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Energy Journal Issue

The Energy Journal
Volume 1, Number 4

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Energy Price Increases and Macroeconomic Policy

Robert S. Pindyck

DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No4-1
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A rising world price of energy imposes a macroeconomic cost on the United States in two different ways. First, to the extent that energy is both an important input to production and a consumption good, with limited elasticities of substitution and demand, the economy's production and consumption possibilities are necessarily reduced as energy becomes more scarce. Thus, even if an expansionary monetary and fiscal policy were successful in pushing the economy close to its full capacity level, the resulting real national income would be lower than if energy prices had notAn earlier version of this paper was presented at the CEPR Conference on Energy Prices, Inflation and Economic Activity, Cambridge, November 9, 1979. Work leading to this paperwas supported by the Center for Energy Policy Research of the M.I.T. Energy Laboratory, and that support is gratefully acknowledged. In writing this paper, I benefited considerablyfrom conversations with and comments from Olivier Blanchard, Stanley Fischer, Benjamin Friedman, Robert Hall, Franco Modigliani, Robert Solow, and an anonymous referee.

Economic Implications of Mandated Efficiency in Standards for Household Appliances

J. Daniel Khazzoom

DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No4-2
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In the discussion of energy conservation, a great deal of attention has focused on mandated efficiency standards for cars and energy-using household appliances. (In this article, I will use the term "appliance" in a generic sense to cover household durables). Unfortunately, the estimates of energy savings predicted to result from these mandated standards are derived mechanically.' When mandated standards raise the appliance efficiency by 1 percent, demand is predicted to drop by 1 percent; when they raise efficiency by 2 percent, demand is predicted to drop by 2 percent; and so on. Examples of such results are found in reports by the Department of Energy (1979a, 1980) and by the Staff of the California Energy Commission (1979) on energy demand in California in the coming two decades.

An Assessment of the Effects of the Windfall Profits Tax on Crude Oil Supply

Philip K. Verleger, Jr.

DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No4-3
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Most economic assessments of the recently enacted crude oil "windfall profits tax" (P. L. 96-223) have concluded that the tax will reduce the economic incentive to produce crude oil and will therefore have a negative impact on U.S. oil production.' This article disagrees with that view. Instead we show that the tax offers incentives to producers on existing properties that exceed those offered by a free market. Furthermore, based on estimates of these incentives, we conclude that the tax will1. See, for instance, Mead (1979) Wall Street Journal (1980), and Friedman (1980).Support from grants to the program on business and government relations at the School of Organization and Management at Yale University is gratefully acknowledged. Extraordinary assistance from Edward Erickson and Linda Scotten in improving the exposition of this paper is also gratefully acknowledged. The author assumes full responsibility for any errors.

World Oil Price Increases: Sources and Solutions

Albert L. Danielsen, Edward B. Selby, Jr.

DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No4-4
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World oil prices have been high since 1973, compared to average production costs and historical norms, because the Organization of Petroleum Exporting Countries (OPEC) has functioned as a viable price-setting and output-restricting institution. Prices increased sharply in 1973-1974 and 1979, and in each case OPEC validated the higher price levels by subsequently cutting production. On the other hand, the importing countries have failed to establish institutions of their own that could mitigate price increases because they have not perceived the problem to be one of institutional control over prices. Instead, they have tended to view high oil prices as the result of resource scarcity. Their responses have been predominantly intermediate to long term, stockpiling for an embargo, encouraging conservation, and promoting the development of alternative energy

The Treatment of Intermediate Materialsin the Estimation of the Demand for Energy: The Case of U.S. Manufacturing, 1947-1971

Richard G. Anderson

DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No4-5
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Continuing increases in the price of energy have stimulated extensive research on energy demand and factor substitution in the U.S. economy. The manufacturing segment of the U.S. economy consumes approximately one-fourth of aggregate U.S. energy if measured by Btu consumption, and about 40 percent if measured by the Btu content of the fuel used for electric power generation (see Table 1). Hence, the manufacturing sector has been specifically targeted as a source of potential reductions in energy demand in the Energy Policy and Conservation Act of 1975,This paper was completed while the author was Assistant Professor of Economics at Michigan State University. Acknowledgment is given to Ernst Berndt, Robert Engle,Franklin Fisher. Jerry Hausman, James Johannes, Robert Pindyck, and Robert Rasche for helpful comments. The author retains responsibility for errors.

Energy Efficiency Versus Human Lives

Irwin M. Stelzer

DOI: 10.5547/ISSN0195-6574-EJ-Vol1-No4-6
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The controversy over the cost of government regulation has led to an even more fundamental policy dispute. Those concerned about the cost of rules concerning safety, environment, health and so on (which are regularly spun out by the Occupational Safety and Health Administration, the Environmental Protection Agency, and their kin) generally seek to test the costs of these regulations against their benefits. Will the proposed rule, they ask, reduce the incidence of some disease or hazard sufficiently to be "worth" doing? Will the benefits to society, measured in dollar value of saved lives and lowered health and other costs, at least equal the costs of implementing the rule? Needless to say, the debate over how to measure many of the variables, especially the value of human life, is often heated.But those arguments are trivial compared with disputes between advocates of applying some cost-benefit test and those morally repelled by the procedure. Arguing that human lives and health cannot be valued in dollars, these groups most prominently, the Naderites-contend that better highway safety, cleaner air and water, safer working environments, and the like are absolute goods.