EPA-R5-73-021
July 1973 Socioeconomic Environmental Studies Series
Energy Conservation Strategies
Office of Research and Monitoring
U.S Environmental Protection Agency
Washington DC 20460
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RESEARCH REPORTING SERIES
Research reports of the Office of Research and
Monitoring, Environmental Protection Agency, have
been grouped into five series. These five broad
categories were established to facilitate further
development and application of environmental
technology. Elimination of traditional grouping
was consciously planned to foster technology
transfer and a maximum interface in related
fields. The five series are:
1. Environmental Health Effects Research
2. Environmental Protection Technology
3. Ecological Research
4. Environmental Monitoring
5. Socioeconomic Environmental Studies
This report has been assigned to the SOCIOECONOMIC
ENVIRONMENTAL STUDIES series. This series
describes research on the socioeconomic impact of
environmental problems. This covers recycling anu
other recovery operations with emphasis on
monetary incentives. The non-scientific realms of
legal systems, cultural values, and business
systems are also involved. Because of their
interdisciplinary scope, system evaluations and
environmental management reports are included in
this series.
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EPA-R5-73-021
July 1973
ENERGY (CONSERVATION
STRATEGIES
by
Marquis R. Seidel
Steven E. Plotkin
Robert 0. Reck
Program Element 1H1093
Implementation Research Division
Office of Research and Monitoring
U. S. Environmental Protection Agency
Washington, D.C. 20460
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, D.0.20402 - Price $1.56
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ABSTRACT
This report examines various strategies for reducing national
energy demand. Suppose government chooses to reduce national energy
use, and to do so in a cost-effective way. Then it is necessary to find
out, for each potential energy saving, how much energy Is involved and
how costly the alternatives would he.
The study hegins hy asking how much is now paid, or might he paid
in the future, hy various energy users. It emerges from the study that
many users get much of their energy at relatively low prices, and are
thus encouraged to waste it; the economist calls this "price
distortlon", a form of "market failure."
i
The study analyzes the kinds of market failure which seem to cause
the present "energy crisis", the kinds of government action which could
rectify these failures, and the likely response of the economy to
moderate price increases.
Numerous actions, some large and some small, would be required to
restore a more efficient fuctioning of the market for energy. Some of
these actions have already heen initiated. In an efficient—market,
energy price increases of 25% would prompt a halving of the growth of
energy demand; through 1990, energy needs would grow 402 rather than the
100% projected at current prices.
11
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TABLE OF CONTENTS
Page
Abstract ii
List of Tables iv
List of Strategies v
Preface ..• vi
Sections
I Introduction and Summary .......... 1
Introduction ..... 1
Summary and Conclusions .. 3
Quantitative Results .... 6
Possible Tactics 8
II Overview and Analytic Framework 10
Demand Projections & Elasticities 12
Potential Energy Conservation Strategies ... 20
Costs of Energy Conservation 25
Strategies for Allocating Costs ...... 26
Price Policy 26
Flow Taxes ............ 34
Stock Taxes 35
Strategies for Changing Demand Directly .... 36
Public Investment .......... 36
Loans and Credits 37
Regulation 38
Exhortation and Education ....... 38
Future Research 39
III The Residential/Commercial Sector 40
Market Strategies 42
Non-Market Strategies .......... 45
Energy-Saving Technology & Benefits ..... 47
An Example ............. 63
IV The Industrial Sector 70
Market Strategies ... 74
Non-Market Strategies 76
Energy-Saving Technology & Benefits ..... 77
V The Transportation Sector 87
General Discussion ........... 87
Pathways to Conservation 88
Inter-City Freight. . 88
Inter-City Passenger ... 90
Urban Passenger 91
Interactions of Energy Strategies .... 93
Short-Term Strategies 93
Mid-Term Strategies .......... 104
Long-Term Strategies 110
VI References 113
ill
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LIST OF TABLES
Table
I Energy Consumption in U.S. by Use, 1960 & 1968 .... 13
II Forecasts of U.S. Energy Requirements by Sector. ... 14
III Partial Elasticities of Demand for Electricity .... 17
IV Fossil Fuel Use for Electricity Generation 17
V Suggestions, Office of Emergency Preparedness 21
VI Market Failure and Its Causes 23
VII Demand with Current & Altered Electric Rates ..... 30
VIII Typical Residential Electric Bills 43
IX Savings from Standard Insulation . . 48
X Sensitivity of Optimum Insulation 49
XI Fuel Consumption with Heating/A-C Systems 61
XII Specifications, Characteristic & Design House. .... 64
XIII Specific Concepts and Energy Savings ... 65
XIV Energy & Dollar Savings, Design I & II, Concepts ... 66
.XV Energy in Metal Production and Recycling ....... 78
XVI Energy Savings on Automotive Metals 79
XVII Electricity Use in Construction. 82
XVIII Modal Shares & Efficiency by Transport Sector. .... 89
XIX 1980 Freight Traffic with 1960 Modal Splits 105
XX 1980 Passenger Traffic with 1960 Modal Split 105
iv
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LIST OF STRATEGIES
Strategy Page
0-1: REVIEW AND REVISION OF RATE-SETTING POLICIES 26
0-2: INTERNALIZATION OF ENVIRONMENTAL COSTS TO USERS 33
R-l: Increase Residential and Commercial Insulation 47
R-2: Increase Consumer Awareness of Energy*-Saving Alternatives . . 47
R-3: Remove Institutional Barriers, as in FHA Appraisal Rules. . . 55
R-4: Control Quality of Energy-Saving Installation 55
R-5: Encourage Energy-Awareness in Appliance Choice. . .62
1-1: Encourage Recycling of Selected Materials 77
1-2: Promote Energy-Saving Materials in Manufacturing. .77
1-3: Promote Energy-Saving Materials in Construction ..81
1-4: Promote Investments in Energy-Saving Equipment. .......83
1-5: Encourage Energy-Saving Shifts in Illumination. ....... 84
T-l: Improve the Competitive Position of Rail Freight. 93
T-2: Improve the Energy-Efficiency of Trucks 94
T-3: Centralization of Truck Terminals ..............95
T-4: Raise Automobile Operating Costs. ...... 95
T-5: Increase Energy-Efficiency of Auto by Technology. ...... 96
T-6: Improve Airline Passenger Load Factors. ...........98
T-7: Raise Urban Operating Costs of Autos (Parking Fees & T-4) . . 99
T-8: Subsidize Short-Term Improvement of Existing Transit. ... 100
T-9: Promote the Use of Fringe Parking Facilities. ....... 101
T-10: Initiate the Restructuring of Urban Transportation, .... 101
T-ll: Promote Technological Improvements of Autos (T-5) ..... 102
T-12: Promote Carpooling 102
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PREFACE
In September 1972, the Deputy Administrator of the Environmental
Protection Agency charged its Office of Research and Monitoring (OR&M)
to perform a background study on various strategies for reducing
national energy demand, as one option among many to be evaluated for
reducing environmental pollution. Such a study was already under way
within the Implementation Research Division (IRD) of OR&M, as part of
its continuing research on the subject.
This report is the result of that study, and can also be
considered as a progress report on IRD's program of research on energy
conservation. It deals first with restoring proper market functioning,
then with the effects of energy price increases, and finally with
selected regulatory actions. At all times, it tries not to advocate
more or less energy conservation, but rather to evaluate alternative
means of reducing energy use, if it should be decided by the political
process that such reductions are in the national interest.
This effort included many participants. EPAfs Energy Policy
Committee is to be thanked for its helpful comments, and for Insisting
that the study must not consider strategies based only on regulation or
on price, but instead must treat a mixed strategy as was finally done.
The authors wish to express their gratitude for the assistance and
motivation they received from other participants, and for the support
and encouragement offered throughout the Office of Research, without
which the study could not have been completed. Needless to say, any
errors are our own responsibility.
vi
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SECTION I
INTRODUCTION AND STJMMARY
INTRODUCTION
The "energy crisis" is popularly viewed as an apparent inability
of the energy industry to supply growing "needs" for energy. This
report faces the issue of how the Environmental Protection Agency might
respond to the threat of such a crisis. Increasing pollution control
requirements will he viewed as exacerbating the crisis by increasing
energy costs, and we will be urged to relax such measures, to permit
continued expansion of supply.
Stated in more dispassionate terms, the "energy crisis" is a
projection that at existing prices, historical growth of energy demand
will probably outgrow the available energy supply. In fact, the
"increased energy costs" arising from pollution control are simply the
intemalization to the energy supplier of the social costs which have,
until now, been dumped into the environment. Energy suppliers should
pass these costs on to consumers in such a way that energy resources are
allocated efficiently. Anticipated higher energy prices will reduce
demand. Thus environmental protection is not part of the problem; it is
part of the solution.
In his Energy Message of June 4, 1971, President Nixon noted that
"part of the answer lies in pricing energy on the basis of its full
costs to society. The costs....are not now included in the price of
the product. If they were added to that price, we could expect that
some of the waste in the use of energy could be eliminated." This
report is a beginning toward achieving that goal; an effort to
estimate both the magnitude and the distribution of the effects of
reasonable price increases on the demand for energy and for
energy-using or energy-conserving products.
The "Overview" of this report examines rate revisions and cost
intemalization as two basic strategies. Later sections discuss
particular savings in various sectors of the economy and non-market
strategies for achieving them. The latter must not be viewed as
substitutes for the former. The basic strategies are essential; the
particular suggestions by sector may or may not still be needed once the
basic changes are under tray.
- 1 -
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Scope of the "Energy Crisis"
In 1970, total U.S. energy consumption amounted to 68.8 OBTTT
(Quadrillion British Thermal Units, or "Quads".) In 1990, demand is
projected to reach 135 QBTU, far above projected supply at current
prices. The differences among consuming sectors are apparent from the
distribution (with allocation of electricity and heat loss to users) of
the total energy demand and its growths
Sector 1970 Growth 1990
Households & Commercial . . 24Q (34%) 58% 380 (28%)
Industrial 29Q (42%) 124% fi50 (48%)
Transportation 160 (24%) 100% 320 (24%)
It must be emphasized that such a growth projection is a continuation of
historical patterns of energy consumption, with energy supplies expected
to somehow grow to meet demand, without any significant change in the
real costs of energy sources. That is, no "energy crisis" is assumed,
and the supply or price of the required energy is not considered.
Basic Strategy Options
Given such demand projections, the nation appears to have a choice
among three broad strategic options for resolving the "energy crisis":
1. Take no action (leaving a "gap" between supply & demand);
2. Reduce demand by
a) Modifying energy-wasteful government policies,
b) Internalizing environmental costs to users, and
c) Assisting the market-place on a selective basis; or
3. Increase supply, by relaxing environmental constraints
and by government funding of research and development.
- 2 -
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SUMMARY A1TD CONCLUSIONS
This report explores the effects of choosing the second option.
The hasic finding of this report is that if the government should wish
to take an activist position on hehalf of energy conservation, a
market-based strategy appears attractive. Large amounts of energy go
for uses that could he eliminated at very little cost; such energy
savings would not call for changes in life Style, cessation of national
growth, or significant economic dislocations. If such lox^-priority
energy uses (or wastes) are not eliminated, it will become far more
difficult to maintain (much less improve) environmental quality. Thus
the process of allocating environmental cost's to energy suppliers (and
through thnri tb users) is part of the solution to the fenergy problem,
not part of the problem itself. In nore detail, ifr has been possible to
identify a number of the specific areas where such savings ,are
economically viable, and to consider what additional government action,
if any, night be taken to ensure a sound market if this approach should
be adopted.
Current emphasis is on energy conservation through "voluntary"
programs. The American consumer seems to be qtiite willing to cooperate
in such programs in the short run, when he believes the purpose is
valid. Eovever, he seems unwilling to make economically unsound choices
for any groat length of time; and he seems very quick and willing to
make economically prudent choices. He has more common sense than to ask
for higher prices, but he doesn't seem to be clamoring for especially
low energy prices any more. For these .reasons, it behooves
policy-makers to give careful consideration to the means by which the
"voluntary" actions which are needed can be converted into economically
rational actions on the part of consumers.
A number of areas have been identified where further research is
needed on the optimum allocation of scarce energy among users. A broad
research program on the economics of energy use and conservation is
needed, to deal xjith the long-run impacts of such alternatives as
continued exponential expansion of energy supply. The nature of these
research needs is specified in Section IT..F of this report; specific
needs for technology research are mentioned in passing. The three most
pressing economic questions deal with the energy-efficiency of
transportation alternatives, the rate structure for electricity, and the
burden of and response to increased residential heating costs.
-3 -
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Allocation of Energy Costs
The basic question ahout closing the "energy gap" is whether the
costs of closing it should be borne solely by society generally,
investing in expanded supply; solely by constimers, restricting certain
kinds of demand; or by market processes which allocate energy increments
to those users who are willing to pay the full social costs of added
uses.
For market forces to work effectively, government policies that
indirectly encourage energy waste would have to be revised. The most
obvious such policies are electric rates that give lowest prices to
users with the most flexibility, and natural gas price regulation that
not only restricts supply, but also encourages waste of the gas that is
available.
Environmental damages are real costs to society. We cannot fully
estimate the magnitude or distribution of these costs, but we can
discuss the energy-saving alternatives that become economical when
energy costs increase by any specific amount.
Residential/Commercial Savings
Even at current energy prices, added Insulation would pay for
itself in most cases. A 25% increase in fuel costs could make it
economical to save 50% of residential heating/cooling needs in new
units, and about half that amount in existing units, using available
equipment and techniques.
Consumers need more understanding of the energy-use alternatives,
both in housing construction and appliance choice. The governmental
role might include standards, labeling, appraisal practices, and
regulation, but there seems to be no need for restricting consumer
choices.
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Industrial Savings
If Industry's 1970 demand of 29 OBTIT rises to the projected 65
OBTU in 1990, it will be because industry is encouraged to continue
under-valuing energy, and shifting toward energy-intensive products and
processes. It is important to remember that most of 1990fs industrial
energy use will be from equipment that has not yet been built.
If an activist national policy of energy conservation were
adopted, market strategies could make many energy-saving choices
worthwhile for industry. Options Include more recycling of
energy-intensive materials, use of energy-saving materials in
manufacturing and construction, and Investment In energy-saving
processes and equipment.
Transportation Savings
At least in the short term, greater savings are available from
increased auto efficiency than from shifting to alternative modes of
passenger travel. For the longer term, it is desirable to reverse the
trend to less energy-efficient modes of transport.
Auto owners can become more aware of fuel-saving options, such as
radial tires, better load-to-engine match, smaller cars, and better
aerodynamics. Increased operating costs, partly due to pollution
•controls, will foster this awareness. Rate-setting bodies might allow
natural competitive advantages to favor energy-efficient modes, rather
than trying to cancel such advantages in the name of Inter-modal
competition. Planning for urban transport systems might -consider energy
conservation along with abatement of congestion and pollution.
- 5 .
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QUANTITATIVE RESULTS
Specific savings will he estimated for specific conservation
actions, but to summarize these quantitative findings is very difficult
because of the overlap among strategies. We find an estimated 1985
savings of 7 Quads in Residential/Commercial and Industrial, due solely
to estimated sector elasticities responding to proposed electric rate
realignments with no net cost increase, and 4 Quads in Transportation
to changes in auto efficiency that are cost-effective at present prices.
Beyond this, but far short of supply-side estimates of prices
doubling and tripling, it appears that net price increases on the order
of 25% (leaving real energy costs below their 1960 level) -would lower
1990 demand projections by a total of some 41 Quads, or about 30%. This
means that energy needs would grow by less than 407 between 1970 and
1990, rather than the energy-crisis projection of 1007 increases.
