Conference reports

Energy: demand, conservation and institutional problems Massachusetts I nstitute of Technology, Cambridge, USA, 12-14 February 1973

The meeting attracted 700-800 dele- gates, an attendance of nearly twice the number originally expected. The composition of the audience, drawn predominantly from Eastern and Central USA, included technical and programme managers from federal agencies in Washington and elsewhere, from several state and regional govern- ment agencies, and from many indus- trial organisations, ecology and environment groups, and universities.

The conference was organised by the MIT Energy Laboratory with support from the National Science Foundation's Research Applied to National Needs (RANN) Program and the MIT Industrial Liaison Program.

It was noticeable during the three days that there were three distinct groups of people present, namely those interested in economic model- ling and analysis, the environmental- ists with the sociological interests of pollution and conservation, and the esoteric technologists with principal interests in, or example, solar energy devices. Also noticeable was an almost complete lack of reference to energy problems external to those of the USA. The only papers disturbing this introspection were those from the Energy Research Unit of Queen Mary College, University of London, report- ing the work on a world energy model*, being done there, which emphasised the point that with present world energy supply and demand patterns national policies cannot be established independently without having effects on other nations' energy prices.

*See 'World energy modelling', page 21, this issue.

US national and regional energy system models were described by several authors based on a variety of simulation, linear programming and regression techniques. Verleger (Data Resources Inc) described a simulation model designed to facilitate the analy- sis of energy policy effects on fuel demand showing that under reason- able policy actions US energy demands can barely be met until 1980. Small linear programming models being used for basic fuel allocation were described by Hoffman (Brook- haven National Laboratory) and Schweizer et al (Westinghouse) for purposes of examining the supply, demand and price of primary energy sources and electricity subject to assumptions about future policies and technology changes. A more detailed aggregated US model was presented by Baughman (MIT) depicting long-term supply and consumption patterns for alternative sources of energy. Here the inclusion of supply sector models for coal, oil, natural gas and nuclear fuels and demand models for the residential and commercial, industrial process heating, transportation and electricity sectors resembles some of the reported work on aggregate models in Europe over the past seven to eight years. As a final comment, it was noted that several authors were much exercised by the topical problem of potential US imports of oil and gas with the attending implications for balance of payments and energy prices.

Some of the economic assumptions inherent in aggregate models were examined further in the session on energy economics. Bernott and Wood (University of British Columbia)

showed that the relationship between energy and economic output has an interpretation in the context of a complete macro-economic model of the economy only when the capital and labour inputs are weakly separ- able from the energy and other inputs in the production function. Nordhaus (Yale University) considered the pricing of scarce appropriable re- sources like petroleum, gas or coal, and pointed out that although a short-term condition for efficient pricing may be realised, it is unlikely that any long.term condition for efficient pricing can be found in a decentralised market mechanism. The present market mechanism was looked at further by O'Carroll (Queen Mary College, University of London) in the application ofprobit analysis to market data. If the regulating mech- anism between supply and demand via prices is based on free competition, then prices will tend towards marginal values; thus distributed lag relation- ships based on this hypothesis are being sought.

The stimulation afforded by an international conference, where sub- jects are discussed seriously which are not credible elsewhere, was illustrated by two papers by Herendeen, Folk and Harmon (University of Illinois) presenting a review of a large national linear input-output model. In this exercise a data base is assembled and used to calculate the total energy cost On millions of BTUs) of many classes of products~ thus can be found the amount of energy required to make an automobile, for example, and by extension of the analysis, the energy required for the transportation sector

ENERGY POLICY June 1973 71

Conference Reports

- reported to be 42% of all US energy and not 25% as assumed - or for any other sector. The model shows the demand for coal, crude oil, refined petroleum, electricity and natural gas implied by various national budgets, life-styles or scenarios (as well as employment, pollution, capital expen- diture, etc). Another use of input- output analysis was described by Just (MIT) in the forecasting of compara- tive national economic and environ- mental impacts of high and low BTU coal gasification and the gas turbine topping cycle during the 1980-85 time period. Apart from illustrating the high sensitivity of capital investment to the rate of energy use growth the model indicates also economic mech- anisms that wili help to hold capital investment within its historic bounds as a percentage of GNP.

