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Energy Journal Issue

The Energy Journal
Volume 7, Number 3

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The Great Transition: Energy and Economic Change

Dale W. Jorgenson

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-1View Abstract

This paper examines the interactions between energy prices and economic growth since the first world oil crisis in 1973. Its title comes from a report by the Swedish National Energy Administration. The report, which details the transition of the world economy from low-priced to high-priced energy, is an excellent overview of the interrelationships between industrialized economies and international energy markets.

A North American Gas Trade Model (GTM)

Mark A. Beltramo, Alan S. Manne, and John P. Weyant

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-2View Abstract

Natural gas ranks second only to crude oil as a primary source of energy in North America, During recent years, gas has satisfied 25 percent of all energy requirements in the United States. Most of this gas has been produced domestically, but 5 to 10 percent has been supplied by pipeline imports from Canada and Mexico. Additional amounts could be provided by pipelines from Alaska or by LNG (liquefied natural gas) imports from overseas, but these facilities would be expensive, and their construction continues to be delayed. Transport costs are high, and geography plays a far more important role in international gas markets than in the oil markets. For this reason, we view the North American continent as a largely self-contained system.

Price Discrimination Limits in Relation to the Death Spiral

J. Stephen Henderson

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-3View Abstract

It is well known that a public utility commission may be able to improve overall social welfare by allowing decreasing-cost industries (such as local public utilities) to price discriminate. For this course of action to be practical, the following conditions must prevail: (1) marginal-cost prices do not cover costs and (2) external subsidies are not feasible. Consequently, the need to raise prices above marginal costs means that some social welfare, measured as the sum of consumer's and producer's surplus, for example, must be sacrificed to allow the utility to break even. To minimize this sacrifice, the proportional deviation of price from marginal cost for each service should be correspondingly larger for markets with inelastic demands than for those in which demand is elastic.' This type of inverse elasticity rule seldom is used in practice and is cited here only to illustrate that pure value-of-service pricing may improve overall social welfare.

The Failure of Solar Tax Incentives: A Dynamic Analysis

G. Thomas Sav

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-4View Abstract

In recent years we have witnessed governmental attempts to acceler-ate the stock demand for energy-saving durables with financial incentives implemented through the tax mechanism. At the federal level, income tax credits for the purchase of energy-saving durable stocks were introduced through the Energy Tax Act of 1978 (Public Law 95-618). In addition, many states have enacted their own energy-saving tax incentive legislation. A substantial body of this tax legislation has been aimed at accelerating substitution of solar-produced energy for conventional, nonrenewable energy resources in the residential and commercial building sectors. Along these lines, the bulk of engineering (so-called life-cycle) cost studies accompanying much of this legislation predicted that solar tax incentives would generate widespread market penetration with little or no delay.' However, casual observation reveals that tax-induced solar energy substitutions have not been widespread.This paper presents a dynamic model of investment decisions in solar processes-a model that captures the effect of tax legislation aimed at accelerating market penetration of solar energy.

An Integrated Analysis of U.S. Oil Security Policies

Frederic H. Murphy, Michael A. Toman, and Howard J. Weiss

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-5View Abstract

Despite waning governmental interest, the current world oil market provides a valuable opportunity for reflecting on how U.S. policies can be structured to best guard against future disruptions in oil supplies. A vast literature on this subject has developed over the past few years. Yet, important points of disagreement remain.

Optimal Seasonal Distillate Inventory

Charles Tiplitz

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-6View Abstract

This paper summarizes an investigation of the seasonal inventory of distillate (heating) oil. My object was to determine the extra amount of distillate stock (usually called seasonal stock) to be held at the primary echelon at the beginning of the heating season (about October 31).It began with the usual belief that some traditional amount of heating oil stock be available at the beginning of the heating season. This traditional amount had been based on trends of seasonal stocks adjusted for weather and other demand changes and overlooked such things as optima price theory. Even so, this approach was flawed because seasonal patterns had become so much less severe that conventional, even careful extrapolation produced misleading and inconsistent results.

Energy Prospects and Policies in the PRC

Lu Yingzhong

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-7View Abstract

Commercial energy consumption (excluding rural areas) in the People's Republic of China (PRC) in 1983 amounted to some 656 million tons coal equivalent (tce), third largest in the world. In contrast to most developed and developing countries (except the USSR and the OPEC nations), the PRC is able to meet all its commercial energy needs from a variety of domestic sources. Starting from the very low level of 1949 (when the present regime came to power), total energy production increased by 27.65 times, more rapidly than the gross national product (19.9 times). Energy consumption per capita also has increased substantially-13.6 times during the period. However, it is still relatively low-640 kgce in 1980 as against the world average of about 2200 kgce. Further sizable demand increases are bound to occur as the PRC's development proceeds.