Such growth would consist of continued rapid expansion of most of
the economy, with some revisions and cutbacks of growth trends in the
more energy-extravagant sectors. It is intuitively obvious that a 25%
increase in real prices over a 17-year span will not be catastrophic:
at most, energy would require l%-2% more of GNP. This report tries to
examine the substance of such an intuition, and to specify strategy and
tactics for achieving an orderly transition to a national concern for
energy conservation, should such a policy direction be chosen.
The results are basically optimistic. The Presidential hopes:—
"homes warm in winter and cool in summer, rapid transportation,
plentiful energy for industrial production and home appliances" and
"less of a strain on our overtaxed resources" appear to be well within
our reach.
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ATTRACTIVE STRATEGIES
* OVERALL
- Dual Strategy, Using froth Market and Regulation.
- Broad Research on Energy Use and Conservation.
* REVIEW AND REVISION OF ENERGY-WASTEFUL GOVERNMENT POLICIES
- Discriminatory Pricing
- Highway and Aviation Subsidies
- Depletion Allowances
* INTERNALIZATION OF ENVIRONMENTAL COSTS TO USERS
- Sulfur Emissions Tax
- Auto Emissions Tax
- General Costs of Compliance
* ASSISTING MARKET WITH SELECTIVE ACTIONS
- Insulate New Dwellings: Regulation and Labeling
- Insulate Old Dwellings: Subsidy or Loan
- Control Trends to Energy-Wasteful Products, Processes
- Improve Automobile Energy-Efficiency
* POTENTIAL SAVINGS IN 1990, GIVEN ABOVE STRATEGIES
- 22% of Residential/Commercial - - 8 OBTU or 6%
- 34% of Industrial ------ 24 OBTU or 17%
- 27% of Transportation - - - - 9 OBTTT or 7%
NATIONAL ------ 41 OBTU or 30%
- 7 -
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POSSIBLE TACTICS
It Is desirable to translate the study's list of ..energy-saving
strategies into more specific tactics that might be used when and if
energy conservation becomes a national policy. It Is not our purpose
here to recommend policy, strategy, or tactics. Very few of the
requisite decisions will, or should, he made within EPA.
However, it has been possible to enumerate some of the agencies
that have the responsibility for making such decisions. In many cases,
decisions that are relevant to the use or conservation of energy are now
under active consideration, sometimes with little or no explicit
consideration of energy Itself. The specific energy-saving tactics are
cross referenced to the relevant strategy discussions within the body of
this report, and are arranged in an order based on an approximation of
"immediacy" — an estimate that the tactic is either easy to begin, or
worthy of prompt consideration if energy conservation is to be actively
pursued.
At most of these decision points, more evaluation will be needed
than has been possible within the scope of this report. We have
remarked on the lack of data and analytic tools for dealing with many of
these aspects, and are engaged in research which will clarify the most
urgent of them. ,
One final warning: we have not always been able to consider the
transient, or short-run, problems of adjusting to policies of energy
conservation. There are always legitimate interests which will be hurt
more, or helped less, by any shift of government policy. Many such
interests will perceive that the effects of a specific tactic, on them,
will be the opposite of the effect on the nation as a whole.
Policy-makers must be aware that such transitory effects do not vitiate
our evaluations.
- 8 -
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TACTICAL DECISION POINTS
FNCY POSSIBLE CONSERVATION MEASURE STRATEGY
FPG
FPC
EPA
All
FPC
FPC
FPC
Him
DOT
DOC
DOC
HUD
EPA
HUD
DOT
FTC
ICC
DOT
DOT
EPA
HUD
DOT
CAB
Help states appraise long-term energy costs
Define & apply cost-based and peak-load pricing
Direct focus on environmental costs
Increase consumer energy-awareness
Revise interstate rates for electricity
Revise natural gas well-head prices
Issue guidelines on promotional advertising
Consider energy costs in appraising property
Encourage radial tires, especially on new cars
Promote industrial energy-awareness , products
Promote industrial energy-awareness t processes
Apply existing FHA-51A insulation standards
Influence operating costs of automobiles
Set energy standards for commercial buildings
Improve load-to-engine match
Require energy-cost labeling of appliances
Review/revise rates for energy-efficiency
Improve energy-efficiency of trucks
Promote small automobiles
Increased energy-saving industrial recycling
Set standards for installations
Expand R&D on energy-saving commuter systems
Increase aircraft passenger load factor
0-1
0-1
0-2
F-2
0-1
0-1
0-1
n-3
T-5
1-2
1-4
R-l
T-4
1-3
T-5
R-5
T-l
T-2
T-5
1-1
R-4
T-8
T-6
PAG1
26
26
33
47
26
26
26
55
96
77
83
47
95
81
P6
62
93
94
96
77
55
100
98
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SECTION II
OVERVIEW AND ANALYTIC FRAMEWORK
This document outlines methods of reducing energy demand (or at
least the growth of demand) and the benefits that might be obtained by
each of these methods. The study deals with the Residential/Commercial,
Industrial, and Transportation Sectors separately, discussing 1975,
1980, and 1990 time horizons within each sector.
Before treating these sectors specifically, it is necessary to
clarify the viewpoint and the framework of the analysis. To do so, we
must give some initial consideration to the nature of the projections of
energy consumption, the costs of energy conservation, and the general
types of strategy for altering demand, either by broad-based market
mechanisms or by specific efforts to regulate energy uses. These
initial considerations lead us to two very broad strategic suggestions.
Both could be initiated as early as possible, and pursued steadily and
dynamically throughout the whole period under consideration.
In his Energy Message of June 4, 1971, President Nixon noted that
"Historically, we have converted fuels into electricity and have used
other sources of energy with ever increasing efficiency. Recent data
suggest, however, that this trend may be reversing.... We must get back
on the road of increasing efficiency.... We believe that part of the
answer lies in pricing energy on the basis of its full costs to society.
One reason we use energy so lavishly today is that the price of energy
does not include all of the social costs of producing it. The costs
incurred in protecting the environment and the health and safety of
workers, for example, are part of the real cost of producing energy
but they are not now included in the price of the product. If they were
added to that price, we could expect that some of the waste in the use
of energy would be eliminated." This report is a beginning toward
achieving this goal.
It is well known that if prices uniformly reflect the full social
costs of goods, they x<7ill work to produce an optimum allocation of
resources among competing needs. It is not sufficient, however, to
affirm a rich faith in the market. It is also necessary to look at the
present market in some detail, estimate the effects of changes in
current prices, and project the distribution of social costs and
benefits which will follow from such changes. Host important of all, it
is essential to search carefully for cases of present or possible market
failure, and to rectify or compensate for each of them. The present
report is an effort to treat both the effects of pricing, and the cases
where pricing alone is insufficient, In more detail than prior studies.
- 10 -
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The results are basically optimistic. The Presidential hopes:-—-
"homes warm in winter and cool in summer, rapid transportation,
plentiful energy for industrial production and home appliances" and
"less of a strain on our overtaxed resources" appear to be well within
our reach.
The basic conclusion is that relatively large fractions of total
energy consumption are being used, not because the energy is essential
or desirable in itself, but because the energy is slightly cheaper than
available energy-saving alternatives. Relatively small changes in price
can be expected to make worthwhile a national return to greater
efficiency in energy use. There is no reason to fear that such a trend
will cause major dislocations in the economy.
- 11 -
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DEMAND PROJECTIONS & ELASTICITIES
In 1970, total U.S. energy consumption amounted to 68.8 QBTU
(Quadrillion British Thermal Units, or "Quads".) When electric energy
(including waste-heat losses) is allocated to its ultimate users by
sectors, the distribution of this total energy consumption appears as
follows:
Households & Commercial . . . .34.3%
Industrial 41.5%
Transportation ....... 24.0%
The Utility & Electricity Generation Sector is treated as a
transformation mechanism rather than as a specific consumption sector of
the economy, and its fuel inputs are allocated to its ultimate
consumers, throughout this report. This convention was adopted because
we are not concerned directly with the efficiency of the conversion
process, and because it seems important to view all demand on a
consistent basis as a drain on the ultimate energy input resources
available to the nation.
A more detailed tabulation of U.S. energy consumption, by end-use
within sector, is presented in Table I for the years 1960 and 1968; the
annual rate of growth of each use is also given.
In recent years there have been many studies of the determinants
of energy demand. It is not easy to compare these studies to one
another, because of the multitude of varied assumptions and
methodologies contained in each. Consequently, they exhibit large
variations in reported values of total energy consumption, energy
requirements, and energy demand.
Nevertheless, most forecasts of energy demand contain assumptions
in the following basic range:
- GNP growth rate about 4% per year;
- population growth rate about 1.6% per year;
- relative prices remain competitive; and
- unlimited availability of fuels.
Based on these and other assumptions, a number of projections of
enerny requirements by sector have been generated. A sample of such
projections is given in Table II.
The third and fourth assumptions mentioned above are obviously not
consistent with the existence of an "energy crisis". Clearly the gap
between our demand projections and our supply projections will
ultimately be closed, and each future year will have an energy
consumption which is equal to both supply and demand. Clearly, also'
- 12 -
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TABLE I - ENERGY CONSUMPTION IN THE UNITED STATES BY END USE
1960-1968
(Trillions of Btu and Percent per Year)
Consumption Annual Rate
Percent of
National Total
Sector and End Use
Residential
Space heating
Water heating
Cooking
Clothes drying
Refrigeration
Air conditioning
Other
Total
Commercial
Space heating
Water heating
Cooking
Refrigeration
Air conditioning
Feedstock
Other
Total
Industrial
Process steam
Electric drive
Electrolytic processes
Direct heat
Feed stock
Other
Total
Transportation
Fuel
Raw materials
Total
National total
1960
4,848
1,159
556
93
369
134
809
7,968
3,111
544
98
534
576
734
145
5,742
7,646
3,170
486
5,550
1,370
118
18,340
10,873
141
11,014
43,064
1968
6,675
1,736
637
208
692
427
1.241
11,616
4,182
653
139
670
1,113
984
1.025
8,766
10,132
4,794
705
6,929
2,202
198
24.960
15,038
146
15,184
60,526
of Growth
4.1%
5.2
1.7
10.6
8.2
15.6
5.5
4.8
3.8
2.3
4.5 .
2.9
8.6
3.7
28.0
5.4
3.6
5.3
4.8
2.8
6.1
6.7
3.9
4.1
0.4
4.1
4.3
1960
11.3%
2.7
1.3
0.2
0.9
0.3
1.9
18.6
7.2
1.3
0.2
1.2
1.3
1.7
0.3
13.2
17.8
7.4
1.1
12.9
3.2
0.3
42.7
25.2
0.3
25.5
100.0%
1968
11.0%
2.9
1.1
0.3
1.1
0.7
2.1
19.2
6.9
1.1
0.2
1.1
1.8
1.6
1.7
14.4
16.7"
7.9
1.2
11.5
3.6
0.3
41.2
24.9
0.3
25.2
100.0%
Note: Electric utility consumption has been allocated to each end use.
Source: Stanford Research Institute, using Bureau of Mines and other sources.
- 13 -
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TABLE Ila - FORECASTS OF U.S. ENERGY NEEDS (In TBTU), RESID./COMM.
Source(l) 1970 1975 1980 1985 1990 2000
EMUS
CGAEM
EUS
RAF
OEUS(2)
PEC
OEP(3)
13837 15451 17265
14246 17224 20983 25701
14737 17559 21269 26028
16430 21110
11000
17979
25843 29633
21066
27600
37329
(1) Source Codes:
EMUS An Energy Model for United States Featuring Energy Balances
for 1947-65 and Projections to the Years 1980 and 2000.
Bureau of Mines, 1C 8384, 7/68, U.S. Dept. of Interior
CGAEM....Competition and Growth in American Energy Markets, 1947-85.
Texas Eastern Transmission Corporation, 1968
EUS Energy in the United States, 1960-85.
Michael C. Cook, Sartorius & Co., 9/67
RAF Resources in America's Future. Landsberg, Fischraan, Fisher;
Resources for the Future, Inc., Johns Hopkins Press 1963
OEUS Outlook for Energy in the United States.
Energy Division, Chase Manhattan Bank, 10/68
PEC......Patterns of Energy Consumption in the United States.
Wm.A.Vogely, Bureau of Mines, U.S. Dept. of Interior, 1962
OEP Energy Conservation, Office of Emergency Preparedness, 7/72
(2) Excludes commercial uses of energy.
(3) Includes waste heat from electrical generation (Table VII).
- 14 -
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TABLE lib - FORECASTS OF U.S. ENERGY NEEDS (in TBTU), INDUSTRIAL
Source(l) 1970 1975 1980 1985 1990 2000
EMUS 20370 22446
CGAEM 21649 26216
EUS(4) 22093 26303
RAF 21810
OEUS(5)
PEC
OEP(3) 34284
TABLE lie - FORECASTS OF U.S.
Source (1) 1970 1975
EMUS 15548 18733
CGAEM 15501 18376
EUS 14303 16935
RAF 12960
OEUS
PEC
OEP 19070
24633
31591 37954
31576 38016
29100
30000
22231
42563
ENERGY NEEDS (in TBTU)
1980 1985
21481
21968 25836
20002 23662
18530
24000
21000
22880
32594
55620
65150
, TRANSPORTATION
1990 2000
42749
37190
32200
(4) Excludes non-energy uses of fuels.
<5) Includes commercial uses of energy.
- 15 -
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there will be some cost associated with closing the forecasted gap. To
decide xrtiat costs should be incurred, and what segments of the economy
should pay those costs, any social planner needs to know the
elasticities which describe how each segment will react to such
additional costs. Unfortunately, there is not very much good data on
the demand elasticities for energy.
Studies on elasticity of demand for energy are almost entirely
limited to electrical energy. Among the most-cited studies is that by
Fisher and Kaysen entitled "The Demand for Electricity in the United
States"(Ref.l) and that by Wilson entitled "Residential Demand for
Electricity"(Ref.2). Wilson has also derived energy demand equations,
using a cross-sectional approach rather than the .time-series method of
Fisher and Kaysen. In both studies, the variable to be explained is
average electricity consumption per household. In addition, Wilson has
differentiated between new, flexible, and locked-in consumers with
respect to electric appliances. Those in the locked-in category find
that the cost of altering the stock of appliances is too great 'in the
short run to change energy consumption patterns in any significant
degree; i.e., they are relatively unresponsive to changes in price, or
their elasticity of demand is between 0 and -1 (Ref.3).
A comparison of the results of these demand studies appears in
Table III, The table reveals that elasticity estimates for gas and
electricity cost coefficients are somewhat higher in the Wilson case, a
result which Wilson attributes to the use of his cross-sectional data.
Wilson's negative income coefficient disagrees with results that would
be anticipated and is probably the result of his choice of the number of
rooms per household for the "size of household" variable instead of the
number of persons per household. The former is correlated with the
level of household income while the latter bears no necessary
relationship to income.
The Federal Power Commission (Ref.4) indicates that the use of
fossil fuels for electric power generation has recently been undergoing
change. These changes are recorded in Table IV and reflect underlying
market forces and associated price elasticities of demand for
alternative fuels. A careful analysis of energy alternatives requires
that these elasticities and cross elasticities of demand be determined
so that market impacts of alternative energy policies can be determined.
Summarizing the results of several energy demand studies, we find
that in the Fisher and Kaysen estimates of short- and long-run
residential and industrial demand, long-run residential price has nearly
no effect on energy demand. Similar results appear for the short-run
case; i.e., the elasticity coefficient in either case is greater than
-1.0. Fisher and Kaysen also hypothesize that since technological
change has neutralized the effects of price on industrial demand and has
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TABLE III - PARTIAL ELASTICITIES OF EXPLANATORY VARIABLES
Anderson Wilson Fisher and Kayscn
VARIABLE Resid. Regid. Resid. Comm. Indus.