A number of papers were presented on particular sector studies concern- ing electricity, coal, natural gas, and transportation. The perpetually thorny forecasting problem of elec- tricity demand was the subject of a separate session. Mount et al (Cornell University and Oak Ridge National Laboratory) proposed constant and variable elasticity models relating the electricity, substitute fuels, and complementary products such as household appliances. In a companion paper the authors investigated the past and current status of these factors and established a probably future range for each. Finally the resultant set of electricity demand projections were presented along with comparable industry and government forecasts. A wide range of possible demand levels in the year 1990 was seen, many of them lower than the other official forecasts. Forecasting methodology received attention also from Mooz (Rand Corporation) as produced for the State of California, from McElroy (Duke University) for estimating using dynamic programming, and from Michaelson et al (Publ. Serv. Elect. & Gas Co.) using an econometrical model (an approach also favoured in the UK). Finally a model for investig- ating the likely effects on daily or seasonal electricity demand curves as well as on overall energy consumption of changes in life style, population,

rate structures, etc was described by Woodard et al (MIT).

Comparable approaches for the prediction of the residential demand for natural gas were considered by Sewell (Federal Power Commission), although most of the papers on natural gas were concerned with the overall existing structure of the natu- ral gas industry in the USA. Stauffer (Harvard University) argued that the forthcoming US 'gas gap' could be countered only by rationing followed by deregulation of gas producers. Pindyck (MIT) also concerned himself with the future expected excess demand and discussed the interaction of the two gas markets (producers- pipeline companies, pipeline com- panies-consumers). Again econo- metric modelling techniques are start- ing to be applied to these problems. Deregulation of the wellhead price of natural gas and oil imports in the context of a national energy policy received further attention from Spann et al (VPI and NCSU). They point out that a significant component of the present energy shortage is a regulation induced shortage of natural gas and go on to examine some of the conditions and assumptions of joint cost theory applied to the relationships between oil imports and new natural gas discoveries.

The questions concerning oil trans- portation were raised in two papers. Zannetos (MIT) linked tankers and LNG carriers to the consumption of energy and finance, examined these requirements for ocean transportation for the next eight years and expressed some thoughs on how these resources - especially financial - may be

obtained. Hale (QMC, London University) described the world tanker fleet model being assembled within the world energy model at his institute to test the economics of various policies concerning the future use of very large tankers as opposed to existing sanaller ones, together with the need or otherwise to invest in expanded port facilities. Marginal values generated by the model solu- tions against tanker availability restrictions should enable an index of spot charter rates to be obtained, and the effects of pipeline/Suez Canal

openings or closures on these rates to be investigated.

In comparison with the oil sector, the coal sector received scant atten- tion. The paper by Gordon (Penn. State University) indicated that recent policy developments have made likely a new decline in coal use that may be difficult to reverse. In the USA, mining costs and costs of employing coal in power plants have increased significantly, largely because of new regulations. Since these rules were imposed as responses to serious prob- lems, the effect is to suggest that coal is not as valuable a resource as so many often argue. The paper des- cribes an attempt to build a com- prehensive model of the coal in- dustry opportunities and constraints.

Although electricity demand and generation was mentioned often in connection with other topics such as prediction problems or emission, the planning models of the electricity industry was the subject of only one paper by Manne (Stanford Univer- sity). In this paper a generation planning model was proposed using sequential probabilistic linear pro- gramming and incorporating flexible peak load demands. With the USA disaggregated into six regions it is shown that it is not optimal to install significant amounts of fossil fuel fired power stations during the 1980's instead of light water reactors while waiting for the breeder reactor to be available at some time during the 1990's. The validity of the numerical results obtained in the example remains in some doubt because of the lack of knowledge of the appropriate- ness of capital and running costs used combined with the absence of any sentivity analysis; nevertheless the ability of this type of model to produce optimal generation plans given the correct data could be seen.

