Final answer:
A decreasing Energy Return on Energy Invested (EROEI) means higher energy costs for production, leading to less energy available for other economic activities. This can result in lowered economic growth and reduced capital returns, making EROEI directly relevant to issues of Secular Stagnation and Failed Growth in the economy.
Step-by-step explanation:
The concept of Energy Return on Energy Invested (EROEI) is crucial in understanding the economics of energy resources. A shrinking EROEI indicates that more energy is used to extract, process, and deliver energy, which cuts into the effective available resource.
This, as per Kent Klitgaard's hypothesis, can lead to a Secular Stagnation and a Failed Growth economy, as net energy available for other economic processes declines, thereby resulting in lower returns on capital. High EROEI means lower energy costs and potentially higher economic growth, while a lower EROEI means higher energy costs, which can lead to economic stagnation or contraction.
As conventional energy sources deplete and we are forced to exploit resources with lower EROEI, even if the gross energy production keeps pace with demand, the proportion of energy that needs to be reinvested increases.
This leaves less net energy for other economic uses, potentially hindering economic growth and leading to low returns on capital investment. The declining EROEI is therefore highly relevant to the problem of low returns on capital in an economy increasingly constrained by high energy investment demands.