Price of Electricity
Price of Gas
Household Income
Size of Household
Winter Temperature
Population
-0.91
+0.13
+1.13
-0.85
+0.18
-1.33
+0.31
-0.46
0.49
-0.04
-1.3
+0.15
+0.3
+0.9
-1.3 -1.7
+0.15 +0.15
+0.9 +0.5
+1.0 +1.1
TABLE IV - Fossil Fuel Use for Electric Power Generation as a
Percent of Total BTU, by Census Region, 1960 & 1969.
REGION
New England
Middle Atlantic
East North Central
West North Central
South Atlantic
East South Central
West South Central
Mountain
Pacific
U. S. Average
Coal
1960
58
78
96
47
77
92
-
26
•MMHWIMMB •
66
Gas Oil
1969
•••••••MM*
23
57
93
55
70
89
-
55
••••••M
58
1960
5
8
4
52
15
8
100
66
68
26
1969 1.960 1969
2 37 75
9 14 34
6 1
44 1 1
13 8 17
11 - -
100
42 83
83 32 17
29 8 13
Source: Federal Power Commission, "1970 National Power Survey", 1970.
- 17 -
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made electricity a more important input into the production function,
there is little reason to expect a higher sensitivity of industrial
demand to price.
In Wilson's demand study, the long-run price elasticities range
from -1,0 to -1,6 instead of the near-zero estimates of Pisher-Kaysen.
The Chapman(Ref.S) results indicate that substantial cost
increases and reductions in population growth will combine to give a
considerably lower growth of electricity demand in 1980-2000 than in
1950-1970. In addition, the short-run unresponsiveness of demand to
prices is attributed to the behavior of stocks of appliances, and to
other short-run inflexibilities. For New York State, long-run price
elasticities of -1.3, -1.3, and -1.4 have been derived for residential,
commarcial, and industrial demand respectively.
i
Halvorsen(Ref.6) has estimated long-run price, income, and cross
elasticities of demand for residential electricity. He has found a
total long-run price elasticity of demand of -1.20 and an income
elasticity of 0.61. The cross elasticity of demand with respect to the
price of gas was estimated at 0.04. Finally, for residential demand
alone, an elasticity coefficient of demand with respect to average price
of -1.138 was derived.
What, then, do these demand studies tell us about the
characteristics of electrical energy demand, and what are the
implications of their results and conclusions?
First, the elasticity of demand figures reported above indicate
that the demand for electric energy is, in the short run, largely
unresponsive to changes in price. However, the long-run elasticities
generally indicate a greater reaction. (An elasticity below -1.0, after
all, indicates that total expenditures for electricity would actually
decrease if prices rose.)
Relatively low income elasticities (smaller than 1.0) indicate
that the proportion of Income spent on electricity decreases as Income
rises; that is, price increases would have a regressive effect unless
some effort is made to prevent this. (When a change in marginal rates
alone is discussed later, this regressive effect is Indeed prevented.)
The short-run inelasticity of demand for electricity can be
attributed to three general characteristics:
1. the inflexibility of energy-using equipment with respect
to its hourly and total consumption of energy;
2. the inflexibility of equipment usage rates for fixed
levels of production or of household income; and
3. the high costs of scrapping or replacing the equipment.
- 18 -
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According to most extrapolations of available data, the demand for
electricity, if unchecked, will grow at an exponential rate into the
next century. The possibility of such long-run exponential growth is
questionable. Such projections have no analytic basis and are fraught
with uncertainties. They do not account for the possibility of rapid
changes in life styles, and they assume that the effects of urbanization
and of changes in technology will occur at the same rate as in the past.
Such forecasts are often deficient ia several respects:
1. fuels are assumed in limitless supply, at constant prices;
2. impacts of new technology are not fully Included; and
3. environmental constraints are largely ignored.
It must be emphasized that such projections assume continuation of
historical growth patterns of energy consumption (including
technological improvement, population growth, etc.) with energy supplies
expected to grow to meet demand without any significant change in the
real costs of energy sources. That is, no energy crisis is assumed and
the supply or price of the required energy is not addressed. If the
historical pattern which is being extrapolated is one which includes
public efforts to achieve ever-lower fuel prices and a public disregard
for environmental costs, as many believe, then the pattern is not a
trustworthy guide to future trends.
Strategy Options ~
Given such demand projections, the nation appears to have a choice
among three broad strategic options for resolving the "energy crisis":
1. Take no action (leaving a "gap" between supply & demand);
2. Reduce demand by
a) Abolishing energy-wasteful government policies,
b) Internalizing environmental costs to users, and
c) Assisting the market-place on a selective basis; or
3. Increase supply, by relaxing environmental constraints
and by government funding of research and development.
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POTENTIAL ENERGY CONSERVATION STRATEGIES
By way of background, it is.instructive to note that the Of fice" of
Emergency Preparedness has recently estimated the sector-by-sector
potential energy savings from various suggested energy conservation
measures (Ref.7). Needless to say, further research is needed in each
of these areas, along with estimates of their environmental
implications. The OEP suggestions are summarized in Table V.
For the economist, the energy crisis may be analyzed in terms of
three main components: probable cost increases as energy sources grow
scarce, desirable price increases to reflect the true environmental cost
of energy sources, and price shifts to adjust to changing relative costs
of various energy sources. These three components, taken together, may
well produce serious strains on the economy within the next few years.
Such strains can arise (and are beginning to become visible
already) in two primary ways. First of all, changes in the status quo,
or deviations from past patterns and expectations, are intrinsically
hard on the economy's participants, partly because of sunk costs and the
inflexibility of. capital, and partly for such non-economic reasons as
human inertia. Secondly, there may be legal, administrative, or
institutional barriers which are too inflexible to permit rapid response
of the economy to changing conditions, with resulting physical hardships
from genuine material shortages; the effects of selective price controls
on the mix of available petroleum products is exactly such a case.
The most that needs to be done for the first kind of problem is to
try to predict future trends as accurately as possible, except for the
cases where past government policies have locked users into particular
capital choices and some relief seems equitable. With respect to the
second problem, it is at least necessary that the actual workings of
each "barrier" be well understood; many of these have sound non-economic
justifications, but many others would probably be removed or modified if
their economic effects were widely understood.
If energy prices reflected the full social and environmental costs
of energy consumption, the economist's involvement in the energy crisis
would be mainly a matter of forecasting the changes in real costs of
energy sources. If the forecasts showed impending shortages, the
government could alter prices so as to restrict the growth in use of
that particular energy source. In fact, the price structure which
prevails among energy sources at the present time ia part of the
problem, not part of the solution.
Some of the sources of market failure have been identified and are
presented in Table VI. In addition to such general causes as
- 20 -
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TABLE V - SUGGESTIONS BY OFFICE OF EMERGENCY PREPAREDNESS
SHORT-TERM MEASURES (1972-1975) —
Residential/Commercial —
Establish upgraded construction standards and provide tax
incentive* and insured loans f.ev improved home insulation.
fHlBM* M$J 0.2 QBTU/yr.*
, ^^^^^B^^p^^^^SJ^^ j
Industry —
Increase energy price to encourage improvement of processes and
replacement of inefficient equipment; provide tax incentives to
encourage recycling and reusing of component materials,
Savings: 6*112, 1.9-3.5 QBTU/yr.
Transportation —
Conduct educational programs to stimulate public awareness of
energy conservation in the transportation sector; establish
government energy efficiency standards; improve airplane load
factors-; promote development of smaller engines and vehicles;
improve traffic flow; improve mass transit and inter-city rail
and air transport; promote automobile energy-efficiency through
low-loss tires and engine tuning*
Sayings? 10%, 1.9 QBTU/yr.
Electric utilities ~
Smooth but dally demand cycle hy means of government
facilitate new construction; decrease electricity demand.
Savings? 42, 1.0 OBTTT/yr.**
Residential/Commercial —
Establish upgraded construction standards and tax incentives
and regulations to promote design and construction of
energy-efficient dwellings including the use of the "total
energy concept" for multl-family dwellings; provide tax
incentives, R&D funds, and regulations to promote
energy-efficient appliances, central air conditioning, water
heaters, and lighting.
Savings; 14%, 4,8 QBTtT/yr.
vlnduatry —
Establish energy-use tax to provide incentive to upgrade
processes and replace inefficient equipment; promote research
for more efficient technologies; provide tax incentives to
encourage recycling and reusing component materials,
Savings: 12*17%, 4.5-6.4 QBTU/yr.
- 21 -
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TABLE V - SUGGESTIONS BY OFFICE OF EMERGENCY PREPAREDNESS
Transportation —
Improve freight handling systems; support pilot implementation
of most promising alternatives to internal combustion engine;
set tax on size and power of autos; support improved truck
engines; require energy-efficient operating procedures for
airplanes; provide subsidies and matching grants for mass
transit; ban autos within the inner city; provide subsidies for ,
intercity rail networks; decrease transportation demand through
urban refurbishing projects and long-range land use planning.
Savings; 21%, 4.8 QBTU/yr.*
Electric Utilities —
Restructure rates for heavy uses to smooth out demand cycle;
facilitate new construction. Savings: 4%, 1.1 OBTU/yr.**
LONG-TERM MEASURES (Beyond 1980)
Residential/Commercial —
Provide tax Incentives and regulations to encourage replacement
of old buildings by energy-efficient new buildings; R&D
funding to develop new energy sources (solar, wind power.)
Savings; 302, 15 OBTU/yr.
Industry —
Establish energy use tax to provide incentive for upgrading
processes and replacing inefficient equipment; promote research
in efficient technologies; provide tax Incentives to encourage
recycling and reusing component materials.
Savings: 15-20%, 9-12 QBTTT/yr.
Transportation —
Provide R&D support for hybrid engines, non-petroleum engines,
advanced traffic control systems, dual mode personal rapid
transit, high-speed transit, new freight systems, and people
movers; decrease demand through rationing and financial support
for urban development and reconstruction.
Savings: 25%, 8.0 OBTU/yr.
Electic Utilities —
Smooth out daily demand cycle through government regulation;
facilitate new construction; support R&D efforts.
Savings; 3%, 1.4 QBTU/yr.**
mm mm mm mm mm mm^ mm ^^ mm mm mm mm mm mm mm mm mm m» mm mm mm m^ ^^ ^^ ^^
* Savings figures refer to annual savings In last year of period.
Percentages refer to savings as percent of sector consumption.
** Electric Utility savings are incorporated into projections.
- 22 -
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TABLE VI - MARKET FAILURE & ITS CAUSES
* GENERAL
- Inflexibility
- Erroneous Expectations
- Mismatched Tine Horizon
* REGULATORY PRICE DISTORTIONS
Fuel Kind of Distortion
Gas Well-Head Prices & Block Rates
Oil Import Quotas & Allowables
Coal ICC Shipping Rates
Nuclear Price-Anderson (Hazard Insurance)
Elec. Rates: by States, & by FPC for interstate
* ENVIRONMENTAL COSTSv NOT FULLY INTERNALIZED DURING:
FUEL. Extraction Distribution Use
Cas Sweetening Pipelines Nitrogen Oxides
Oil Subsidence Spills Emissions
Coal Strip Mines Slurry Emissions
Nuclear Risk Thermal
Elec. /Fuels, above/ Wires
-------
misinformation, there are a number of specific sources in the form of
regulatory pressures or environmental externalities which affect certain
aspects of the extraction, distribution, and consumption of energy
sources in specific sectors. (Externalities are market failures simply
because they are "external" costs; i.e., costs to society which are not
matched by prices anywhere in the market.)
This makes it highly desirable to begin development of
conservation strategies by considering as a first step the
implementation of a set of internally consistent costs for energy
sources, and a price structure which reflects those costs. Assuming
such a framework, and assuming further that increasing scarcity will
produce increasing energy costs over the next few years, it is then
possible to ask which sectors of the economy will bear the largest
burden of these increasing costs. This general question is discussed in
the next section, but the way in which these costs will actually be
internalized to the Residential, Industrial, and Transportation Sectors
of the economy is addressed in Sections III, IV, and V.
Following our general discussion of the costs of energy
conservation, we proceed to discuss two separate kinds of broad
government strategy which are common to all three sectors of the
economy. The first set of strategies consists of methods for realigning
prices and costs so as to reflect the desired changes in demand for
energy. The second set of strategies are those which work directly on
specific components of demand.
- 24 -
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COSTS OF ENERGY CONSERVATION
Throughout the current discussion, "cost" will refer to the
perceived cost changes which occur as a result of the energy crisis and
the economy's reaction to the crisis. If there is an energy crisis at
all, it arises because our current prices are too low to permit
continued expansion of the energy supply while simultaneously
stimulating demand. In this case, if prices were to rise to reflect
scarcity and externalities, the total social costs should actually go
down, but perceived costs will go up. This is true and inevitable
regardless of government action. The problem is to minimize the
detrimental impacts of these perceived cost changes. Actual consumption
of energy can be lowered in two ways: by allowing increased prices (or
a shift in the supply curve) to cause consumption to fall along the
present demand curve, or by lowering the demand curve (e.g., by
energy-saving technology.) Inr the former case, the economy is likely to
respond to increased prices by creating the same shifts in demand (e.g.,
energy-saving technology) that would be the most cost-effective for the
government to introduce in the latter case.
In either case, energy conservation has perceived costs as well as
benefits. If less energy is used, either some potential Users of energy
will be shut out of the market while some actual users pay higher
prices, or else some segment of the economy must make the investments
which cause the demand curve to shift. The existence of these perceived
costs should not cause us to lose sight of the expected reduction in
society's total costs, associated with demand reduction.
It is not possible to define the size of the desired changes in
energy consumption, or the size of the associated costs. Ultimately, it
will be a political process that .judges whether the benefits of
additional conservation exceed the costs. What is possible is to bring
relative costs into better alignment, to identify some of the sectors
where the greatest benefits can be achieved at lowest cost, and to
estimate the magnitude and impact of the costs associated with any given
level of energy conservation.
The next two sections are devoted, respectively, to strategies
which affect demand by changing costs, and to strategies which affect
demand directly. In both cases, the considerations of this analytic
framework cut across all sectors of the economy. Later, in dealing with
specific sectors, parts of the framework must be applied to specific
parts of the problem. Throughout, there will be an effort to note
existing programs and policies which work against energy conservation,
as well as new programs which are needed.
- 25 -
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STRATEGIES FOR ALLOCATING COSTS
This section considers the price policies which have a direct
effect on the relative costs of energy, as well as general taxes on real
uses of energy (as flows) or on energy-using investments (as a stock.)
("Tax" is used in the broadest sense, so that, for instance, a subsidy
is viewed as a negative tax,) Certain more specific fiscal measures,
such as the investment tax credit or low interest loans, are to be
deferred to the following section because they tend (insofar as they are
specific) to work as direct inducements to shift the demand in selected
sectors.
Price Policy
A great variety of government forces interact to prevent energy
resource prices from matching the full social costs of those resources.
A partial list of these fbrces can include rate-setting policies as
applied to both utilities and shipping, oil import quotas, mineral
depletion allowances, and income-tax preferences favoring
energy-intensive single-family homes. Beyond these distortions of
resotirce prices, there is the growing social cost of various
externalitties all along the production chain. Such external effects
include the long-run cost of resource depletion, the aesthetic and
ecological impact of resource extraction, and the environmental
pollution involved in energy transformation, distribution, and use.