The results of Manne were of interest, however, in the context of another paper by Istvan (Harvard) on inter-industry impacts of alternative utility investment strategies. Using a generalised dynamic input-output model incorporating time-lagged investment the effects on the US economy were investigated for differ- ent generation plant expansion poli-

72 ENERGY POLICY June 1973

cies. It was shown that investment in nuclear plant provided the maximum stimulation to the economy.

The effects of pollution control were the subjects of three papers. Isaac (London University)focused attention on the full cost implications of desulphurisation of fuel oil and reductions in tetraethyl lead in motor gasoline leading ultimately to comp- lete lead elimination. The world model being developed indicates the economic repercussions in many countries as well as the effects on competitive conditions in the general energy market. Chapman (Comell University) and Griffin (Houston University) in separate papers were concerned with the effect of pure air legislation on the US electric utility industry which is "the contributor of over half of the nation's sulphur dioxide emissions". Using different models, the authors demonstrated the dynamic nature of the pollution control problem involving fuel substi- tution, conversion efficiency, the effect of taxes on relative fuel prices, welfare loss, control costs and, with rate changes, demand elasticity. It was concluded that in the State of New York, for example, the presently proposed tax rates are probably below likely future emission control costs and that these taxes will have little effect on demand growth.

These three papers were relevant also to the session on the final day on institutional problems, which com- menced with a speech by Berlin, a lawyer, on institutional capacity to implement conservation proposals (in the USA). He drew attention rightly to the institutional fragmentation at the federal level and the bifurcation of federal-state responsibilities, and sug- gested the need for a central regula- tory commision to assess develop- ments where policy might replace advocacy. The chaotic existing dom- estic constraints were described fur- ther by Cicchetti and Goldsmith (Wisconsin University) with respect to the market intervention in the oil and gas industry brought about by federal and state legislation, taxes and regula- tions such that, for example, price differences exist between equivalent energy units of oil and gas, or import

quotas between the USA and Canada contribute to the energy shortage in the mid-west. Unfortunately, as pointed out by Ward (London Univer- sity) in his paper "The implications of national policies on world energy", national controls do not always achieve their designed intent, and in the closer interrelated world of today, often have international ramifica- tions. He went on to describe the work being done in examining the political, economic, strategic and nationalistic- ally motivated energy policies of any one country or group of countries to quantify their national and inter- national significance. The point was made at the meeting that US oil import quotas had subsidised Euro- pean and Japanese energy for a number of years to a value exceeding that of the Marshall Plan.

There was a very significant group of papers concerned with conserva- tion and with new technology such as involving solar energy which, with adequate research and development support over the next 30 years, could provide the USA with at least 35% of the heating and cooling of future buildings, greater than 30% of the methane and hydrogen needed for gaseous fuels and more than 20% of the electrical power needs, all with a minimal effect on the environment and substantial savings of non- renewable fuels. Particularly notable was that perhaps half of the confer- ence participants attended the session on solar energy and with represent- atives present also of organisations with geothermal interests, it was evident that considerable activity is going on in these areas of new technology for energy recovery. It is of interest to consider a point made by one of the authors that with nuclear plant capital costs rising there are some interesting energy source sub- stitution possibilities arising.

A full conference record of the papers will appear later in the year. Those interested should contact Pro- fessor D.C. White, Director, Energy Laboratory, Massachusetts Institute of Technology, Cambridge, Mass. 02139, USA.

