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Energy Journal Issue

The Energy Journal
Volume 5, Number 3

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International Oil Agreements

M. A. Adelman

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-1View Abstract

The 1980 report of the Brandt Commission, calling for "a global agreement ... between oil producing and consuming countries" to assure adequate production at reasonable prices, states the gist of innumerable reports, articles, speeches, and resolutions, urging cooperation, dialogue, and interdependence.

The Role of Energy in Productivity Growth

Dale W. Jorgenson

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-2View Abstract

The objective of this paper is to analyze the role of energy in the growth of productivity. The special significance of energy in economic growth was first established in the classic study Energy and the American Economy 1850-1975, by Schurr and his associates (1960) at Resources for the Future. From 1920 to 1955, Schurr noted, energy intensity of production had fallen while both labor and total factor productivity were rising.' The simultaneous decline of energy intensity and labor intensity of production could not be explained solely on the basis of substitution of less expensive energy for more expensive labor. Since the quantity of both energy and labor inputs required for a given level of output had been reduced, technical change would also be a critical explanatory factor.From 1920 to 1955 the utilization of electricity had expanded by a factor of more than ten, while consumption of all other forms of energy only doubled. The two key features of technical change during this period were that (1) the thermal efficiency of conversion of fuels into electricity increased by a factor of three, and (2) "the unusual characteristics of electricity had made it possible to perform tasks in altogether different ways than if the fuels had to be used directly."2 For example, as Schurr noted, the electrification of industrial processes had led to much greater flexibility in the application of energy to industrial production.

Appropriate Financing for Petroleum Development in Developing Countries

Tamir Agmon, Donald R. Lessard, and James L. Paddock

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-3View Abstract

The availability of appropriate financing is likely to be a dominant factor determining the scope and pace of energy investment by developing countries in the 1980s. Reliance on self-finance will severely limit development for most countries, but traditional external finance-credit from private banks or multilateral agencies such as the World Bank-will probably play a smaller role than it did in the 1970s. External financing is less likely to be readily available now; at the same time, borrowers have become more aware of its limitations. Because of the time lags and uncertainties involved in most energy-related investments, the nature and volume of financing are likely to have a significant impact on the character and rate of investment.1 In fact, for enterprises or governments that are constrained1. While the relevance of finance to energy policy is clear, the research conducted to date has only scratched the surface. In one of the earliest studies of links between energy and finance, Agmon et al. (1979) examined the financial behavior of key OPEC members and considered the likely effect of changes in financial markets on their capacity and production decisions. Ben-Shahar (1976) and Moron (1978) evaluated the "revenue needs" of OPEC countries and related them to oil production scenarios. Dailami (1978, 1979a, 1979b) constructed econometric macrofinancial models of several oil-exporting countries; he then analyzed the impact of oil revenues on the countries' economy and the attendant influence of policy variables.

The Social Cost of Imported Oil

Elena Folkerts-Landau

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-4View Abstract

Structural adjustments in the economy and an increase in uncertainty about future oil prices followed the two oil price shocks of the 1970s and suggested that continued dependence on imported oil was costly. It was argued that private decisions to consume imported oil did not appropriately take into account the country's vulnerability to oil exporters. Accordingly, a literature developed around the idea that the market price of imported oil does not reflect the full social cost.

Maximum Economic Recovery of Federal Coal

William D. Watson and Richard Bernknopf

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-5View Abstract

The federal coal leasing program recently established by the De-partment of the Interior (DOI) (Federal Register, July 19, 1979) includes a requirement that operators mining federal coal achieve "maximum economic recovery" (MER) of coal from federal leases. The MER requirement, the focus of this paper, has its legislative origins in the Federal Coal Leasing Amendments Act of 1976 which directs that "the Secretary (of Interior) shall evaluate and compare the effects of recovering coal by deep mining, by surface mining, and by any other method to determine which method or sequence of methods achieves the maximum economic recovery (emphasis added) of the coal within the proposed leasing tract ... no mining operating plan shall be approved which is not found to achieve the maximum economic recovery of the coal within the tract."

Conditional Demand Analysis for Estimating Residential End-Use Load Profiles

Dennis J. Aigner, Cynts Sorooshian, and Pamela Kerwin

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-6View Abstract

This paper reports some preliminary results from an ongoing study that uses regression methods to break down total household load into its constituent parts, each associated with a particular electricity-using end use or appliance. The data base used for this purpose consists of 15-minute integrated demand readings on a random sample of statistical control group customers from the Los Angeles Department of Water and Power TOD (time of day)-pricing experiment for the months of August 1978 (132 customers), 1979 (108 customers), and 1980 (80 customers). Twenty-four regression equations are fitted, each one aimed at explaining variation in the time-averaged load (averaged over days of the month) over customers as a function of temperature, house size, and binary indicator variables that indicate the presence or absence of each of the end uses of interest. This sort of method for extracting the individual contributions of end uses to total household load has become known as conditional demand analysis (Parti and Parti, 1981). The success of this method for isolating end-use loads statistically, without direct metering of the appliance, depends crucially on whether the ownership patterns of appliances are well mixed. For example, if (as in our sample) everyone owns at least one refrigerator, it will be impossible to isolate refrigerator load. Similarly,