There is an increasing awareness of the degree to which all these
forcns and effects are externalities which have economic causes and
admit of economic remedies; the need is for an internalization of
environmental costs to the economic agents who are not now paying those
costs. This internalization takes the form of an effluent or emission
tax or fee. (Imposition of standards on the energy sector, for
instance, also forces such an internalization of costs, but only by an
indirect and inefficient process.) However, very little analysis has
been performed on the quantification or the internalization of costs
associated with the extraction or depletion of minerals.
Price Regulations -
STRATEGY 0-1; REVIEW AND REVISION OF RATE-SETTING POLICIES
OF ENERGY-REGULATING BODIES, TO ELIMINATE
LOWER BLOCK RATES FOR THF MOST PRICE-
SENSITIVE USERS OF GAS AND ELECTRICITY.
Regulation has made sense, historically, because energy utilities
are "natural monopolies": once the requisite investment has been made
for extraction and distribution of energy by a particular firm, the
- 26 -
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marginal cost of added output is low, and the entry of competition is
economically impossible. Therefore, the firm's prices should (according
to "accepted" theory) be regulated to prevent its raising prices and
restricting output, and therefore also the firm should charge lowest
prices ("at the margin") to its most price-elastic customers, and
highest prices (to cover capital costs) to its least price-elastic
customers. This pricing theory is especially perverse with respect to
energy conservation — it explicitly gives low prices to those who are
most apt to respond to low prices by increasing their energy use.
The problem with this theory is not that it is incorrect, but that
it has become outdated. At the margin, added energy use is no longer
cheaper, but more expensive. In the very short run, an extra
kilowatt-hour or BTU is indeed cheap; but in the long run, counting the
share of added capital for each unit of added demand, we are probably
not gaining any more economies o£ scale. When we include the congestion
costs of adding new plants, pipes or wiring in existing urban areas,
marginal costs are clearly rising, not falling.
Research is needed to extend our regulatory theories for this case
of marginal costs which increase over the long run, and to apply the
theory to price determination. The problem is, of course, seriously
complicated by such aspects as peak-load pricing, the marginal costs of
servicing various customers, and the cost (to the utility) of varying
priorities among its customers.
It is not being suggested here that all energy customers must be
charged uniform rates -- though such a measure may prove desirable. It
is being argued that discounts must not .be offered to those very
customers who are most sensitive to the discounts, for this policy
(which is now pervasive) encourages over-use of energy by the heaviest
users, and by those who would most readily cut back on that energy use,
given the economic incentive of higher prices.
Historically, part of the rationale for this specific policy has
been that regulatory bodies should not cause the utilities to lose their
most price-elastic customers to other energy suppliers. This Is a valid
but obsolete concern. If EPA moves to internalize the environmental
costs of each energy source (including, for instance, abatement of
pollution from In-plant generation of electricity), and if all energy
suppliers charge prices related to cost rather than demand, then it is
best for users to be free to choose the lowest-cost source of energy,
not be held captive by artificial rates.
One of the important aspects of this issue is the whole question
of peak-load pricing. Peak loads determine the capacity needed for an
energy system. For electricity, daily and seasonal peaks may not, of
themselves, account for much of the energy consumption, but they do
- 27 -
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account for much of electricity's environmental impact. This happens
both through the use of less efficient and nore polluting equipment to
supply the peak, and also through the environmental hurden (e.g., land
use problem) of power plant expansion. In addition, sone
energy-storage schemes seen .to entail significant energy-conversion
inefficiencies to snooth these peaks. Analysis of the problem of
defining and collecting higher rates, from peak-period users must be :part
of the suggested review and revision.
The chief obstacle to this suggested strategy is the fact that
there x-n.ll be differential effects anong the suppliers and.-users-of
energy. Many of the heaviest users of electricity will feel the largest
rate increases, for example, and will therefore feel a doubly heavy
increase in costs. It is therefore imperative that any such changes be
made in as equitable a form as possible, for all affected energy users
and energy suppliers simultaneously. However, it must also be realized
that tbe most-affected industries will also, by definition, be those
which can most readily conserve on some of their present energy use, and
which have had the most benefit from this discriminatory pricing in the
past. In addition, the energy cost is probably not a major cost for
such price-elastic firms, to the degree that elasticity would generally
be less for essential inputs.
It should,,., also be noted that regulation of freight charges
produces similar distortions in the relative costs of energy sources
(especially oil vs. coal). tThile these distortions undoubtedly affect
fuel choices in some locations, it is doubtful that they have a major
effect on the national consumption of energy.
Little quantitative analysis has been performed on the effects of
altering the structure of electric rates. A recent study (vef.R) by tbe
New York Department of Public Service for residential demand concludes:
"Price elasticity of electricity for residential use at rates
close to historic or prevailing rates can be expected to be
negligible both in the short run (3-5 years) and in the longer
run. Tbe proportion of consumer budgets spent on electricity
is far too low to maize a cost that is readily responsive to
price changes. At sharply higher rates (double or triple
current schedules), the rate of growth in the demand for
residential power for uses which require large amounts of power
(e.g., air conditioning, water and space heating) may be
dampened." ,
We reject some of this reasoning, as we feel that .moderate price
increases will have significant long-run effects. (Specifically, there
is no evidence of a discontinuity in the demand curve, .such that
reductions are negligible until they become h^rsh.),,Although electricity
takes a small share of household spending, this is not sufficient reason
to assume that households can not or will not react; to changes in the
-------
pricp. of electricity by altering their use of it. On the contrary, the
elasticities previously cited show that there are such reactions. The
problen needs thorough and detailed study (especially with regard to the
phasing-out of old capital and appliances) rather than merely to be
assumed away as hopeless. One of the major initial problems is that of
determining (or approximating) the prices which are actually paid by
various consumers for a marginal unit of electricity.
.-
The Federal Power Commission does not publish (or even collect)
statistics on the revenues received within each segment of the block
rate structure, so it is not possible to perform a precise analysis of
the effects of existing rates. However, they do publish
stat5.stics(Ref.9) on Rational Weighted Average bills for various levels
of service to each sector, and on the sales, revenue, and number of
customers in each sector. These can be used to identify typical
marginal and average prices in each sector, and to estimate the effects
of uniform pricing of electricity.
The technique for making such an estimate is as 'follows: the
marginal rate charged to the heaviest use in a sector is taken as the
marginal cost in that sector. The fee for minimum service, less the
margS.nal cost for that minimum service, is taken as the fixed cost (for
hookup, distribution, meter service, etc.) for a customer in the sector.
The fixed cost times the number of customers gives a fixed revenue to
the utility; the remaining revenues are divided by the total service to
yield a uniform rate which is to be charged for all energy supplied to a
sector. The bills for various levels of service are then recomputed.
(Details of this process, for the Residential/Commercial and the
Industrial Sectors, are described on pages 42 and 74, respectively.)
This process gives the utility the same revenue from each sector
as at present, assuming the same consumption of electricity. The higher
marginal rates to customers are assumed to cause a reduction in
consumption which is predicted by the price elasticity of each sector.
Thus the consumption of electricity and the revenues of utilities are
reduced — but without inequitable transfers between them.
The consumption projected under these assumptions is shown in
Table VII. In Table Vila we show the demand in TBTU (with heat losses
for electrical demand reflected in the consuming sector) for the
Residential/Commercial, Industrial, and Transportation sectors,
estimated for 1975, 1980, and 1990. An increase of 11% in the marginal
price of electricity is postulated for the Residential/Commercial and
Industrial sectors. Half of the elasticity is assumed to take effect by
1975, all of it by 1980. The Transportation sector is not affected at
all, nor are the prices or direct use of coal, gas or oil. The savings
which are due only to uniform electric rates are shown in Table Vllb;
the changed consumption projection is shown in Table VIIc. This single
- 29 -
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TABLE Vila - Projected Energy Demand, Given Current Electric Rates,
Coal Petroleum Gas Nuclear
Total
1975
Resid./Comm.
Industrial
Transportation
1975 Total
1980
Resid./Cornm.
Industrial :
Transportation
1980 Total
1990
Resid./Comm.
Industrial
Transportation
4451
9347
-
13798
4750
10937
-
15687
5513
15046
_
8512
8517
18050
35079
9745
10475
21440
41660
11772
14818
30400
10349
12840
1020
24209
10658
14922
1440
27020
11617
15863
1800
2531
3580
-
6111
4480
6230
-
10710
8427
19423
—
25843
34284
19070
79197
29633
42564
22880
95077
37329
65150
32200
1990 Total
20559 56990 29280 27850
134679
Source:
"Energy Conservation", Table 1 A-l, OEP, July 1972. Data in
TRTU's, with electrical waste heat allocated to final users.
- 30 -
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TABLE viib - Projected Energy Savings, Given Strategy 0-1.
Coal Petroleum Gas Nuclear Total
1975
Resid « /Conn.
Industrial
Transportation
1975 Total
1980
Resid./Comm.
Industrial
Transp ortation
1980 Total
1990
Resid./Corou
Industrial
Transportation
1990 Total
Source: Calculations on Table Vila as described in text, to give effects,
in input TBTU's, of constant-revenue shift to uniform electrical rates.
- 31 -
288 109 118 177
445 191 195 336
733 300 313 513
623 283 165 627
1163 559; 456 1171
1786 842 621 1798
772 305 156 1180
1955 780 392 3662
2727 1085 548 4842
692
1167
1859
-2.3%
1698
3349
5047
-5.3%
2413
6789
9202
-6.8%
-------
TABLE viic - Projected Energy Demand, Given Strategy n-l,
Coal Petroleuw Gas ftircl«ar
fetal
1975
Resid./Cotnm.
Industrial
Transportation
1975 Total
1980
Resid./Comm.
Industrial
Transportation
1980 Total
1990
Res id./Com.
Industrial
Transportation
4163
8902
•M
13065
4127
9774
-
13901
4741
13091
*
8403
8326
18050
34779
9462
9916 -
21440
40818,
11467
14038
30400
10231
12645
1020
•'teMfeMMifllNtP
23876
10493
14466
1440
26399
11461
15471
1800
2354
3244
mm
5598
3853
5059
-
8912
7247
15761
—
251.51
33117
19070
77338
27935
39215
22880
90030
34916
58361
32200
1990 Total
17832 55905 28732 23008
125477
Source: Table Vila less Table Vllb.
- 32 -
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strategy accounts for a saving of 6.8% of the whole energy demand in
1990; and 9.0% of the non-transportation demand.
Constraints of time and scarcity of data have made it impossible
for us to make similar projections of energy savings should natural gas
rates be readjusted or deregulated. A cursory review reveals, however,
that regulation has probably produced more severe market distortions
with respect to natural gas than with respect to electricity. Thus, it
seems probable that readjustments in the price and price structure for
natural gas will produce energy savings comparable to those we have
demonstrated for the electrical sector.
It should be noted that projected shortages of natural gas in the
fairly near future are expected to drive prices up. While this is
generally discussed in the context of increasing supplies, such price
rises can also be expected to significantly reduce demand. Thus, it
would appear that an opportunity to rationalize prices for natural gas
is at hand, and further, that these price increases can be expected to
significantly ameliorate the "energy crisis" by reducing demand, as well
as by increasing supplies.
Finally, it is clear that oil import quotas work to keep prices
up. This report does not deal directly with the supply-side reasons for
increasing oil imports; however, a tariff on oil imports would permit a
more direct and market-related interaction between supply and demand
than the qttota system which has been in effect.
Cost Intemalization -
STRATEGY 0-2; WORK FOR INCLUSION OF ENVIRONMENTAL COSTS
WITHIN THE TOTAL COSTS OF ENERGY SOURCES.
One strategy to achieve this is to charge emission and effluent
taxes. The arguments for this approach, though not yet universally
accepted even within EPA, are sufficiently familiar that they will not
be repeated here. The aspect which is most relevant strategically is
that such taxes, once accepted as a principle and embodied into law, can
be readily adjusted to reflect changing public perceptions of the
benefits of saving or using resources.
The proposed sulfur emission tax is, of course, a member of this
family. There are a number of environmental costs which are directly
traceable to the production or use of energy, and which can reasonably
be charged to the responsible process. In general: firms try to pass
such costs to the consumer; prices will rise a bit and production will
fall a bit; the environment will be cleaner by the amount which firms
clean up plus the foregone production; consumption will shift toward
less-polluting alternatives (because they are less costly.) To estimate
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the affects of such taxes, certain assumptions can be made about the
price shifts which might equalize the marginal damages done by the
several energy sources.
Less Important Strategies -
While oil import quotas undoubtedly raise the price of oil and
restrict the supply, it does not seem that the price increment creates a
major change in total energy consumption. The quota is therefore deemed
insignificant to energy conservation, though it is surely important to
the energy supply issue (and though a tariff is preferable to a quota).
Likewise, income tax preferences such as the deduction of property taxes
and of mortgage interest costs undoubtedly help encourage some single
family homes — but they are also beneficial to some of the less
energy-intensive alternatives, such as apartments and condominiums, as
are the fast write-off and capital gains provisions. Energy savings
from changes to income tax rules would be mixed and probably trivial.
Flow Taxes
By "flow" we differentiate energy use from energy-using equipment
(or "stock".) The difference between a tax on energy and a change in
prices of energy sources is mainly that the former (a flow tax) permits
a quicker allocation of the relative costs involved in energy from each
of the various sources, without the need for determining the exact
social costs involved in each of the stages of production, and without
the need for setting effluent tax rates and making effluent tax
collections at each production stage. A second major difference is that
a policy of direct taxes on use of energy from various sources would
permit direct focusing on selected types of customers. For example, a
tax on energy may be somewhat regressive, having a more significant
impact on the poor than on the rich. If the increase in cost of energy
is in the form of a direct tax on the energy use, its impact could more
easily be altered by permitting, for example, an exemption (like
that suggested from sales taxes) for low-income families.
This report will discuss specific places where a tax on energy
might be helpful. A general energy tax is not suggested, unless as an
interim measure while effluent/emission taxes are being developed. In
other words, the first choice is definitely a set of charges such as
those outlined in Strategy 0-2, to internalize costs all along the
production chain. Only if this is not done, should we consider a direct
tax on end uses of energy.
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Stock Taxes
A change in the price of an energy-using investment is what we
refer to as a stock tax — that is, a tax on the Investment, rather than
on the energy use itself. This tax may be either positive or negative;
an investment credit, for instance, is similar to a negative tax on the
capital heing purchased.
If we. look upon the stock tax as being simply a capitalization of
a comparable flow tax, then there are three kinds, of reason for
preferring the stock tax. One reason is that the consumer's time rate
of discount may be different from the social rate of discount, so that
the purchaser of a particular appliance might Ignore the implications of
the continuing energy bill he might incur, but would respond to a higher
tax on his appliance at the time of purchase. (The same is true for
commercial or industrial investment choices, though not necessarily for
consumer-type reasons.) The second reason might be that we wish a tax to
fall only upon new choices of investment! for example, removing the
block-rate discount could be a hardship on owners of existing electric
space-heating installations, and most of this hardship could be avoided
by charging such a rate increase only to owners of new installations in
the form of an initial tax on the equipment itself. The third reason
might be for the purpose of directly influencing the selection of
specific pieces of capital; this topic is dealt with in the next
section, and more specifically in the following discussion of each of
the sectors of the economy.
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STRATEGIES FOR CHANGING DEMAND DIRECTLY
This section is concerned with strategies by which the government
can, where desired, change the demand for specific energy uses in a
direct fashion. No specific recommendations will be made within this
section* Instead, we will set the framework for later discussion of the
various techniques for altering demand, as might be appropriate for the
specific economic activities that will come under consideration. The
tools available range from direct public investment, through loans,
credits and regulation, to simple exhortation or consumer information.
