil and the general economic effects of increasingly constrained energy supplies are becoming obvious to investigators from many fields." (Introduction to Special Issue on New Studies in EROI (Energy Rertun on Investment), Sustainability, Charles A.S. Hall, 2011)

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EROI in the Nonmarket

This is a course called Global Energy Enterprise, with a special emphasis on nonmarket issues for energy industries. How does EROI fit this discussion?

Let's start with this, "EROI analysis reveals the irrationality of making those choices [between different energy systems] according to current market price, which is a human construct dependent on current demand, subsidies, taxes and the rates at which a flow of energy is extracted from its global stock. At the macroeconomic level, rational policymakers would be trying to maximize total sustainable delivered well-being, which (other things being equal--which they are not) would mean maximizing the EROI of a sustainable energy system for the economy. The effort to use price signals to find and promote that outcome requires that the relative monetary prices of difference kinds of energy reflect their relative social costs and benefits--a project that must begin with their relative EROIs." (Energy as Master Resource, State of the World 2013, Eric Zencey, p 78)

In other words, if we hope to use market forces to move society toward a sustainable energy system, then the prices of different kinds of energy will need to reflect the EROI relative to other options. Though this hasn't happened (yet), momentum and awareness of EROI is building in nonmarkets.

For example, an article by an environmental advocacy group, was simply titled "Oil Sands Mining Uses Up Almost as Much Energy as It Produces." That's EROI. The article explains: "Tar sands retrieved by surface mining has an EROI of only about 5:1, according to research released in 2013. Tar sands retrieved from deeper beneath the earth, through steam injection, fares even worse, with a maximum average ratio of just 2.9 to 1. That means one unit of natural gas is needed to create less than three units of oil-based energy."

EROI is also becoming a proxy, of sort, for energy industry externalities. To say that using that kind of energy requires a lot of energy implies not only the cost of the energy inputs but also all of the associated externalities (emissions, environmental destruction and so forth).

Advocates will argue, effectively, for and against energy choices based on EROI. It's a concept the public gets. Management in energy firms must be cognizant of and prepared to deal with these positions in the nonmarket. Policy makers may be pressured by EROI-based arguments to put a price on carbon, internalizing the externalities of fossil fuels and making energy market price better reflect the true cost to society.

A Final Note about EROI

For those of you who took EM SC 240: Energy and Sustainability in Contemporary Culture, you may remember that EROI was covered.  Some of the content from that course bears repeating because it provides some important considerations of the limitations of EROI.

All this being said, above a certain EROI, there is not much additional benefit in terms of percent energy out. (This article from The Oil Drum has a really good discussion of this.) Let's look at the difference between coal (46:1), hydroelectric (84:1), and diesel from biomass (2:1). To calculate the percent energy out, you simply divide the energy out by the total energy used.

  • For coal: Total energy = 46 + 1 = 47; energy out = 46; percent energy out = 46/47 = 0.979 = 97.9%
  • For hydroelectric: Total = 84 + 1 = 85; energy out = 84; percent energy out = 84/85 = 0.988 = 98.8%
  • Biomass diesel: Total = 2 + 1 = 3; energy out = 2; percent energy out = 2/3 = 0.667 = 66.7%

Do we care if we get 97.9% or 98.8% of the energy out? Probably not. Do we care if we get only 67% out? Probably. What is usually more important is the type of energy we are generating vs. what type we need. For example, the EROI number for coal only indicates the energy in the coal, not necessarily the useful energy you get out of it. So even though coal is efficient on an EROI basis, recall from Lesson 1 that generating electricity from coal is only around 33% efficient. Since hydroelectric dams generate electricity directly at a very high efficiency (up to 90%!), hydroelectric electricity has a higher EROI than coal-based electricity. Finally, the net energy is also an important consideration - if we can get something really efficiently, but there is not a lot of it, then that may not help very much. But all else being equal, a higher EROI is better.

One extremely important thing to note: EROI only describes energy useIt says nothing about the other important impacts. For example, coal has a relatively high EROI, but is the most polluting energy source we use. Hydroelectricity has a very high EROI, but if done the wrong way can have negative impacts as well. Tar sands, on the other hand, have both a low EROI and a very negative impact on the environment. In short, EROI is only one consideration to be made.