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A simple way to grasp the fundamental meaning of entropy is to consider that all processes of change are irreversible. Examples include natural processes, such as the growing of a plant, as well as technical processes, such as the burning of fossil fuels in combustion engines. The entropy concept was coined in thermodynamics to capture this fact. Thermodynamics in the science of energy – the name comes from the study of how heat and movement convert into each other. Its origins are in the 19th century when scientists like Sadi Carnot, Rudolph Clausius and Lord Kelvin wanted to understand and increase the efficiency at which steam engines performed useful mechanical work. The original notion of entropy has been applied to different contexts outside thermodynamics.

Entropy can also refer to the amount of energy available to humans. As a piece of wood is burned, for example, its available energy – also called ’exergy’ – decreases as the wood is transformed into high entropy matter – carbon dioxide and other substances useless from an energy point of view, its original exergy dissipated as useless heat. Available energy corresponds to the useful part of energy, which can be transformed into work. The so-called Entropy Law (the Second Law of Thermodynamics) uses this definition of entropy to express the everyday experience that transformations of energy and matter are unidirectional. It states that the entropy of an isolated thermodynamic system never decreases, but strictly increases in irreversible transformations and remains constant in reversible transformations. This places significant constraints on natural as well as technical processes. For example, the temperature of a cup of hot coffee left in a cold room will always decrease, never increase, to eventually reach equilibrium with room temperature. In this process, the entropy of the room has increased.

Energy from the sun (produced by atomic fusion) reaches the Earth in very large quantities. The Earth is not an isolated system. It is a system open to the entry of energy although closed to the entry of materials. The energy from the sun is the cause of photosynthesis and the source of the great wealth of life on the planet, i.e. the many forms of biodiversity. Therefore, one cannot jump from the existence of the Entropy Law to a pessimistic view regarding life and human life on Earth. However, in industrial economies we are using energy, stocks of coal, oil, gas accumulated long ago. As they are used up, their heat content is dissipated. We cannot use these stocks again, or recycle such energy because of the Entropy Law.

Entropy and economics

In the analysis of economy-environment interactions, for example resource extraction, energy use, production, and generation of wastes, entropy is a useful concept. The Entropy Law states that with every energy-based transformation a system loses part of its ability to perform useful mechanical work. After a while, the system‘s potential for work becomes zero. In the 19th century, thinking that the universe as a whole could be described as an isolated system, it was said that its final state would be a state of maximum entropy and zero potential for work – a state described as ‘heat death’. The evolution of an isolated system towards maximal entropy defines the so-called arrow of time as an expression of irreversibility in isolated systems. For the purposes of the analysis of the use of energy in the economy, we have no need to appeal to ‘heat death’. In fact the economy is not an isolated system, it takes energy and materials from outside, and produces waste and dissipated heat. Nicholas Georgescu-Roegen (1971), the founder of ecological economics, was the best known economist to realise that the Entropy Law imposes limits on the economic process when it is based on fossil fuels. He considered this ‘the most economic of all physical laws’. His seminal work gave rise to a vast strand of fruitful research. The economy uses low entropy energy and matter from its surrounding natural environment (such as coal or oil), to produce consumption goods, and discards high entropy wastes and dissipated heat back into the environment (such as carbon dioxide).


All taken together, the entropy concept is relevant for economics in various ways and on different levels of abstraction. First, as all processes of change are, at bottom, processes of energy and material transformation the entropy concept applies to all of them. It thus creates a unifying perspective on ecology, the physical environment, and the economy. It allows us to ask questions that would not have been asked from the perspective of one scientific discipline alone. It points to irreversible processes of resource degradation.

Second, the concept allows us to incorporate physical driving forces and constraints in models of economy-environment interactions, both microeconomic and macroeconomic. It is essential for understanding to what extent resource and energy scarcity, nature‘s capacity to assimilate human wastes and pollutants, as well as the irreversibility of transformation processes, constrain economic action. The entropy concept thus allows economics to relate to its biophysical basis, and yields insights about that relation which are not available otherwise.

Third, the entropy concept provides a tool of quantitative analysis of energetic and material transformations for engineers and managers. It may be used to design industrial production plants or individual components of those such as to maximise their energetic efficiency, and to minimise their environmental impact. Baumgärtner (2003) wrote that ―With its rigorous but multifarious character as an analytical tool, its rich set of fruitful applications, and its obvious potential to establish relations between the natural world and purposeful human action, the entropy concept is one of the cornerstones of ecological economics.


Baumgärtner, S. (2003) Entropy. Internet Encyclopaedia of Ecological Economics.

Georgescu-Roegen, N. (1971) The entropy law and the economic process. Cambridge, MA: Harvard University Press.

This glossary entry is based on contributions by Willi Haas, Simron Jit Singh and Annabella Musel

EJOLT glossary editors: Hali Healy, Sylvia Lorek and Beatriz Rodríguez-Labajos

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