International Energy Workshop: Oil Price Projections

Alan S. Manne and Leo Schrattenholzer with the assistance of Jennifer L. Rowley

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-8View Abstract

This paper analyzes the distribution of long-term oil price projections submitted by participants in the January 1986 International Energy Workshop (IEW) poll. Wide differences of opinion are observed between individual respondents.

The Effects of Energy Prices Upon Appliance Efficiencies and Building Insulation

Michael A. Einhorn

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-9View Abstract

Energy economists have long recognized the fact that changes in energy prices can affect the demand for energy in several ways (e.g., see Fisher and Kaysen, 1962; Taylor, 1975). In the short run, energy users can change their utilization of a fixed appliance stock or a fixed set of capital equipment. In the long run, a user may change the makeup of his appliance stock by purchasing appliances he has never owned in the past, allowing certain appliances to retire unreplaced, and replacing worn-out devices with new ones of different operating efficiencies or of different fuel-using types. Recent works by economists have focused upon these various aspects of energy usage. (Prominent studies of short-run effects include Lawrence, 1982; George, 1982; Parti and Parti, 1980; and McFadden, Puig, and Kirshner, 1977.

Service Reliability and the Optimal Interruptible Rate Option in Residential Electricity Pricing

Chi-Keung Woo and Nate Toyama

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-10View Abstract

Recent research on electricity pricing extends the traditional peak load pricing problem in many directions. Some notable studies include the time-of-use (TOU) papers by Crew and Kleindorfer (1976, 1978); the cycling analysis by Dansby (1977); the Demand Subscription Service (DSS) studies by Tschirhart and Jen (1979), Panzar and Sibley (1978), and Marchand (1974). Central to these papers is the role played by demand uncertainty in determining the optimal electricity rate structure and capacity planning. With the exception of Tschirhart and Jen and Marchand, these papers do not directly address the question of service reliability from the customer's perspective. Moreover, the supply-side uncertainty caused by random plant outages (as indicated by Chao, 1983) is largely ignored. Finally, these studies, though elegant and innovative, do not analyze the problem of residential rate options, which recently have gained considerable popularity in the United States, especially in California.

U.S. Residential Demand for Wood

Richard R. Bryant

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-11View Abstract

A recent nationwide survey estimated that approximately 20 million households in the United States use wood as a source of heating fuel and that about 30 percent of those use wood as their primary source of space heat.' In two studies of total wood energy consumption, the U.S. Department of Energy suggests that residential wood energy use declined from the turn of the century to the mid-1970s but increased by more than 130 percent from 1973 to 1980 and by another 8 percent from 1980 to 1983.2 These studies report that by 1983 wood provided about 9.6 percent of residential end-use energy consumption and approximately 14 percent of total household heating fuel consumption. Moreover, residential wood energy use is expected to continue to increase. The Office of Technology Assessment has projected a tripling of fuelwood use between 1979 and 2000 under a business as usual scenerio and almost a sevenfold increase with "vigorous support and high energy prices."

Missing Survey Data in End-Use Energy Models: An Overlooked Problem

David A. Swanson

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-12View Abstract

Although missing data are found in all types of data sets, surveys are particularly prone to produce data sets in which values of some respondent variables are missing (see, e.g., Cochran, 1977; Ericson, 1967; Kalton, 1983; and Hutcheson and Prather, 1977). Survey data collected for end-use energy demand models are no exception; high frequencies of nonresponse occur for many variables. This issue is, however, generally disregarded in the end-use literature, and analysts working with end-use models often discard cases in which values are missing for variables required by their models (see e.g., U.S. Government, 1983; Pacific Gas and Electric, 1983; Hirst and Carney, 1978; and EPRI, 1977). Discarding cases with missing values has important consequences. It implicitly assumes that the missing values occur randomly rather than systematically. If, however, missing values do not occur randomly, discarding cases with missing values will result in misspecified models and biased forecasts. Furthermore, by discarding cases, the detail appropriate for a given end-use model can be lost.

Short-Term Price Formation in the U.S. Uranium Market: A Comment

Ferdinand E. Banks

DOI: 10.5547/ISSN0195-6574-EJ-Vol7-No3-13View Abstract

The recent paper in The Energy Journal by A. D. Owen (1985) provided another important example of an econometric relationship for short-term pricing very similar to those presented by Fisher, Cootner, and Baily (1972) for copper, and Banks (1971) for refined zinc. This short comment merely adds an observation to the pricing behavior discussed by Owen. Other useful presentations of this topic are Owen (1983), and Stephany, Bauder, and Lurf (1981).