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Estimating the relationship between EROI and profitability of oil sands mining, 1997–2016

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  • Guay-Boutet, Charles
  • Dufour, Mathieu

Abstract

Biophysical Economics is a school of thought in heterodox economics built on the premise of the primacy of energy in the economic process. Despite significant progress made in the methodology of net-energy analysis, the literature on the relationships (if any) between the biophysical properties of energy sources, such as net-energy ratios, and financial indicators (price, cost, etc.) is scant. Are the biophysical qualities of energy sources reflected by market signals? As such, can the latter guide decision-making in the context of the ongoing depletion of non-renewable energy resources? The paper examines the relationships between the net-energy ratios and price, cost of production and price-to-cost ratios of the Canadian oil sands produced via open-pit mining from 1997 to 2016. A simple econometric model is developed to estimate the correlation between the standard Energy Return on Energy Invested (EROIst) with the price, cost of production and price-to-cost ratio of diluted bitumen and synthetic crude over a 20-year period. Preliminary results suggest the absence of correlation between any pair of biophysical and financial variables. No discernable correlation is identified between the EROIst and financial indicators of either crude stream, suggesting biophysical and financial properties to be sui generis realities.

Suggested Citation

  • Guay-Boutet, Charles & Dufour, Mathieu, 2024. "Estimating the relationship between EROI and profitability of oil sands mining, 1997–2016," Ecological Economics, Elsevier, vol. 217(C).
    • Handle: RePEc:eee:ecolec:v:217:y:2024:i:c:s092180092300335x
    DOI: 10.1016/j.ecolecon.2023.108072
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