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Date: 2019-12-11 Page is: DBtxt001.php list0300-Analysis-Energy-1

Definitions for TrueValueMetrics
Analysis Issues ... Energy

The fossil fuel segment of the energy sector reports money profits using accounting methods that follow Generally Accepted Accounting Principles (GAAP). The GAAP used in US accounting differs somewhat from International GAAP, but both are significantly wrong in the way the fact of depleting global reserves gets accounted for. In fact GAAP accounting cannot handle the issue because it has, for good historic reasons, a singular focus on money accounting and the reporting of money profit.

Investors in ... the owners of ... the world's energy sector seem to be operating in a highly profitable sector. Most of the organizations are reporting good profits using GAAP reporting rules.

Many of the stakeholders in the industry see fossil fuel as a good thing. Energy is (relatively) cheap, abundant and convenient. There are many who facilitate activities in the energy sector that get paid handsomely for their services, and these people are very satisfied with the status quo.

The problem is that there is no accounting for the depletion of the global resources ... only an accounting for the depletion of the part of the global resources that are 'owned' or controlled by the reporting organizations.

For money profit accounting this does not matter ... it is OK. For triple bottom line accounting it is a problem, and for TVM value accounting it is a problem.

This was written some years ago:

In the case of the oil industry, the costs of crude oil production include payments made for royalties, licenses, etc, as well as the costs of exploration, drilling and extracting the oil from the oilfield, and shipping the product to refineries and to market ... but the costs do not take into account in any financial metric the depletion of the global resource, and what it would take to replace this resource. This is a huge problem, because the resource being depleted has taken many millions of years to accumulate, and the cost of this is unimaginable. An approach to solving this accounting problem might be to cost the depletion using the equivalent renewable energy cost at its prevailing stage of renewable energy development.

A worked example for the renewable energy cost concept might be along the following lines:

If the GAAP accounting cost of producing gasoline is $3.00 a gallon, and the pump price is $4.00 a gallon, there is a $1.00 profit. If $1.00 of the cost relates to the depleting resources under GAAP accounting, and the cost of renewable energy equivalent would be $2.00, then instead of there being a $1.00 profit there would actually be a $1.00 loss.

And of course, by definition renewable energy would always be lower cost than the fossil fuel energy source using this analytical construct.



The text being discussed is available at

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TrueValueMetrics (TVM) is an Open Source / Open Knowledge initiative. It has been funded by family and friends plus donations from well wishers who understand the importance of accountability and getting the management metrics right. TVM is a 'big idea' that has the potential to be a game changer leveling the playing field so the wealth and power is shared on a more reasonable basis between people who work for a living and those that own the economy and the levers of power. In order to be effective, it cannot be funded in the conventional way with a for profit business plan, but absolutely must remain an open access initiative.
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