It will be assumed throughout that the specific goals to be
accomplished are energy-saving, and that appropriate changes have
already been made in the price structure of energy sources, so that the
desired goals are indeed economically efficient in terras of energy
conservation. The remaining issue among these various alternatives will
be: given that the market Is still not sufficient to achieve socially
desirable energy conservation under an Improved price structure, what
direct measures might be appropriate in specific cases?
Public Investment
Once the social costs of energy use have been internalized, the
primary economic reason for public investment Is to capture certain
economies of scale which are unlikely to be achieved otherwise. Two
extreme examples of such economies of scale would be the construction of
rapid transit systems on the one hand, and a massive retrofitting of
household Insulation materials on the other. (This is suggested, not
because the economic inducements could not be made available to the
homeowner, but because treatment of an entire subdivision might be
vastly cheaper, or much more efficient, than a series of independent
decisions by each homeowner in the subdivision.)
The investment and/or subsidy which might be required for a rapid
transit system provides an illustration of yet another aspect of the
policy dilemnas which complicate the issue of public strategy. Federal
and local governments have invested heavily in providing for improved
movement of private vehicles. It is unlikely that this subsidy can or
should be removed, or that the relevant costs will be internalized by
tolls or commuter taxes. A comparable investment in transit may
therefore be sound public policy. At the same time, it should be
recognized that a possible "Transit Trust Fund" would be prone to commit
the same kind of resource misallocations, in time, that the Highway
Trust Fund has committed. Investments and subsidies must be used only
with the greatest caution, if at all, wherever there is any alternative
opportunity to rely on sounder market mechanisms.
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It seems clear that research into energy-saving systems and
technology is among the, public investments which will be required.
Throughout the remainder of this report, the areas where research is
specifically needed, with highest probabilities of early and significant
returns, will be indicated as a by-product of our analysis of the
potential energy savings. In general, we will not specifically suggest
such research programs, partly because it is not clear that such
research falls under the Environmental Protection Agency,, but chiefly
because additional research of some kind is needed in almost every area.
The general research needs are of three types. First, there must
be economic research into the internalization of costs, discounting of
mineral-resource depletion, and pricing based on long-run marginal costs
(e«g., the costs of growth). Second, there must be physical research
concerned with energy-saving technology itself. Third, it is imperative
that much existing research (especially in urban design and land use
planning) become far more aware of energy conservation as a planning
factor.
Loans and Credits
Loans .and credits are not considered to be economically efficient
ways of inducing specific portions of the desired energy conservation.
This is so mainly because the desired restructuring of the price systen
ought to create the appropriate balances among uses of electricity.
However, the suggested price structure can too easily create serious
inequities among users of energy. This is especially true with respect
to those users whose capital choices, made under the existing price
structure, would leave them locked in to seriously inequitable operating
costs. Quite aside from the inequities themselves, such users might be
a serious obstacle to implementation of the desired structures, unless
some measures are taken to alleviate, at least temporarily, the strains
which might otherwise be placed upon them.
Consider a home with an existing electric i space-heating
installation. The owner is presently the beneficiary of discounts,
partly because he is an off-peak user of electricity. In addition, he
is probably imposing larger- than-average social costs upon the
environment. Restructuring rates will cause a very large increase in
his energy bill. The increase may well be sufficient to induce hin to
change his heating equipment, but the required capital outlay is still a
newly-imposed and inequitable burden. A program of low-interest loans
or credits might well be the appropriate x*ay to alleviate this inequity.
There is another kind of economic imbalance which might justify
loans or credits, at least until the basic imbalance can be rectified.
This is the case when some part of the existing economic systen
introduces effective price differentials between otherwise-equivalent
- 37 -
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choices. For instance, the corporate profit tax tends to make operating
costs only half as significant to firms as their capital costs. If we
wish to introduce life-cycle costing of equipment, it may be much more
expedient to lower the capital cost by a loan or credit than to propose
revision of the profit tax itself.
Regulation
While direct regulation is generally not an economically efficient
means for allocating resources, there has always been public concern for
the degree to which long-term investments can or will be made wisely in
the absence of thorough consumer information. This is, for instance,
part of the rationale for the existence of housing, plumbing, and
electrical codes. Given the existence and desirability of housing
codes, in partictilar, it is certainly desirable that such matters as
home insulation be made to reflect the changing perspective on energy
conservation.
There are Federal movements toward replacement of descriptive
codes, in favor of performance codes. This kind of trend is to be
encouraged, for it will make easier the energy conservation
specification.
Exhortation and Education
We do not envision energy-saving propaganda. However, for the
kinds of reasons mentioned above, it seems desirable that some
systematic effort be made to inform the purchasers of energy-using
equipment about the relative efficiency or expensiveness of alternative
choices. This might take the form, for instance, of labeling appliances
with expected energy consumption during a lifetime of standard use.
Campaigns like the "Save-a-Watt" effort aim at short-term changes
in energy consumption and are likely to have only fleeting effect on a
small part of the residential sector (Ref.12). They have not been
demonstrated to have lasting effects. Further, they have not achieved
the energy savings predicted for them, quite possibly due to continued
promotional activities of the utilities during such campaigns.
Clearly, we ought to discourage the promotional programs of power
companies. Though nominally aimed at off-peak users, they add greatly
to energy-intensive investments. Education will be needed in many
areas, to replace utility cultivated concepts based on the convenience
of cheap energy. These concepts range from possible overestimates of
lighting requirements (by everyone from parents to architects), to
industrial biases which tend to neglect energy costs in favor of capital
costs, for reasons which are not yet clear.
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FUTURE RESEARCH
Areas of needed future research have been Indicated at various
places in the text of this report. Additionally, the development of
complete strategies for energy conservation, including appropriate
combinations of technology and governmental action, require a deeper
understanding of the nature of possible trade-offs between total social
benefits and total social costs of energy use. Before this can be done,
certain research questions must be answered.
1. What is the relationship between energy use and quality of life?
2. What are the magnitudes of environmental Impacts of alternative
energy systems?
3. How are. these impacts related to the range of technological
performance of energy devices?
4. What are the maximum socially acceptable impacts?
5. To what extent is the marketplace an adequate discriminating
mechanism with respect to energy problems and energy resources?
6. What are practicable alternatives to Federal regulation of the
energy market?
7. What government policy is appropriate to assure industry and
consumer access to adequate energy supplies?
8, What short- and long-term measures can and should be taken to
alleviate power shortages?
9. What price changes are necessary to shift energy-use patterns?
10. Should rate and pricing schedules be changed to discourage
marginal use rather than encourage it?
11. What economic measures should be taken to encourage the use of
by-product heat and the adoption of total energy systems?
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SECTION III
THE RESIDEMTIAL /COMMERCIAL SECTOR
The residential and commercial sectors accounted for 54.7 percent
of total electrical energy consumption and 34.3 percent of total energy
consumption in 1970. This share is expected to decrease to about 27
percent by 1990; the sector's consumption will rise from 24.5 to about
38 Quads given current prices.
The residential share of this consumption is expected to be 22
Quads in 1990; this consumption is expected to be divided among fuels
(including electricity) and end uses as follows:
END USE
Space Heat
Water Heat
Air Condition
Refrigeration
Cooking
Clothes Drying
Other
TOTAL SHARE
46.3%
12.6%
11.2%
4.4%
4.3%
3.4%
17.8%
ELECTRIC
30.4%
58.1%
100.0%
100.0%
56.3%
69.7%
100.0%
GAS
36.1%
36.6%
38.5%
28.9%
PETROLEUM
33.5%
5.3%
5.2%
1.3%
The 16 Quads of commercial consumption is divided in a comparable
fashion; this fact, together with the difficulty of finding aggregate
statistics about the commercial sector, compels us to treat residential
and commercial as one.
Several observations can be made about the above division of
energy consumption. First of all, of course, space heating takes almost
half the energy; if we treat space conditioning, the share is much
larger. The use labeled "other" is large in this projection; that is
partly because it is the fastest-growing at the present time. A great
deal of the present growth in "other" uses is to be found in heat pumps,
which are neither space heating or air conditioning, but are a generally
more efficient substitute for both. When this is taken into account,
the total for space conditioning is In the range of 65-70% of the
sector's total. Most of the emphasis of this section will accordingly
be given to the topic of insulation and other ways to achieve
comfortable space conditioning with less total expenditure of energy.
We do not give a detailed treatment to options for changing kinds
of fuel use, but only deal with energy-saving changes to present kinds
of fuel use. We ignore such switching options because by far the
biggest question has to> do with the choice of electric heat, and this
question contains many uncertainties. It has been demonstrated that
- 40 -
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electrically-heated homes use less energy than combustion-heated homes.
(In one case, the statistics even showed that they use less
electricity.) Such numbers contain biases due to the typical locations
of dwellings where one or another choice makes sense, and due to the
much better insulation characteristics of dwellings with electric heat.
Yet there are probably many cases where electric heat gives a net saving
of energy and other resources; and certainly, a heat pump supplemented
by electrical resistance heating probably is, or can be, the most
efficient choice of all.
We V75.ll discuss the factors which lead to current choices, and the
changes necessary to reduce energy wastage without inconveniences to
consumers or dislocations of the energy or housing markets.
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MARKF.T STRATEGIES
The primary approach to be followed for achieving energy demand
reduction in the residential/commercial sector is one which tries to
remove current artificial constraints to the operation of the market for
energy. For this reason, the principal market strategy to be advanced
is that of internalizing external social costs of the production and the
use of energy. This is to be accomplished through changes in the prices
of energy and energy resources so that these costs nay be included in
any private or social cost-benefit calculations. We therefore proceed
to an investigation of the effects of altering the current electric
energy rate structures on the demand for electric energy. Because of
constraints of time and available information, we limit the discussion
to prices of electricity, though the results should permit
generalization to other fuel costs.
Privately owned electric utilities provided (Ref.10) 333.4x10*0
kWh to 49.8 million residential customers for $7.41x10*9 in 1970. The
average monthly bill was $12.41 for 558 kWh. Publicly owned electric
utilities provided (Ref.ll) 57.8x10*9 kWh to 6.4 Million residential
customers for $.85x10*9, with the average monthly bill being $11.08 for
751 kWh. The "National Weighted Average" (NWA) bills for these
consumptions (558 and 751 kWh) would be $11.37 and 14.24, respectively
(Ref.9).
The difference between NWA and actual bills is partly due to
intrinsically lower rates by publicly owned utilities, and partly a
result of the locations where publicly owned utilities are to be found.
The national revenues for public and private utilities are such that if
we take 1.22 cents and 1.83 cents as their respective prices for a
marginal kWh, they will retain their present revenues while charging a
fixed "service fee" of $1.91 or $2.19 per month, respectively, to each
customer. The national-average marginal price of electricity would be
1.64 cents per kWh, about 11 percent higher than the 1.48 cents marginal
price now perceived by the average customer. Other studies (Ref.1,2)
have indicated a price elasticity of -1.3 for residential consumption.
^This implies a saving of 14 percent of residential consumption of
electricity.
Table VIII shows (for 1970 NWA bills) the hypothetical bill
computed with a constant marginal price at various levels of demand,
compared with the actual bills (I.e., given declining — actually
U-shaped -- marginal rates.) Table VIII illustrates the fact that such a
shift of rates would not be regressive, as is often alleged. Indeed,
the monthly bills would be lower at the 100, 250, and 500 kWh/month
levels of consumption. This is so because the present rates offer low
marginal prices in the range of 250 to 500 kWh/month, but higher
- 42 -
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marginal rates for the first 250 kWh and for those above 500 Wlh. (This
U-shaped structure is not a statistical anomaly of the NWA, but is built
Into the rates of Individual companies.) In contrast to this rate
structure, uniform rates would have the effect of giving lower bills to
the smaller users, higher bills to the bigger users, and higher prices
for extra electrical consumption to almost everyone but the very
smallest users. In other words, we can (and should) increase the price
of using extra electricity, while at the same time decreasing the total
cost of the electricity used.
TABLE VIII - COMPOSITE RESIDENTIAL ELECTRIC BILLS
Hypothetical Bill
Consumption Actual NWA Bill ($2.07 + 1.64o/kWh)
kWh/Mo. Cost/MoTAvg./kWhMarg/kWh Cost/Mo. Avg./kWh
100
250
500
750
1000
$4.09
$7.51
$10.51
$14.22
$18.31
4.090
3.000
2.100
1.900
1.830
2.280
1.200
1.480
1.640
$3.71
$6.17
$10.17
$14.37
$18.47
3.710
2.470
2.050
1.920
1.850
Published NWA bills for 1970 commercial uses of"electricity do not
permit this kind of calculation. Reported sales were about 287x10*9 kWh
to 7.2x10*6 customers, for $5.88x10*9; approximately 3300 kWh/month for
$68/nonth to the average customer, with revenues of 2.05o/kWh. The NWA
bills (Ref.9, p.xxi) show a charge of $96/month for this level of
consumption, and an average charge of 2.39o/kWh even at the 10,000
kWh/nonth level -— three times the average. These statistics (and a
more detailed study of the bills of individual companies and the charges
for available demand) fail to permit detailed calculation of a plausible
modification of the rates actually being charged.
It seems likely, however, that lower marginal prices than
tabulated are presently being charged. Revisions comparable to those
suggested for the residential sector (11 percent) would "produce
comparable effects (14 percent decrease in consumption.)
It has already been calculated (in Table VII) that in 1990, this
rate revision I would save approximately 2.4 Quads of energy in the
residential/coramercial sector; this is about 6% of the sector's total
1990 energy demand. These savings are essentially costless; the savings
will be undertaken because, at the margin, they are cheaper than the
- 43 -
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energy they save, but not because the total energy bill Is higher than
it used to be. (If this is not clear, refer again to Table VIII.)
In addition to the strategy of rate revision, we have the second
market strategy of cost internalization. The former does not increase
the aggregate national energy bill, but the latter does. When we add
savings fron the two separate strategies, we must beware of
double-counting. We have already stated that there is no reliable
measure of the benefits and costs of energy conservation from the second
strategy, since there is no way to discover, at present, just how much
environmental quality the nation desires. What we will try to do
instead, is to estimate how much conservation may be achieved at
relatively low cost, and discuss the magnitude of price increases which
might achieve that saving.
It will emerge in Section III.C that structural changes and
energy-saving appliance concepts which cost about $2000 would save about
8 Quads, and would pay for themselves if energy prices rose about 33% at
the margin. If the half of residential energy which is electrical had a
marginal increase of 11%, the price of basic energy inputs would have to
rise an extra 25% to make all of these savings worthwhile. This 25%
increase might be 10%-15% for environmental costs, and 15%-10% for
scarcity premiums. (For comparison, an increase of 100% would return us
to 1950 levels of energy price in constant dollars.)
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NON-MARKET STRATEGIES
The economic, social, and political systems of this country are
interspersed with certain institutionalized constraints which prevent
the market from allocating resources efficiently. Certain broad
categories of market failure were described in Table VI. In view of the
nature of these economic, social, and political constraints, it may be
necessary to supplement the market strategies discussed above with
selected non-market strategies which would be implemented only
temporarily, to provide direction and smooth the transition to ah
efficient energy market.
One of the most viable interim approaches to the conservation of
energy in the residential/commercial sector is to increase requirements
for insulation in FHA/HUD and other government sponsored construction.
