We generally understand efficiency when considering different options to the same problem, for example, how to get from point A to point B, by running, driving, or flying. One method will use more energy than the others and will therefore be less efficient. One refrigerator will chill the same amount of food as another and use less energy and will therefore be more efficient. We also implicitly understand a trade-off between time and energy (less time to do the same task usually requires more energy). But, when we start to compare different activities, say having steak for dinner versus buying a DVD player or taking a 3-day vacation versus buying a new bicycle we often lack the information to compare the overall efficiency between the two different options in terms of energy or materials or really any possible standard that might interest us.
There is a way around this problem of missing information--the energy standard. We've all heard of the gold standard, and there is some historical basis for a silver standard for currency. But, our efforts in defining a common standard for assessing energy content of goods and services has been lacking.
A Labeling Standard
The simplest and least-ambitious energy standard would be accomplished through labeling rules. We already label processed food by how much energy it contains (kilocalories in the US or kilojoules in most of the rest of the world). A energy-labeling standard would involve almost all transactions listing the amount of energy consumed in producing or using that product or service in terms of a single common unit.
So, when shopping for airline tickets or laptop computers rather than only comparing the prices between each option, we could also see how many kilowatt-hours of energy were or will be used to produce it (and in the case of a computer, how many kilowatt-hours {or BTU, joule, calorie} would likely be consumed in the future use of the product). [ad name="Adsense Small Horz Banner"] The objective of providing this kind of information to consumers is mainly to provide people with the quantitative means to compare the environmental impact of different options, one that is not the product purely of corporate marketing or of any particular environmental group's objective. However, the energy consumed is not a comprehensive environmental impact (i.e. pollution is not considered, nor the impact of using renewable energy versus fossil fuel sources), so the benefits of such labeling are probably minimal except for those who would primarily make purchase decision based on this information.
A Currency Standard
A more ambitious proposal would involve defining the value of currency as a certain amount of energy. Currently, in the US, a kilowatt-hour of electricity at the consumer level would cost about $0.10 give or take. Implementing an energy standard currency would mean that rather than see the cost of electricity fluctuate in the future, it would be set at something like 10 kilowatt-hours per $1 US--the nominal cost of energy would remain constant (through management of the money supply similarly to how a gold standard might operate). In effect, you would be paid in kilowatt-hours and you would spend kilowatt-hours to buy goods and services.
This is not a new idea. Several economists (especially those who study energy) and those in charge of developing world banking systems have proposed this idea before. Some, in fact, already claim that the real value of the US Dollar is defined by the supply of oil rather than the other way around.
The main difference from a commodity-based currency standard like gold is that energy is not nonperishable and is not easy to store--it is produced as demanded to perform some useful activity: drive a car, cook dinner, or listen to the radio. This effect ties the monetary supply directly to current economic activity, and since energy efficiency tends historically to increase over time, increases in the standard of living for a given amount of currency would be the norm rather than the reverse.
Any currency standard does not directly prevent the government or other currency-issuing authority from harming the system with reckless choices; it is only a promise or legally stated objective of the currency manager, whether that be a government or other organization. Money supply would continue to be managed through the traditional mechanisms of currency exchanges, interest rates, and trade balances.
What Are The Benefits?
Objections to "fiat" or floating-value currencies include the fact that units of currency do not have any intrinsic value; that money supply is politically controlled benefiting only some in society. An energy-standard currency is based on a unit of something naturally useful to everyone in society. More than any other commodity, the use of energy is near universal.
The supply of energy and energy-based currency faces natural limits on its expansion or contraction, unlike fiat currency. The supply of energy has expanded over time, although not nearly as much as the money supply, but only inline with the actual utilitarian demand for it--our capability and desire to consume it doing useful things. Additionally, the supply of energy is created by hundreds (or thousands) of firms, and consumed by millions of consumers (just in the United States alone) making the feedback system much more responsible and less open to adverse manipulation unlike a gold-standard where the vast majority of gold supplies are held in relative secret by just a few national governments and financial institutions.
Objections to the gold standard include the fact that gold itself only holds value by its relative rarity and cultural history, rather than being something intrinsically useful to individuals, and that future inflation of the money supply will be governed only by gold mining success. An energy standard, however, is based on something directly useful to individuals (units of energy). We use units of energy to drive around, cool and heat our homes, produce food, cook, and entertain ourselves. And, given historical increases in energy efficiency, over time a given unit of energy should be more valuable in the future (not less).
Then, rather than the supply of money being governed by gold mining investment and success (something arbitrary and disconnected with economic needs), the supply of money/energy would increase over time in conjunction with increases in our demand for it and our ability to do useful things with it. As populations increase and economic development proceeds the monetary/energy supply would increase with it, but never beyond what could actually be used, naturally controlling inflation.
Environmentally, the benefits of an energy-based currency standard include instant feedback to all consumers on the energy efficiency of their choices (less energy efficient producers would have to charge higher prices or make up the difference in other areas).
It would also simplify decisions to be made in energy production, whether riskier fossil fuel extraction operations or in renewable or nuclear energy production projects. This future price risk is a critical detriment to all current decisions being made for all types of energy production. Removing this financial market risk from energy projects would help stabilize the sources of energy around the world.
Limitations
While an energy standard has many promising features, there are potential issues to address including clarifying the effects on international trade, the effect of disasters that affect the supplies of energy and their downstream effects on the money supply, and the potential impact of oil and gas supply shocks. And, of course, implementation of a new monetary system is potentially tricky. Further investigation of these effects will be necessary to provide confidence through any transition to the currency standard.
Similarly to the gold standard, if we assume generally increasing efficiency for all human activities over time, an energy standard for currency might be deflationary unless designed otherwise. However, as energy production is expected to increase world wide for several more decades probably (and possibly indefinitely depending on supplies and environmental concerns) and deflation would be organically controlled by increases in energy efficiency, this is not as pressing a problem as might affect a gold standard, and might not be a limitation of any sort in the foreseeable future.