M.A. Laughton (Queen Mary College, London)

Conference Reports

Papers presented

SESSION: Modelling o f energy systems

World energy modelling, R.J. Deam, et al (QMC, Univ of London) A simulation mode/ o f energy demands: some preliminary results, Phillip K. Verleger (Data Resources, Inc) A linear programming mode/ of the nation's energy system, K.C. Hoffman (Brookhaven Nat Lab) Energy system modelling, regulation, and new technology, Martin L. Baughman (MIT) A regional energy model for examining new pol icy and technology changes, P.F. Schweizer et al (Westinghouse Electric Corp)

SESSION: Solar energy

A n assessment o f solar energy as.a ;national energy resource, F.H. Morse (NSF ~) Solar-to-thermal energy concepts alJplied to large scale electric power generating systems, P.B. Bos et al (Aerospace Corp) A solar house system providing supple- mental energy for consumers and peak shaving with power-on-demand capability for utilities, K.W. Boer (Univ of Delaware) Schottky barriers for terrestrial solar energy conversion, W.A. Anderson and A.E. Delahoy (Rutgers Univ) Solar sea power, C. Zener et a/ (Carnegie- Mellon Univ)

SESSION: Energy economics

Economic meaning o f the energy-real output ratio, E. Berndt and D. Wood (Univ of British Columbia, Canada) Markets and approDriable resources, W.D. Nordhaus (Yale Univ) Energy economics, F.M. O'Carroll (QMC, Univ of London) Use of input-output analysis to determine the energy cost o f goods and services, R. Herendeen (Univ of Illinois) An energy, pollution and employment policy model. H. Folk and B. Hannon (Univ of Illinois) Impacts o f new energy technology using generalized input-output analysis, J. Just (MIT and Mitre Corp)

SESSION: Electricity demand

Electricity demand in the United States: an econometric analysis, T.D. Mount, D.L, Chapman (Cornell). T. Turrell (Oak Ridge Nat Lab) Modelling o f electric power demand growth, J. Woodard et al (MIT) A dynamic programming approach to estimating household demand for elec- tricity, Marjorie B. McEIroy (Duke Univ) Electric demand - one util i ty's econo- metric model W. Michaelson and R. Comerford (Public Service Elec and Gas Co.) Electrical energy demand projection methodology W.E. Mooz (The Rand Corp)

ENERGY POLICY June 1973 73

Conference Reports

SESSION: Natural gas

Residential demand for natural gas, P. Wade Sewell (FPC) The rational allocation o f natural gas under chronic supply constraints, T.R. Stauffer (Harvard Univ) Market structure and regulation: the natural gas industry, R.S. Pindyck (MIT) Oil imports, the wellhead price o f natural gas, national energy pol icy and jo in t costs in oi l and gas exploration, R.M. Spann, and E.W. Erickson (VPI & NCSU) Natural gas stimulation by underground nuclear explosion, C. Stern and E. Verdieck (Univ of Conn)

SESSION: Decisions - uncertainty

The problem of development decisions for an advanced energy technology: an illustr- ation in MHD power generation, D.A. Oliver, (MIT) Electricity investments under uncertainty, A.S. Manne (Stanford Univ) Inter-industry impacts o f alternative ut i l i ty investment strategies, R. Istvan (Harvard Econ Research Project) Economics and the growth o f electricity use, C. Cicchetti (Univ of Wisconsin) The assessment o f research end develop- ment options in energy, K.C. Hoffman et al (Assoc Univ Inc)

SESSION: Supply

Ocean transportation o f energy: resource requirements for the 1970s, S. Zenon and Alfred P. Zannetos (MIT) Oil transportation studies - summary, J.G. Hale (QMC Univ of London) Coal's future in the age o f environmental concern, R.L. Gordon (Penn State Univ) Opportunity costs o f land use: the case o f coal surface mining, R.L. Spore and E.A. Nephew (Oak Ridge Nat Lab) Cost trends and the supply o f crude oil and natural gas liquids in the United States energy market, Henry Steel (Univ of Houston)

An analysis o f world energy supplies, H.R. Linden and J.D. Parent (last of Gas Tech)