Such regulations should cover not only the amount and quality of the
insulation material itself, but also the quality and method of
installation*
A second interim measure is to grant subsidies to new construction
developers in order to encourage the adoption of energy-saving
techniques in construction. Such techniques are not, of course,
exclusive of changes in insulation, but extend far beyond insulation
requirements. They include, for example, the nature of the heating and
air conditioning systems installed by the builder, the selection of
appliances offered in a new dwelling, and the kind of design and
construction chosen for a new office building or shopping center.
The two broad measures just mentioned are chosen because they both
deal first of all with space heating, where the most energy wastage is
available for potential conservation, and because the form of market
failure presently at work is especially pervasive.
We do not know at this time just how much "energy conservation" is
worth to the nation; that is, we do not know just what sort of charge or
social cost is associated with preventing either the depletion of scarce
resources, the reliance on foreign energy sources, or the environmental
degradation which accompanies energy extraction and use. We also do not
know just how much energy would be saved in response to the
internalization of such social costs. Therefore, whether we rely on
market strategies or on non-market regulatory methods, we do not know
with any precision what social costs and benefits go with particular
energy-saving efforts.
We do know, however, that much energy could be saved at very
little cost; that space-heating wastage, in particular, could be reduced
by measures that already pay for themselves in reduced energy bills or
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-------
that would do so if energy prices were just a little higher. However,
the b-uilder and the purchaser each have deeply ingrained habits of not
looking into the future with enough confidence to warrant the extra
investment. The buyer may not plan on owning the building long enough
to realize the energy savings. Prospective buyers are uncertain of the
actual energy efficiency of a building, so that the seller is unlikely
to fully recover his energy-saving investments. Appraisal procedures
may not permit such investments to be included. Tfost of all, buyers are
accustomed to assuming a standard level of insulation and a moderate
energy bill, and paying relatively little attention to either. As x>;e
move to internalize social costs, and as people begin to perceive energy
as a more scarce and expensive resource than before, some interim
measures are clearly desirable to help the economy through this
transition period.
- 46 -
-------
ENERGY-SAVING TECHNOLOGY AND BENEFITS
*
The previous discussion has focused on methods of reducing energy
demand and inducing energy savings through the use of market and general
non-market mechanisms. This section will discuss the technological
feasibility of saving energy, the benefits to be achieved, and the
economic forces which will govern the various possibilities.
STRATEGY R-l; Increase Residential and Commercial Insulation.
Research by the Oak Ridge National Laboratory (Ref.13) shows
substantial savings from increased insulation in the residential and
commercial sectors. They have derived estimates of the energy and money
savings from the use of either revised FHA-MPS insulation requirements
or the economically optimum amount of insulation, as determined by them,
as compared with the use of older FHA-MPS requirements. Table IX
indicates that further upward revisions of insulation requirements would
yield net social gains, including energy conservation objectives.
Potential savings in energy consumption in both gas heating and air
conditioning appear significant, ranging from 20 percent in Atlanta to
50 percent in New York. Energy consumption savings for
electrically-heated homes range from 7 percent to 26 percent, since the
high price of electrical heating has already produced a relatively high
level of insulation in such dwellings.
A sensitivity analysis was performed by increasing first the
capital cost of insulation, then the costs of gas and electricity, by 33
percent. Table X shows how such an increase in the capital cost of
insulation reduces the optimum amount of insulation and the potential
savings in annual cost ' and energy consumption, especially in warmer
climates with cheaper energy sources. Positive savings are nevertheless
still possible in all regions, compared with current insulation
practices, even when the cost of insulation is increased by as much as
one-third. An increase in the cost of energy naturally increases the
optimum amount of insulation, with resultant energy savings. Further
data appear in Figures 1-5 showing changes in heat loss and and energy
cost as a result of alternative insulation levels. Figures 4-5 also
show the annual energy saving.
STRATEGY R-2i Increase Consumer Awareness of Energy-Saving Alternatives,
Why are present insulation levels so far from optimum? Probably
the simplest answer is that current regulations only attempt to define a
Eiininum, not an optimum, level; besides, they were set when insulation
cost more and energy cost less. Builders and HUD each have
institutional constraints which emphasize initial costs more than
operational energy savings; in particular, HUD faces Congressional
- 47 -
-------
TABLE IX
MONETARY AND ENERGY SAVINGS FROM USING REVISED FHA-MPS STANDARDS
OR
ECONOMICALLY OPTIMUM AMOUNT OF INSULATION INSTEAD OF UNREVISED (PRE-JUNE 1971) FHA-MPS REQUIREMENTS
Revised FHA-MPS Savings
Economically Optimum Savings
00
I
1
*
Atlanta
Gas heat
Gas heat + A-C
Electric heat
Electric heat +
A-C
New York
Gas heat
Gas heat 4- A-C
Electric heat
Electric heat +
A-e
Minneapolis
Gas heat
Gas heat + A-C
Electric heat
Electric heat +
A-C
Source: Moyers, John C.
6
3
36
21
28
28
75
47
37
39
80
,
82
. The
and the Conservation
Gas , % Electricity, %
16
12 0
16
~ 10
29
24 , 10
19
"""" 13
37 _
37 11
22
__ 22
Value of Thermal Insulation in
of Energy, Oak Ridge National
1/vjr
6
6
87
63
32
37
155
135
42
45
119
122
Residential
Laboratory,
Gas , * Electricity, *
31
20
—
•
49
50
.f ^^^^
43
43 ,
—
-1_ '
Confcrufction;
1971,
7
53
39
26
47
42
__
18
29
29
Economics
-------
Table X. Economically Optimum Insulation and Resultant Savings with Increased Insulation or Energy Costs
Insul. Cost x 1.33
Energy Cost x 1.33
1
1
U)
»5
Region and Comfort <§
System -H
is
Floor
Cn
d
-H
H
-H
8
in
rH
rH
m
•
^
Cn
C
•H
(fl
rH
Annua.
c
5
•H
.p dp
QJ.
£ *
3 c
in O
C -rl
o -P
u o
to t)
* 1 1
1 1
c
o
•H
-P
>i U
•P 3
•H "d
O
•P • O
U W t)
0) C C
rH O -H
W U 5
8
rH
Cn
-H
rH
•H
fe
Cn
C
•H
^
(0
w
H
OS
d
O
•H
-P dP
Qj
§•*
d
w o
d -H
O -P
0 U
en -a
«5 CD
O tf
1
I
d
O
•H
•P
^1 o
-P 3
•HT)
•H $
^|
4J •
U W
o) d
rH O
w u
1 Atlanta
•P-
^° Gas Heat P
1 Gas Heat + A-C P
Electric Heat SW
Electric Heat + A-C SW
O
O
F
F
3-1/2"
3-1/2"
3-1/2"
6"
0"
3-1/2"
3-1/2"
3-1/2"
2
1
63
44
6
4
-
—
P
3 SW
49 SW
39 SW
F
F
F
F
3-1/2"
3-1/2"
6"
6"
3-1/2"
3-1/2"
3-1/2"
3-1/2"
18
15
131
94
31
38
-
—
-
14
53
39
New York
Gas Heat P
Gas Heat + A-C P
Fo P Electric Heat SW
lg o ^ Electric Heat + A-C SW
F
F
F
F
3-1/2"
3-1/2"
6"
6"
3-1/2"
3-1/2"
3-1/2"
3-1/2"
20
22
134
116
32
27
-
-
SW
12 SW
47 SW
42 SW
F
F
F
F
3-1/2"
6"
6"
6"
3-1/2"
3-1/2"
3-1/2"
3-1/2"
64
69
218
189
49
50
-
-
-
26
47
42
a> "D EJ2
OT CD ^O • '
5- § ^ ^ Minneapolis
o^g » Gas Heat SW
ll § g--0 Gas Heat + A-C SW
X ^ ' co § Electric Heat SW
V J -5^ fTX 3,
., $ o ® Electric Heat + A-C SW
F
F
F
F
3-1/2"
3-1/2"
6"
6"
3-1/2"
3-1/2"
3-1/2"
3-1/2"
25
28
107
109
38
38.
-
-
SW
14 SW
29 SW
29 SW
F
F
F
F
6"
6"
6"
6"
3-1/2"
3-1/2"
3-1/2"
3-1/2"
73 43
77 43
165
168
-
18
29
29
o 2 -1- o)
Plain Windows
SW = Storm Windows
F = Foil and Air Gap
-------
Ul
o
• co
CO
o
<
LJ
90
80
70
60
50
40
30
FLOOR UNINSULATED (U=0.28)
FOR FOIL AND AIR GAP (U=O.O93),DEDUCT 7.< MBtu/yr
U=Btu/ft2-hr-°F
WITHOUT STORM WINDOWS
0
n ^"Vr
°-'S0 Cte
"V
^7-*
('\
'•}
<*i
*NG
u o.^
WITH STORM WINDOWS
Annual Heat Loss: Atlanta Residence .
Fig. 1
-------
I
Ui
140
130
120
m
— 110
to
CO
O
100
90
80
70
WITHOUT STORM WINDOWS
WITH STORM WINDOWS
FLOOR UNINSULATED (U=0.28)
FOR FOIL AND AIR GAP,
DEDUCT 14.6 MBtu/yr
U=Btu/ft2-hr-°F
Annual Heat Loss : New York Residence
Fig. .2
-------
N3
I
m
v>
to
3
<
Ixl
220
200
180
160
140
120
100
WITHOUT STORM WINDOWS
WINDOWS
<*i
FLOOR UNINSULATED (U = 0.28)
WITH FOIL AND AIR GAP (U = 0.093)
DEDUCT 22.7 MBtu/yr
U=Btu/ft2-hr-°F
Annual Heat Loss: Minneapolis Residence
Fig. 3
-------
90
60
70
60
50
1 40
30
20
ELECTRIC HEAT
(WITH STORM WINDOWS)
DASHED LINES ARE SAVINGS
IN ENERGY CONSUMPTION
- 0.068
- 0.120
6 - 0.042
\^ \
1 \
o
\
o
WALL INSULATION (in.)
AND U
Annuol Saving Due to Insulation , Atlanta Residence -Heating Only,
Fig. 4
- 53 -
-------
80
70
60
50
- 40
v>
-------
limits on its building and financing. These upper limits may be the
main reason why there is little motive to include storm windows within
the FHA appraisal, for instance, or to generally include the value of
additional energy-saving investment within the value which the
home-buyer might be expected to know about and pay for. In the absence
of such knowledge, it is hardly surprising that there has been serious
underinvestment in energy-saving alternatives. This has an optimistic
side. Even without an increase in energy prices, owners can save money
by buying more insulation, once they understand the options. Increases
in energy prices are less likely to be a burden to owners than to goad
them to invest in better insulation; it is likely that the end result
will not merely be smaller fuel consumption, but also snaller fuel
bills.
STRATEGY R-3; Remove Institutional Barriers, .as in FHA Appraisal Rules.
To understand the kinds of market failure with which we must deal,
consider just the case of storm windows which has already been alluded
to, and which will be treated in more detail below. Nationally, storm
windows will pay for themselves in about seven years, and many home
owners find them a prudent investment. However, they are seldom
installed as part of construction; and the vast majority of homes do not
have them at all. Why? A major factor must be that many owners do not
expect to own their present homes for that 7-year payout period (average
duration of occupancy is about 3 years) and so make the rational choice
of not buying storm windows. But why don't they assume they will
recover much of the cost at the time of resale? Probably because as
long as FHA regards the windows as movable, and refuses to include them
in the appraisal, they simply don't have a significant value at resale.
STRATEGY R-4: Control Quality of Energy-Saving Installation.
Improper installation of insulation also results in some increase
in energy consumption. For example, improper installation of vapor
barriers can create conditions of conductive losses up to twice the
value of properly insulated walls. Approximately 2 percent of heating
and cooling losses'are accounted for by exfiltration through walls.
This exfiltration loss could be reduced by 50 percent if regulations
were written and enforced to include quality of installation as well as
quality of material. Enforcement and control of such regulations would
of course be difficult, because insulation flaws are generally well and
easily concealed. Code regulations might therefore be difficult to use
as a control measure without corresponding modifications of building
inspection practices which would discourage slip-shod construction
techniques. Public concern over such practices seems to be rising; it
is important that energy-awareness be included in this concern, in place
of our historic view of energy as a cheap and abundant, hence
negligible, factor.
- 55 -
-------
Conductive heat loss through a typical exposed foundation area
comprised of two feet of concrete block equals that of an eight foot
insulated wall. The application of fibrous insulation on inner surfaces
could result in as much as a 90 percent energy savings in this case.
Modifications to insure proper fitting of doors and window frames,
and caulking of leaks, could also result in major reductions of
infiltration losses. A reduction of infiltration to 100-200 cfn would
cut heating and air conditioning consumption by 15 percent. A simple
infiltration test could be made part of FHA-HTID mortgage code
restrictions, limiting infiltration to this range.
Conductive energy losses are seven times greater for aluminum,
rather than wooden, window frames. For example, given a 10-square-foot
window, edge loss will be about 25 percent of the window's total If the
frame is aluminum versus 12 percent if the frame is wood.
The application of storm windows, on the average, results in an
energy saving of 22 percent. Window loss accounts for approximately 60
percent of total residential energy consumption, and therefore the
application of storm windows can be expected to result in approximately
a 13 percent total household energy reduction. Figures 6-9 show
possible energy savings from the use of increased insulation and storta
windows.
Installation of attic fans designed to keep a constant flow of air
through the attic space could result in a 15-40 percent reduction of
heat gain through the ceiling areas and approximately a 2 percent
reduction in energy use for cooling. Convective losses through open
flues of fireplaces could be eliminated, with a 20 percent saving for
such residences, if a visible indication were given when the flue was
left open.
Heating and air conditioning account for a large portion of
residential/commercial energy use (approximately 11.7 percent for
households and 8.7 percent for commercial structures). The primary
method of conserving energy centers around methods to improve
efficiencies in furnaces themselves. A single heat removal alternative
(known as a heat pipe refluxer system) could result in a 10 percent
energy saving, and a combined system which would extract and reuse heat
of vaporization would result in approximately a 28 percent energy
saving. In addition, other modifications to conventional heating and
cooling systems are presented in Table XI along vrith the annual fuel
consumption of each alternative.
An open-air-cycle device used to compare outside air enthalpy with
return air enthalpy, and equipped with an outside vent, could save
approximately 14 percent of the energy used for air conditioning.
- 56 -
-------
480
160 H
140
120
too
80
V)
*t
60
40
20
DASHED LINES ARE SAVINGS IN
ENERGY CONSUMPTION
U=Btu/ftZ-hr-'F
ELECTRIC HEAT
'50%
45%
407.
35%
3^-0.068
GAS HEAT
Annual Savings Due to Insulation and Storm Windows, New York Residence
Heating Only. ;,f
Fig. 6
- 57 -
-------
ISO
160
140
120
_ 100
o
80
60
40
20
ELECTRIC HEAT AND AIR CONDITIONING
DASHED LINES ARE SAVINGS
IN ENERGY CONSUMPTION
U*Btu/ft2-hr-°F
GAS HEAT AND
ELECTRIC AIR CONDITIONING
CEILING U
3^ 6'
CEILING INSULATION (in.)
MAXIMUM ENERGY SAVINGS :
GAS (HEATING) - 49.87.
ELECTRIC (A-O-26.1 %
Annual Saving Due to Insulation and Storm Windows, New York Residence
Heating and Air Conditioning .
Fig. 7
- 58 -
-------
Ul
VO
160
140
120
100
80
<
60
40
20
DASHED LINES ARE SAVINGS
IN ENERGY CONSUMPTION
U=BWft2-hr-°F
GAS HEAT
40%
35%
Annual Savings Due to Insulation and Storm1 Windows, Minneapolis Residence - Heating Only.
