Money measures Energy

[NT]

Money measures energy - the proposal


I thought I'd try and formalise it some more.
I also thought this topic could really do with its own thread


* Money measures energy. *


This means the cost of anything is a measure of how much energy it took to get that thing.

Note I said get, not make. This is because the energy use on a manufacturing line is just one of the many costs and energy uses involved in someone getting an item.


NT

 

[NT]

Raw Materials & Energy


There is no lack of raw materials. Every raw material you might want is out there on Planet Earth. Whatever raw material it is, it can be found somewhere, and usually in numerous places.

The limiting factor is energy. It takes energy to get the raw material. Hence energy dominates the cost of the raw material.


NT

 

[NT]

Business Costs

For any item, the sale price covers many costs and energy uses. For a retail product these typically include:

* Raw materials

* Transport of raw materials to factory
- power used by the vehicles
- all the other costs of having the vehicles & infrastructure
- transport co business costs

* Power used on the factory production line, eg electricity, gas

* Production Machinery - getting it takes lots of energy

* Factory building - getting it takes lots of energy

* Factory staff costs at all levels - a substantial cost
- staff wages provide for each person's family's total energy consumption, both direct and indirectly

* Factory's advertising costs
- trade journal publishers, trade events, newspaper companies, printers, literature delivery - none of these come cost free & energy free.

* Transport to wholesalers

* Wholesalers business activities & all their money & energy costs

* Transport to retailers

* The numerous business costs of retailers

* Substantial marketing budgets.
- TV stations & businesses, radio stations & businesses, magazine companies, newspaper companies, printers, literature delivery - none of these come cost free & energy free.

* End purchaser's transport costs


Most of the energy consumption that is needed to get you a product does not occur inside the factory. Many services & goods the factory purchases with money, IOW they pay someone else to expend the energy for them. The chain goes on, as those outside companies also purchase in many things, ie get others to use energy for them, etc.


NT

 

[NT]

Why Chinese goods are cheaper


Chinese goods are cheaper because they took less energy

Chinese workers are paid less, so they can purchase less energy for themselves, both directly and indirectly.

Chinese factories have lower safety standards, meaning
* less cost & energy is invested in the machinery
* less or no wages for safety inspectors - no family's energy consumption to support there

No welfare or compensation means another cost & energy spend is not present

Less pollution control means money time & energy is not spent on cleaning up industrial processes


NT

 

[NT]

Why Power is cheaper in China

Because it takes less energy to get a given amount of energy. Why? Same answer as for factories:

Chinese workers are paid less, so they can purchase less energy for themselves, both directly and indirectly.

Chinese plants have lower safety standards, meaning
* less cost & energy is invested in the machinery
* less or no wages for safety inspectors - no family's energy consumption to support there

No welfare or compensation means another cost & energy spend is not present

Less pollution control means money time & energy is not spent on cleaning up industrial processes


NT

 

[NT]

Performing Arts & Energy

No no. You misunderstand. What I mean is that if you went (on foot) to a string quartet concert and listened to the live music you might have to pay a lot for the ticket yet little energy would have been consumed. The arts, generally, are expensive in money but not in energy

Sure they are, thats precisely why theyre so expensive! Add up all the human labour hours that go into a music concert, its a lot, and all those people's energy needs are being paid for by the concert goers. If they do one concert a month, each concert's ticket sales will pay for the entire energy needs of all those involved for one month. Its so expensive because it takes so much energy.

It pays for:
Performers - the full cost of living for the whole planning, practice & performance time
Marketers / promoters/ managers - ditto,
radio time, tv time, magazine space, flyers, etc - same again, it pays for peoples time, materials, transport, and the many costs of running businesses.

Bear in mind that with arts that there is little or no physical substance or product, what youre buying is almost entirely people's time. And that takes a lot of energy in a rich country like ours.

 

[NT]

Bank Accounts & Energy

When money is put into a bank account, it goes on energy. The bank loans that money out to businesses, who then spend it all on energy, both direct and indirect.


NT

 

[NT]

Fame & energy

If I buy an artwork by a famous artist it costs a lot, but it didnt require more energy than one painted by someone who isnt famous.