SESSION: Sulphur emission tax

An economic analysis o f a sulphur emission tax and the electric ut i l i ty industry, Duane Chapman (Cornell Univ) Atmospheric pollution, J.R. Isaac (QMC, Univ of London) Recent sulphur tax proposals: an econo- metric evaluation o f welfare gains, James M. Griffin (Univ of Houston) Direct conversion o f solar energy, on earth, now. J.A. Eckert et al (Exxon Enterprises Inc) Technical and economic factors in the implementation o f solar water heaters, E. Davis et al (Jet Propulsion Lab, Calif) The potential impact o f solar energy on the energy household o f the USA, M. Wolf (Univ of Penn)

SESSION: Institutional problems

Oil and gas: a case study o f institutional irrationality, C. Cicchetti and O.S. Gold- smith (Univ of Wisconsin) The implication o f national policies on world energy, P.C. Ward (QMC, Univ of London) Establishing regulations for aflocating energy: sociological considerations, Samuel Z. Klausner (Univ of Penn) Institutional design for energy systems/ environmental decision-making, G. Buchan (Univ of Texas at Austin) The northern plains coal resource- case study in public non-policy, E.R. Habicht (Environmental Defense Fund)

SESSION: Energy in transportation

Demand for energy by the transportation sector and opportunities for energy conservation, A.C. Malliaris and R.L. Strombotne (US Dept of Transportation)

Impact o f automotive emission controls on future crude oil demands in the US N.D. Carter, and W.T. Tierney (Texaco Inc) Energy requirements for future transportation, R.D. Thornton, (MIT) Determination o f the tote/energy costs o f rapid transit systems, T.J. Healy (Univ of Santa Clara) Energy use patterns and conservation potential for transportation, E. Hirst (Oak Ridge Nat Labl

SESSION: Conservation

A thermodynamic valuation o f resource use: making automobiles and other pro- cesses, R.S. Berry et al (Univ of Chicago) Energy conservation through effective utilization, C.A. Berg (NBS) Energy utilization in a residential com- munity, Richard Grot and Robert H. Socolow (Princeton Univ) Energy conservation in perspective o f international energy requirements, J. Adams and R. Nielsen (Exxon Corp) Electric energy requirements for environ- mental protection, E. Hirst (Oak Ridge Nat Lab) and T. Healy (Univ of Santa Clara) Residential demand for electricity, John Tansil and John C. Moyers (Oak Ridge Nat Lab}

INVITED PAPERS

Ways of looking at future economic growth, resource and energy use, Tjalling C. Koopmans, (Yale Univ) Theory and practice o f effluent control, Robert Dorfman (Harvard Univ) Institutional capacity to implement energy conservation proposals, Edward Berlin (Berlin, Roisman and Kessler) The entropy crisis, George N. Hatso- poulos, (Thermo Electron Corp)

Developments in European and world markets for coking coal and cokes

Organised by the United Nations Economic Commission for Europe, Rome, 26-30 March, 1973

The iron and steel industry con- sumes large amounts of coal, coke, oil, natural gas and electricity. The scale of this consumption may be judged by the fact that in 1970, 256 500 000 tons of coke were used in pig iron production alone. In addition about 30 x 106 t o n s - probably a minimum f i g u r e - o f heavy oil "were injected into blast furnaces. The coke is derived from a

specialised fuel in the form of coking coal, the supply of which has from time to time, been difficult. It is important to be able to foresee the growth of energy demand within the industry and how this may be distri- buted amongst the different sources of supply.

The Rome Symposium was not primarily concerned with energy but rather with subjects such as the

supply of coking coal to meet futule growth and in improvements in tech- nology to reduce the costs of iron and steel making. These, however, have an impact on energy supplies from different sources.

Pig iron production in blast fur- naces will probably remain the chief route used in steel making, certainly until well into the 1980s and pro- bably beyond. Estimates of produc-

74 ENERGY POLICY June 1973