Thermodynamic concepts have been utilized by practitioners in a variety of disciplines with interests in environmental sustainability, including ecology, economics and engineering. Widespread concern about resource depletion and environmental degradation are common to them all. It has been argued that these consequences of human development are reflected in thermodynamic parameters and methods of analysis; they are said to mirror energy transformations within society. 'Exergy', a quantity which follows from the First and Second Laws of Thermodynamics, has been viewed as providing the basis of a tool for resource and/or emissions accounting. It is also seen as indicating natural limits on the attainment of sustainability. The more traditional use of the exergy method is illustrated by a number of cases drawn from the United Kingdom energy sector: electricity generation, combined heat and power schemes, and energy productivity in industry. This indicates the scope for increasing energy efficiency, and the extent of exergetic 'improvement potential', in each of these areas. Poor thermodynamic performance is principally the result of exergy losses in combustion and heat transfer processes. However, the application of such thermodynamic ideas outside the sphere of engineering has its critics. The link between the efficiency of resource utilization, pollutant emissions, and 'exergy consumption' is only indirect, and generally provides an insufficient basis for environmental appraisal. Methods of energy and exergy analysis are, therefore, evaluated as appropriate measures of sustainability in and beyond the energy sector. Copyright (C) 2004 John Wiley Sons, Ltd.