Did you ask why? Why is the famous person famous? Huge efforts to market them. That costs time, materials & energy. And human time & materials cost energy,

Radio time does not come for free, it is very expensive because it requires a radio station full of equipment, huge amounts of electricity, an on air staff team, a technical team, plus all the usual business costs.

And promotion involves a lot more than just air time.


NT

 

[NT]

New vs used Goods & Energy

If I buy a very old motorbike (which I do occasionally) it may cost a lot more than one that is 10 years old, but doesnt require more energy

Clearly it does. The new one requires running a factory, with lots of equipment, raw material, labour, insurance etc manufacturing expenses. Then theres all the usual business expenses. Then there are the dealers, which have all their business costs as well.

Getting a used bike takes none of that.


NT

 

[NT]

Rarity & Energy

In these cases the rarity distorts the overall picture and pushes the value above the energy cost to manufacture.

The energy to manufacture is just a tiny percentage of the total energy used. Business costs greatly outweight in-house manufacturing gas & electricity use, and all these various business costs trace back to energy use, some directly, most indirectly.

Rarity value often equals marketing costs. It can cost a lot of money to convince people that something is worth a premium.

Rarity is not a selling point in itself. I scrawled a one-off piece of art in kindergarten, its very rare, and I couldnt sell it for a dime. Its not rarity that sells, but perceived quality, and rarity influences perceived quality in various ways.

There is another aspect to rarity. Buying and selling rare goods means that for each line of goods, which takes a certain amount of time & other resources to retail, the seller only sells the 1 item. Whereas with mass produced items ordering a line means you sell 1000 or 10,000, so some of the business costs are divided down to a very much smaller amount. So the cost of dealing in rare items is far higher.


NT

 

[NT]

IP & Energy

Sometimes, the green option may be very expensive due to clever exploitation of intellectual property rights, not energy required to create.

Creating IP is very high in energy cost. So high that most businesses cant afford any. A business trading on IP has to purchase that IP, and thus pay for the energy it took to create it.

IPR, potentially, allows you to create a small fortune out of thin air

No. The idea that IP is a thought that randomly crosses someone's mind is the stuff stories for small kids. This idea is popularised because it suggests that anyone has a chance of coming up with IP without even trying. This appeals to the ego and hence sells stuff, but is nothing to do with reality.

In the real world, it takes huge amounts of time, expertise and investment to create IP of value.

If you doubt that, ask the corporations what their IP budgets are. You'll be looking at 7 or more figure numbers. Sometimes orders of magnitude more.

If you still doubt that, ask your local businesses what they spend on R&D. In almost all cases you'll find they spend nothing, despite the trading advantage that IP would give them. This zero spend is for one simple reason: they cant afford any. Its too expensive, IP takes too much energy to produce.


NT

 

[NT]

OT or just what we need for our property decisions?

Before someone says hey its OT, bear this in mind. A lot of people here are trying to do the right thing, and the property related decisions people make here do have a big influence on energy consumption and all its implications. We want to know what is best to do, and this new thread may go part way toward answering that.


NT

 

[Craig]

I am not sure I agree with such a broad generalisation - as I said, I do think its a good measure of energy used in manufacturing, though I think we would need to explore FX a bit - why is the abercrombie and fitch opposite me in Savile Row twice the price of the one opposite our office in NY? We would need to get into the whole purchasing power parity - are you famililar with the Big Mac index?

I do agree that a richer society will use more energy.

On the old bike point, I think you misunderstood - the very old bike is very expensive. Its probably hand built and requires much less energy than a cheaper one 3 years old. My point is that both are second hand, but one is more expensive than the other for a reason that has nowt to do with embodied energy.

 

[Flyfisher]

But embedded energy is not the whole story. Your classic bike may well have less embedded energy than a modern one, but if it's more expensive to buy then you must expend more energy to acquire the cash to buy it and the inflated price you pay to the seller will be spent on expending even more energy.

 

[Flyfisher]

A lot of people here are trying to do the right thing, and the property related decisions people make here do have a big influence on energy consumption and all its implications. We want to know what is best to do,

Can it really be as simple, though, as "spending less is greener"?