Fig. 8
-------
o
I
140
120
100
£, 80
\
-CD-
O
> 60
v>
i 40
ELECTRIC HEAT AND AIR CONDITIONING
DASHED LINES ARE SAVINGS
IN ENERGY CONSUMPTION
U= Btu/'ft2-hr-°F
GAS HEAT AND ELECTRIC AIR CONDITIONING
CEILING U
_ 0.055
MAXIMUM ENERGY SAVING:
GAS (HEATING) - 42.8%
~~ ELECTRIC (A-C) -18.3%
Annual Saving Due to Insulation and Storm Windows, Minneapolis Residence - Heating and Air Conditioning,
Fig. 9
-------
TABLE XI - FUEL CONSUMPTION OF ALTERNATIVE SYSTEMS
FOR HEATING AND AIR CONDITIONING
SYSTEM*
Ventilation Rate
(CFM)
Annual Fuel Consumption
Therms** kWh***
Conventional
" with run around coils
" with heat pipe
11 with heat exchange wheel
Variable Volume
11 with run around coils
11 with heat pipe
" with heat exchange wheel
250
250
250
250
72
72
72
72
1450
1150
1090
1000
1025
935
910
898
(100.%)
(79.3%)
(75.2%)
(69.0%)
(70.7%)
(64.4%)
(62.7%)
(61.4%)
2800
2440
2420
2330
2350
2260
2240
2220
(100.%)
(87.3%)
(86.5%)
(83.3%)
(84.0%)
(80.7%)
(80.0%)
(79.3%)
* Assumed conditions: 6600 degree-days heating,
1000 full load hours cooling at 1.4 kW/ton.
** One therm - 100,000 BTU
*** One kWh - 3412.8 BTU
-61 -
-------
STRATEGY R-5: Encourage Energy-Awareness in Appliance Choice.
A major wastage occurs in the pilot light of gas appliances; their
continuous consumption for a typical house can be about 15,000 cubic
feet (or 14 million BTU) per year, or more than half the annual energy
required for hot water heating, and 4 percent of the total gas needs of
a gas-heated residence. Range pilots use about 150 BTU/hour each;
pilots on furnaces, hot water heaters, dryers, and some ovens consume
400 BTU/hour each. As substitutes, electric igniters have been
developed, but are generally rated for 25,000 cycles — too short a life
for a furnace or hot water heater, but sufficient for gas dryers and
ovens. They are coming into general use in dryers, simply because a
continuous pilot uses almost half the dryerfs lifetime energy needs.
Outside gas lights consume approximately 18,000 cubic feet per
year, about 5 percent of household gas use. These are not raetered;
since they are left in continuous operation, they are paid for by a
fixed charge. If they were metered, there would be short-run incentives
to reduce gas use by turning them off; but there might be a greater risk
associated with leaking lamps. Such lamps are in many places a recent
suburban phenomenon, somewhere between a quiet amenity and conspicuous*
consumption. As such, their economic utility is hard to measure. In
many areas, gas suppliers no longer provide these lamps to their
customers, but we know of no cases where customers have been assisted to
convert the lamps to electricity to save the gas light1s fixed charge.
As prices rise, it is important that consumers not be locked in this
specific consumption choice.
For appliances generally, their initial selection has a
significant impact on their lifetime energy requirements. For instance,
the least expensive version of an air conditioner will usually require
twice as much electrical energy per unit of cooling load (compared to
more expensive models) due to reductions In condenser and fan size.
Regulations specifying certain minimum efficiency levels could result in
perhaps a 40 percent energy saving over the life of such appliances,
with resulting savings in operating costs.
Of course, it would not be economically efficient to require a
high level of energy-efficiency regardless of cost. An appliance which
will be used very lightly by its owner would better conserve resources
by being cheap, rather than efficient; but it is Important that
heavily-used appliances be chosen for efficiency rather than initial
cost. To the degree that appliances have either a fixed duty cycle in
normal use, or have a normal lifetime measured in duty cycles rather
than years, one way to induce energy-conserving choices is by a fixed
energy tax to be paid when the appliance is purchased; but a better way
might be to label the appliance by its expected energy consumption, to
help the consumer choose wisely on the basis of energy prices.
- 62 -
-------
AN EXAMPLE
The aggregate energy-saving opportunities can best be illustrated
by presenting a characteristic house which contains a number of the
above improvements. This example will have the advantage of.
demonstrating the actual energy savings possible under alternative
parameters for a residential structure. Hittman Associates, Inc., has
specified and evaluated several levels of such alternatives. Table XII
describes a Characteristic House and two design variations of it. Table
XIII shows the potential energy savings for winter heating and summer
cooling of the Characteristic House, and demonstrates that there are
substantial savings possible through the application of storm windows,
window area reduction, recovery of furnace heat, and the use of high
performance air conditioning units.
Table XIV shows the yearly energy use, energy saving, and monetary
saving, both at the basic-need ("House") level and at the supplier
("Plant") level, of the Characteristic House and for Designs I and II.
It will be noticed that the house has a yearly heating bill of $15A, the
national average for a house this size and design. Obviously the
heating bill and the potential savings will both be larger for a house
in a colder climate; on the other hand, such a house would generally
already be better insulated than the national-average house. Detailed
research is needed on the geographic ^variations in potential energy
savings and the economics thereof. However, it seems reasonable to
estimate that the magnitude of savings indicated here is broadly
representative of the nation, and that percentage increases in fuel
costs will produce corresponding percentage changes in the monetary
savings associated with the energy savings shown.
It was suggested above that a short-run approach to encouraging
the adoption of such energy-saving changes in the residential/commercial
sector would be to grant subsidies to builders, either directly or
through tax credits or deductions. The magnitude of this
energy-conserving subsidy would of course depend on a multitude of
characteristics of the structure, and on the exact form that any such
subsidy might take. For example, in comparing the effect of a tax
deduction to that of a tax credit, both In the amount of the subsidized
improvement, the tax credit will be more costly to the government and
more influential to the recipient because it is a 100% compensation; the
deduction is only a compensation at the marginal tax rate of the
recipient, and it Is therefore less costly, but its effect varies with
the tax bracket of the recipient. (The approach of using deductions is
partly premised on the assumption that marginal tax rates represent
varying levels of marginal utility of money; but few economists still
believe this is a valid premise.)
- 63 -
-------
TABLE XII - CHARACTERISTIC AND DESIGN HOUSE DESCRIPTIONS
CHARACTERISTIC HOUSE
The Characteristic House is a two-story wood frame house, facing
north on an unshaded lot, with 1500 square feet of finished space,
occupied by two adults and two children. Exterior walls are wood
shiplap over 1/2" plywood, R-7 batting, and 1/2" drywall. It has
5" blown-in ceiling insulatlbn below a ventilated unheated attic,
with white asphalt shingle roof; a full unfinished basement, and
*
an attached enclosed unheated garage on slab. Windows cover 180
square feet, and are Al casement type, without storm windows or
awnings, 70% draped and 20% shaded. The 3 doors cover 60 square
feet, and are wood panel with 6x12 glass pane; patio and storm
doors are 40 square feet each, single-pane glass. The house has
natural gas forced air heat and electric central air conditioning.
DESION I
The Design I House is the same as the Characteristic House except
for addition of storm windows, and wall construction of insulated
aluminum siding over cinder block, R-7 studded insulation, and
1/2" dry wall.
DESIGN II
The Design II House is the same as the Design I House except that
window area Is reduced by 25 percent, and the lot provides 20
percent shading of the house.
- 64 -
-------
TABLE XIII - SAVINGS FROM MODIFICATION OF CHARACTERISTIC DESIG
.WINTER LOAD..
LOAD or MOD
Furnace Reference Load
Air Conditioner Load*
Furnace Recovery
High Performance Unit**
Furnace Pilot Elimination***
Open Air Cycle
Storm Windows
25% Window Area Reduction
Cinder Block Insulation
High Capacity Wall
Sealed Furnace Air Supply
Sealed Hot Water Air Supply
Clothes Dryer Recovery
Double Door Design
Revolving Door Design
Ducted Oven Design
Ducted Refrigerator
Attic Ventilation
* - Based on 8.0 BTU/watt-hr performance
** - Based on 12.0 BTU/watt-hr performance
*** _ Based on a 1000 BTU/hr pilot light
PERCENT
SAVED
100.0
27.9
3.4
15.8
19.1
7.1
2.6
4.6
1.7
2.4
1.6
2.6
MBTU
SAVED
101.4
28.3
3.5
16.0
19.4
7.2
2.6
4.7
1.7
2.4
1.5
2.7
..SUMMER LOAD..
PERCENT MBTU
SAVED SAVED
100.0
33.3
8.3
8.1
9.5
.6
.8
1.9
3.8
6.9
1.9
7.0
.5
10.8
3.6
1.0
.9
1.0
.1
.1
.2
.4
.7
.2
.8
.1
- 65 -
-------
TABLE XIV - HOUSE & EQUIPMENT SAVINGS WITH DESIGN I & II, CONCEPTS
HOUSE:
• • * * *
HEATING,
,...COOLING
,..TOTAL.
CHAR. HOUSE
DESIGN I
DESIGN II
II+ConceptB
PLANT:
CHAR. HOUSE
DESIGN I
DESIGN II
II+ConceptB
COSTS:
CHAR.- HOUSE
DESIGN I
DESIGN II
II+ConceptB
LOAD
MBTU
71.0
52.9
39.3
32.3
.....
LOAD
MBTU
104.4
77.8
57.6
37.0
SAVE
MBTU
-
18.0
31.7
38.8
HEATING,
SAVE
MBTU
-
26.6
46.5
67.4
SAVE
PCT.
—
25
45
55
SAVE
PCT.
~
25
45
65
WAD
MBTU
28.2
25.4
24.8
18.7
LOAD
MBTU
38.5
34.7
33.7
17.0
HEATING
COST
$$
154
115
93
55
SAVE
$$
0
39
62
100
SAVE
PCT.
0
25
40
64
COST
$$
82
74
73
56
SAVE
MBTU
-
2.8
3.4
9.5
.COOLING,
SAVE
MBTU
-
3.8
4.8
21.5
SAVE
PCT.
—
10
12
34
SAVE
PCT.
—
10
12
56
.COOLING
SAVE SAVE
$$ PCT.
0
8
9
26
0
9
11
32
LOAD
MBTU
99.2
78.3
64.1
51.0
*•••••
LOAD
MBTU
142.9
112.5
91.6
54.0
*•••••
COST
$$
236
189
166
111
SAVE
MBTU
-
20.8
35.1
48.3
TOTAL
SAVE
MBTU
-
30.4
51.3
88.9
TOTAL
SAW,
$$
0
47
71
126
SAVE
PCT.
•—
21
36
49
*•**••
SAVE
PCT.
—
21
37
64
•••«••
SAVE
PCT.
0
20
30
53
Source: Hlttman Associates, "Residential Energy Consumption Briefing"
- 66 -
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It is possible to illustrate the workings of a tax-based subsidy,
assuming that the energy-saving modifications of the Design II house are
to he encouraged. Hittman Corporation has determined that the design
changes suggested for the characteristic house described above would not
exceed a cost of $2000. Suppose that all the design changes have an
amortization life of 30 years, and that the $2000 would add $14/month or
$168/year to the payments on a 30-year, 7% mortgage. Table XIV
indicated that the changes would produce a fuel saving of $126/year.
The difference is about $42/year, or the payment on $500 capital. It is
possible that some home owners would find such energy saving to have
non-nonetary benefits (such as a more draft-free and comfortable
setting) which are worth this much to them; but in general, and for
analytic purposes, we will assume that $42/year or $500 initially is an
adequate measure of the difference between energy conservation which
society desires and the private cost of achieving that conservation.
A number of rational policy options are open to society on the
basis of these numbers. The first of these might be to take no action,
on the assumption that the benefits of insulation are lower than its
cost. The second option might be to determine what smaller amount of
insulation would be cheaper than the benefits it would produce. A third
option (and the one which seems most valid in today's market) would be
to question whether the "benefits" are accurately measured by the
present price of the energy which is being saved; in this example, a 33%
increase in the price of fuel would make the conservation package
economical (though not necessarily the optimum amount of saving), by
raising the value of saved fuel to $168. A fourth option would be to
make the conservation package economical to owners, without necessarily
raising fuel prices; this might be done by offering a tax credit of $500
to all owners, or a tax deduction of $2000 to owners who are in the 25%
bracket.
Consider the relative equity of the third and fourth options. The
only real difference between them is that the fourth option is an
expense to all taxpayers through the government subsidy which must be
paid; it also preserves exactly the current costs to owners, whether
they insulate or not. This would be the preferred solution,if there
were a reason for thinking that current energy prices represented full
energy costs, and that it was in the public good to force the
expenditure for insulation. (But if this were true, why would society
choose to spend $168 for insulation-resources to save only $126 of
energy-resources?) Conversely, the third option places a new burden of
increased energy costs on owners, rather than taxpayers in general;
after the stated increase, they are simply indifferent between paying
more for energy and paying more for insulation. All things considered,
they would prefer to pay less, rather than more. But this misses the
point, for the real policy question is not whether anyone pays more, but
- 67 -
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whether the payment is made by the users of the energy or by the general
taxpayer. The difference between these two will be analyzed in terms of
efficiency in a moment; but it must be remembered that the hone owner
who is hurt most by a fuel-price increase will be precisely the
individual who has been reaping the greatest hidden subsidy ,in
artificially low fuel prices until now. In other words, we are not
discussing an arbitrary tax on fuel; instead, we are talking about the
price increases which are going to happen as the scarcity and the
environmental consequences of energy use begin to be paid, rather than
ignored. Those who are now using the most fuel also benefit most from
ignoring these consequences; they will be hurt the most by price
increases which goad them to conservation measures; but this "hurt" is
relative to current benefits, and is not an argument for artificially
maintaining those selective benefits forever. (This point has already
been made, in the "Overview", with respect to certain industrial users
of electricity; it is not confined to either industrial or residential
users, but is a fact of such significance as to warrant repetition.)
The issue of economic efficiency centers around which option will
achieve the greatest saving of energy at the least total cost. If
installation of energy-saving devices were an end in itself, then option
4 (direct subsidy, via tax deductions or credits) would be efficient in
the sense that payment would be made if and only if the devices were
actually installed. However, our objective is not the devices; they are
only a means toward the end of energy conservation. The means (in this
case, devices) should be used in varying degrees, as a function of the
kinds of clinate, energy-use pattern, and other variations among
individual users. Storm windows might, for instance, be far more
valuable to a house which is fully heated and air-conditioned, than to a
comparable house occupied by a family which prefers fresh air
year-round. It is conceptually possible to define, in full detail, all
the variations which contribute to reaching an optimum solution.
However, it is legislatively and administratively impossible for
government to become as meddlesome as these details would require. For
this reason, it is preferable to move as far as possible toward option
3, where we price the end (energy use) itself, inform people of the
options and remove present barriers to their making the choices which
promote conservation, and then allow each of the builders and owners to
make economically rational choices to save energy to exactly the degree
that will save money.
Under such an option, consumers ought (in theory, given a smoothly
functioning market) to make the same set of conservation choices that a
central authority would make for them, if it had sufficient information.
Before advocating either option, one ought to know just what those
choices would be and how much energy might be saved. The data to allow
such estimation is not available, however.
- 68 -
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Research is underway on such topics as the geographic and climatic
characteristics of various classes of dwelling, and the relative costs
and benefits of insulating old vs. n£w, or single-family vs.
multi-family, dwellings. (For older units, or for single-family units,
both the costs and the savings are considerably larger; the issue is
whether specific national policies ought to focus first on one or
another subset.) Such detailed variations can not be considered within
this report, however: data is not yet available.