The Importance of Technology and Fuel Choice in the Analysis of Utility-Sponsored Conservation Strategies for Residential Water Heating

Raymond S. Hartman

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-7View Abstract

State-of-the-art residential energy demand models explicitly address consumer choices concerning fuels and fuel-using equipment (Arthur D. Little, Inc., 1981; Cambridge Systematics, Inc., 1981; Hartman, 1979, 1982a, b; Hartman and Wallace, 1982; Hausman, 1979; Hirst and Carney, 1978). However, these residential models have focused primarily on the measurement of conditional fuel demand and the analysis of fuel choice. One of their weaknesses is the incomplete treatment of technology choice.

Real Oil Prices from 1980 to 1982

Hillard G. Huntington

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-8View Abstract

In the early 1980s, soft world oil markets were accompanied by two important and unforeseen world economic developments: stagnant economic growth and an appreciating dollar. The virtual standstill in economic growth from 1980 to 1982 was well off the 3 percent-plus growth path many analysts had anticipated. This experience, coupled with large shifts in oil inventory holdings by consumers (and perhaps increased consumer responses to oil prices), has led to a steady accumulation of unused productive capacity in the world oil market.

A Note on Petroleum Industry Exploration Efficiency

E. D. Attanasi

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-9View Abstract

The concern over natural resource adequacy has led to the development of new theoretical models designed to predict behavior of firms exploring for and exploiting nonrenewable natural resources. However, advances in the theory of the mining firm have generally outpaced our ability to describe the exploration and discovery process empirically. An important topic is the industry's technical exploration efficiency-that is, how much exploration effort is needed to identify the fields with lowest unit production costs, so that extraction can proceed from the lowest to higher-cost resources.

The Cost of Synthetic Fuels in Relation to Oil Prices-Revisited

Edward J. Daniels

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-10View Abstract

... you can catch phenomena in a logical or in a mathematical box. The logical box is coarse but strong. The mathematical box is fine grained but flimsy. The mathematical box is a beautiful way of wrapping up a problem, but it will not hold the phenomena unless they have been caught in a logical box to begin with.In the beginning we generally believed that if the price of conventional oil continued to increase, at some point the price of synthetic fuels would become competitive. But in March 1981 we learned from a report prepared for the 97th Congress (Congressional Research Service, 1981) that the costs of synthetic fuels are driven by the cost of oil: even if oil were to reach $100 per barrel, synthetic fuels would still be more expensive! 2 Finally we knew that synthetic fuels could never be justified on an economic basis. The additional knowledge gained from the work (to wit, that interest rates could be predicted with a high degree of confidence on the basis of oil prices alone) was merely incidental.

The Economics of Utility Residential Energy Conservation Programs: A Pacific Northwest Example

Eric Hirst and Richard Goeltz

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-11View Abstract

The bottom line for any utility conservation program is its overall worth: whether program costs are justified by the value of the electricity savings. That is, are these programs worthwhile investments to utility customers that participate in the programs, customers that do not participate, the utility system, and society as a whole? How sensitive are estimates of program worth to the input parameters (program-induced energy savings, discount rates, future average and marginal electricity prices)?This paper discusses our assessment of program benefits and costs for the Bonneville Power Administration (BPA) Residential Weatherization Pilot Program. Unlike other assessments, the present work is based on a detailed empirical evaluation of the program. We collected enough data from both program participants and nonparticipants to analyze the actual energy savings that could be attributed to the BPA program. We also obtained information on actual program costs. This information was used to compute the Net Present Worth (NPW) of the program from the perspectives of program participants, the BPA power system, and the Pacific Northwest region as a whole.

A Note on Measuring Household Welfare Effects of Time-of-Use (TOU) Pricing

Chi-Keung Woo

DOI: 10.5547/ISSN0195-6574-EJ-Vol5-No3-12View Abstract

Several recent studies address the issue of household welfare effects caused by the implementation of time-of-use (TOU) pricing of electricity (for example, see Aigner and Lillard, 1982; Aigner and Learner, 1982; Parks, 1983; and Caves et al., 1983). In these studies, the historical average price is used to assess the household welfare change. Implicit in their approach is the assumption that the original electricity rate structure is a flat one. In fact, however, the common rate structure is multitier, frequently an inverted block. While the literature on demand for electricity includes extensive discussions of whether the average price or the marginal price is the correct price signal to a residential customer (e.g., Taylor, 1975; Nordin, 1976; Terza and Welch, 1982; and Billings, 1982), little attention has been given to evaluating welfare change resulting from TOU pricing.