Maintaining a period property is not cheap. Indeed, they often command a price premium over an equivalent (in accommodation terms) modern house. Is it 'greener' to scour reclamation yards looking for authentic materials for repairs or buying cheap imported products from the local DIY superstore? Or buying expensive bespoke oak windows instead of cheaper uPVC on special offer? Cheap Chinese slate instead of more expensive locally produced slate?

Also, how does carbon offsetting work in this context. A carribean holiday will cost a pretty penny, but is it really 'greener' to pay a 'carbon offset' premium if the extra expenditure equates to extra energy usage.

 

[NT]

I am not sure I agree with such a broad generalisation - as I said, I do think its a good measure of energy used in manufacturing, though I think we would need to explore FX a bit - why is the abercrombie and fitch opposite me in Savile Row twice the price of the one opposite our office in NY?

AFAIK this is all explained by the issues raised by the Big Mac Index plus the comments I posted regarding differing prices in different territories, plus the differences in quality & quantity of the goods. Are you saying there's something else that must be considered?

We would need to get into the whole purchasing power parity - are you famililar with the Big Mac index?

I know what it is, and why burger exchange rates dont match currency exch rates.

On the old bike point, I think you misunderstood - the very old bike is very expensive. Its probably hand built and requires much less energy than a cheaper one 3 years old. My point is that both are second hand, but one is more expensive than the other for a reason that has nowt to do with embodied energy.

Will have to think about that and see where it goes. Some investments do change in value greatly. A case of the market re-appraising the items' utility, and being prepared to pay a different amount of energy to get it.


NT

 

[NT]

A lot of people here are trying to do the right thing, and the property related decisions people make here do have a big influence on energy consumption and all its implications. We want to know what is best to do,

Can it really be as simple, though, as "spending less is greener"?

I dont think so personally. It is however a very significant part of the picture, imho. One that should be considerd a lot more than it is today.


NT

 

[NT]

Carbon Offsets

Also, how does carbon offsetting work in this context.

Dont tempt me

Really I think a carbon offset deal can be regarded as a purchase in its own right. If you buy an airticket with carbon offset, you're just buying 2 products bundled together, theyre 2 separate items really.

When you pay for someone to plant a tree, your money buys energy. Energy to produce the sapling, energy the staff will use, and the usual business costs.

A carribean holiday will cost a pretty penny, but is it really 'greener' to pay a 'carbon offset' premium if the extra expenditure equates to extra energy usage.

I guess thats all down to what you do and dont believe politically, what you consider to be green. I wouldnt want to pay for carbon offsets personally, partly because I have other things I can put that money into that will produce far more environmental benefit than planting some trees. As an enviro benefit it seems a bit of a lame option to me.

The weird thing about it all is that trees are self planting anyway. To get trees you need do absolutely nothing. Its strange sometimes what business ideas people will buy.


NT

 

[DaveBrigg]

I'm still a bit puzzled, although I can see that if you start with raw materials which are taken from the Earth and not paid for at the time, the cost of the finished product is based to some extent on the work needed to change those raw materials into an item on sale.

The price of an item, however, is set entirely by the rules of supply and demand. The more that people want something, the more they are willing to pay, and therefore the more they will be charged.
There was once an apparently unlimited supply of cod, enough to meet a high demand, and the price was low. Now that stocks are low, demand exceeds supply, and the price increases until some people cannot or will not pay. Demand is then reduced until it equals the new level of supply.

Ten years ago there was a strong demand for property in Spain, and not enough houses to go round, so the vendors raised the price. This year there are 800,000 new builds authorised, but demand is only expected to be 600,000, and there are predictions that prices will fall by 10%. The drop in price will encourage more people to buy abroad, and demand will increase to take up the extra 200,000.

A vintage motorbike is expensive because its supply is limited. Demand exceeds supply, so the price goes up. However, modern cars have become cheaper in real terms because there is a current over-supply.

I spent some of my student time working for a burger chain. The prices charged there were set entirely by what people were willing to pay. If they could have sold a burger for a fiver each they would, regardless of any production costs.

 

[Penners]

No, I'm sorry, NT - cost as a measure of embedded energy doesn't work for me.

An item is not worth the energy it represents. An item is worth what someone is prepared to pay for it.

Take a house. Two years ago it cost £200,000. Today the same house costs £240,000. Are you telling me that £40,000 of energy has been embedded in that house in two years?