To derive some national estimates for this report, we have taken
the energy-savings estimate of 89 >!BTU/year from Table XIV, and the
Hittnan estimate of $2000/dwelling for the added insulation and savings
concepts for a single-family dwelling. A 50% premium was added to this
cost for retro-fitting existing units; a 25% reduction was made for
economies of scale in multi-family units. This approach leads to the
following estimates:
?• , .
For all new residential construction through 1990, additional
capital costs for energy conservation would be $60 billion; by 1990, we
would be saving about 2.7 Quads per year. Non-market encouragement of
this strategy would be through direct regulation or through tax-based
subsidies.
For all existing residential construction, additional capital
costs would be about $160 billion, and would save about 4.5 Quads per
year. Non-market encouragement of this strategy might be through loans
or tax-based subsidies; in addition, careful attention should be given
to such non-market forces as the appraisal rules for such investments,
and the possibility of rating or otherwise standardizing the energy-use
characteristics of dwellings and appliances.
Of the 2.4 Quads attributed (in Section III.A above) to electrical
rate revision, only 0.8 Quads will be included here; of the rest, .8
Quads would overlap the Hittman savings in uses where there is no
alternative to electricity, and .8 Quads would be gross electrical
savings, but canceled by increases in use of alternative energy sources
for the same purpose.
In the commercial sector, potential savings seem comparable; but
much energy waste occurs for non-market reasons such as the. aesthetics
of glass or aluminum siding. Additional technologies, such as current
heat pumps and future total-energy systems, are applicable; but it is
not yet possible to estimate the costs or savings of these.
- 69 -
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SECTION IV
THE INDUSTRIAL SECTOR
Industrial end-use energy consumption accounted for 42.3% of total
energy consumption, and 41.5% of total electrical energy consumption, in
1970. By 1990, this sector is expected to use about 50%, or 70 Quads,
of the nation's energy. Though very little research or data on
industrial energy conservation is available, large savings seem possible
if energy conservation measures are implemented.
As elsewhere in this report, our concern is not for eliminating
activities which are heavy users of energy, or otherwise constricting
the economy and its growth. Rather, our concern is for finding
activities which can reduce their use of energy, possibly saving money
in the process. It is often assumed that industry is sufficiently cost
conscious that it is already practicing all feasible energy-saving
methods. But cost awareness need not imply such practices, for two
reasons. First, there are many institutions and market distortions that
interfere with saving energy. Second, it is perfectly possible for a
price increase of, say, 10% to make economic some processes, techniques,
and devices that would save a much larger fraction of energy, say 20% or
30%. To determine whether this is so requires a very close scrutiny of
where energy is used, how much it costs in each use, and how much it
would cost to save some of the energy in those uses. It must be
remembered that for twenty or thirty years the nation has treated energy
as a commodity that should be made ever cheaper and more abundant; in
the process, environmental costs have been ignored. It would be
astonishing if industry had not, in this time, used more energy than now
seems desirable in the light of environmental concerns. Our question is
this: which energy is so used, and how much of it can be saved?
Industrial use of electric power has increased exponentially —
doubling about every fourteen years. In recent years, the trend has
been for electric power consumption to increase at a rate in excess of
the rate of increase in the economic benefits yielded by industrial
production. A way to visualize this effect is to compute how electric
power would have increased after 1947 if power productivity had remained
constant rather than declining after that year. Figure.10 shoxre that if
the technological transformation in the use of electric power which took
place in II. S. industry after 1947 had not occurred, industrial power
consumption in 1969 would have been reduced by about 35 percent.
Because power productivity has declined so much since 1947, it
becomes important to ask whether this trend can be reversed, and what
the likely consequences of such a reversal would be. This requires a
- 70 -
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O 600
£
INDUSTRIAL POWER CONSUMPTION
2400
1-^300
6 §
y §200
5 100
Ui
55
Actual
Computed at 1947 Power Productivity
i 1 l l I 1 I I I I I I l l I I I I l i
46 48 50 52 54 56 58 60 62 64 66 68
YEAR
Computed Power Consumption » 1947 Power Consumption x Volue added for year X
For year X 1947 Value Added
FIGURE 10
- 71 -
-------
more detailed analysis of the reasons for the declining trend, and this
in turn requires an examination of different industrial sectors.
Energy consumption by industries with very low power
productivities (e.g., petroleum, chemicals, primary metals and and coal
products) has increased more rapidly than consumption by those
industries with higher power productivities. The tendency has been for
industries which operate at low power productivities to displace
industries which operate at high power productivities. Thus, production
of nonferrous metals, especially aluminum, has grown much faster than
steel production, due to the replacement of steel (and lumber) products
by aluminum ones. The growth of the chemical industry is based on the
displacement of a number of natural products which involve very little
power consumption (e.g., cotton, wool, lumber, and soap) by synthetic
chemical products (man-made fibers, plastics, detergents.)
Were these displacements necessary, perhaps due to the depletion
of raw materials? One must conclude that in general, the displacements
were not forced. There is no evidence that aluminum has replaced steel
because the latter is in short supply, or that detergents have replaced
soap because we have run out of saponifiable fat. If they were not
forced, then these displacements which have lowered the efficiency of
industrial energy consumption are, at least in principle, reversible.
Major savings in industrial energy consumption could be achieved by
reversing the trends of the post-WWII period.
Such a reversal does not, of course, mean a return to 1947
technology and products. The prewar trend had historically (as the
Presidential Energy Message noted in 1971) been a trend of increasing
efficiency: newer and better products, many of them energy intensive,
were constantly introduced, but so was growth in the productivity of
those products, as well as the efficiency of other energy-saving
methods, so that the net effect kept productivity rising faster than
energy use. Since 1947 (and, probably because of war-related easier
access to energy sources) this has not been true. There is every reason
to assume that we need only use energy-saving methods we have been
ignoring; we need not suddenly abandon the energy-using products we have
grown accustomed to.
But even among those products, it is easy to identify specific
uses in which the new and energy-intensive product has only a slight
advantage over the product it replaced. (The search for a better shoe
material than second-hand cow coverings is just one example.) Such uses
of such products may well have no advantage at all once all the costs
(both the energy-cost of the substitute shoe material, and the full
social costs of disposing of surplus cowhides, in our example) are taken
into account. In such a case, one can hardly argue that there is real
hardship in forfeiting that use of that energy-intensive product. Where
- 72 -
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there is a genuine advantage, the market will cheerfully make a place
for the new product at a higher price; we are focusing on those places
where the energy-intensive product competes only because the
environmental costs of energy are ignored.
Unlike the residential and transportation sectors, where the
largest uses of energy are fairly homogeneous activities that admit of
simple aggregation of basic refinements, industrial energy use consists
of a vast array of activities and energy uses. Some of these, like
lighting and process steam, are areas where a single change might apply
to many industries; others, like electricity for aluminum extraction,
are highly industry-specific; still others, like the production of
aluminum for office sheathing, are inter-industry in nature. There is
no realistic breakdown of categories of use within plants or industries.
An inter-industry or input-output table of energy throughputs could be
useful here ~ except that it would not accomodate the process changes
that are basic to a dynamic economy.
There have been numerous recommendations for standards,
regulations, and consumer information to promote energy conservation in
the residential and transportation sectors. In contrast, it seems to be
generally assumed that industry responds to consumer needs in its
production choices, and is sufficiently well-informed and cost-conscious
to be saving energy in its production methods; therefore not much more
energy can be saved by industry. For instance, OEP suggests (Table V)
only 15%-20% savings possible by industry in 1990, compared with 25%-30%
for other sectors.
Such an assumption begs the vital question of whether industry
gets correct price signals, and passes them on to its consumers. The
"cheap energy" emphasis of government policy for the last generation
must bear the blame for the fact that these signals presently
under-value energy, and thus promote its waste in myriad ways. The
dynamics of industry and the market offer many ways for major savings to
occur, given that prices begin to reflect social costs.
We will now sample some of the areas of potential energy savings.
Before doing so, we make a simple point that will be elaborated at the
end of this section: most of industry's projected 1990 "energy needs"
will, in 1990, be from capital stock that does not now exist, and is not
even on the drawing boards. As we survey the energy wastages to be
found in current industial practice, we must constantly ask ourselves
whether all the new investments should be made with a similar
undervaluation of energy.
- 73 -
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MARKET STRATEGIES
As was the case in the residential/commercial sector, primary
reliance for achieving the reversal of the above trends in industrial
energy consumption should be placed on the functioning of a rational
market for industrial energy. The primary strategy to be used in
attaining this goal is, therefore, a revision of energy prices and rate
structures.
As with the residential/commercial sectors, we first present a
discussion of the potential energy savings to be realized by price and
price structure revisions for electrical energy. We present this
analysis only for electric energy, because of constraints of time and
data availability. Similar effects should be expected if similar
revisions in the price of other forms of energy are made.
While the National Weighted Average bill for industrial
consumption (Ref,9,pg.xxvi) shows average charges of 1.75c/kWh in 1970,
the privately owned utilities reported an average revenue of only
1.02
-------
The best we could estimate was to assume 11% marginal rate
increases (the same as for the residential sector, and surely very
conservative for the industrial sector where block rates and discounts
are widespread) with an elasticity of -1.7, to obtain a 19% conservation
of electrical energy. This seems certain to be a very moderate
estimate, given the specific bias (cited in the Overview) favoring
lowest prices for most-elastic customers.
It must be remembered that the calculated elasticity is based on
known responses to price, with current technology. The following
discussion of specific energy-saving possibilities points to additional
methods for saving energy, after price changes have taken effect.
- 75 -
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NON-MARKET STRATEGIES
As in the case of the residential/commercial sector, there are
economic, social, and political constraints which might prevent, at
least temporarily, the efficient and effective functioning of market
mechanisms in the demand for industrial energy. For this reason it may
be necessary to supplement the primary strategy suggested above with
interim strategies: strategies which are not intended to themselves
become institutionalized barriers to a freely operating energy market,
but rather only a temporary guidance mechanism to be used to re-orient
energy decisions towards an economically and socially rational market
framework.
It must be noted that because of the myriad of uses that energy
finds in the thousands of energy-using Industrial operations, it is
impossible to generalize on how efficiently energy is being consumed at
present. Because of this, potential energy savings from industrial
demand reduction can be estimated only roughly at this point*
Considerably more research is needed to determine which sectors are
using how much energy of each form and price for what purpose, or by
what process.
In the absence of such research and such detailed knowledge, there
still appear to be two broadly applicable non-market strategies to help
energy to be conserved in the industrial sector. One strategy consists
of establishing certain minimum insulation requirements for specific
applications to industrial capital equipment. The other is the use of
incentive mechanisms such as tax credits and/or penalties to encourage
investment in energy-saving capital equipment.
• v
These strategies, it must remembered, should be designed only as
temporary mechanisms and only implemented in those industrial areas in
which the market will not provide sufficient stimulus to produce an
efficient degree of energy conservation. To determine where and when
this is so, additional research is also needed on specific examples of
market failure. Some of these examples will be discussed in the next
section.
The following section presents a brief summary of industrial
energy use trends, technological potentials for reversing these trends,
and estimated benefits of energy-saving technology.
- 76 -
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ENERGY-SAVING TECHNOLOGY AND BENEFITS
Most of the technological aspects of energy conservation center
around the selection of specific materials and the use of energy in the
production of such materials. That is, we can conserve industrial
energy either by producing materials in a more energy-efficient manner,
or hy choosing more energy-efficient materials for use in final
products. Both aspects of conservation are discussed in this section.
STRATEGY 1-1; Encourage Recycling of Selected Materials.
In many cases, the biggest energy conservation can be achieved at
the very start, by recycling raw materials rather than extracting them
from raw mineral resources. Selectivity is needed here; this report is
not directly concerned either with mineral conservation or with
recycling in general, and it must be noted that some recycling can use
more energy and other resources than virgin processing. The Oak Ridge
National Laboratory studied the energy equivalents for the production of
metals and compared them in terms of equivalent energy inputs. Their
study indicates, for instance, that poorer grade bauxite ores used to
produce aluminum do not require much additional energy, but that when
clays and anorthocite are used, energy requirements are Increased
appreciabl3*. Recycling of copper scrap will use much less energy (even
where the copper is impure) than producing copper from ores. As poorer
grades of copper and titanium ores must be used, energy consumption will
increase appreciably. Recycling titanium also requires much less energy
than producing it from ores. Table XV summarizes the energy
requirements for the production and recycling of various metals.
STRATEGY 1-2; Promote Energy-Saving Materials in Manufacturing.
Table XVI summarizes some computations of the power required to
mine and manufacture the metals used in the production of an average
passenger automobile. The table indicates that the chief reason for the
increase in power required to produce the vehicle 'is the sharp increase
in the use of aluminum which has replaced steel in certain car parts,
especially the engine, trim, bumpers, and auxiliary hardware. This
trend is reversible. An estimate of the energy saving which might be
possible by sharply reducing the aluminum content of the automobile
appears as Modification I in Table XVI. Modification I simply assumes a
90% replacement of the vehicle's aluminum by an equal volume of steel.
Modification II reduces the metal content of the automobile, and was
achieved by reducing the size of the car. The result is that less than
half of present energy requirements is still needed after Modification
II is implemented. Modification I would save 1.6% of industrial, or
75% of national, total energy consumption; Modification II would save
2.0% of industrial or .92% of national consumption. While these savings
are small in themselves, they are indicative of savings available from
energy-saving efforts across the whole metal-manufacturing sector.
- 77 -
-------
TABLE XV - ENERGY FOR PRODUCTION & RECYCLING OF METALS
METAL ORE OR MAIN SOURCE ENERGY (kWh/ton)
Magnesium. ... Sea Water ............«•••••«••••••••••••••••••• "'
Aluminum ..... Bauxite ............................... 51,470 - 59,540
Clays .......................................... 65,972
Anorthosite .................................... 72,360
Iron ......... Higfi Grade Hematite ............................ 3,180
Magnetic Taconites . ........ ..... ............. .. 3,560
Iron Laterites ................................. 5,180
Copper ....... 1% Sulfide Ore ................................. 13,530
0.3% Sulfide Ore ............................... 24,760
98% Cu Scrap Recycle ........................... 590
Impure Cu Scrap Recycle ...... ..... ............. 1,560
Titanium..... High Grade Rutile ......... ..... ............... 126,280
Ilraenite-bearinp Mineral (sands , rocks) ... 150 , 120-157 ,080
High Grade Ti Soils ..... • ...................... 206,750
Ti Scrap Recycle ................... ... ......... 3<»,000
Source: AAAS/CEA (Ref.14).
- 78 -
-------
TABLE XVI - ENERGY USE & SAVINGS IN AUTOMOBILE METALS
METALS & ENERGY
Steel (Tons)
ii
Cast Iron
it
Aluminum
ii
Zinc
it
Copper
ii
Lead
ii
TOTAL
(kRE)*
(Tons)
(kRE)*
(Tons)
(kRE)*
(Tons)
(kRE)*
(Tons)
(kRE)*
(Tons)
(kRE)*
(kRE)*
1958
1.200
1264
.312
77
.027
1045
.045
197
.020
184
.009
3
2770
1966
1.190
1257
.305
76
.035
1348
.052
228
.018
167
.009
3
307<>
1970
1.150
1214
.300
74
.055
2120
.043
189
.012
110
.008
3
3710
1970
Hod I
1.293
1366
.300
74
.055
2120
.043
189
.012
110
.008
3
1954
Savings
Mod II
1.062
1123
.246
61
.0045
117
.0353
155
.00^4
86
.0066
2
1554
*kRE=kWh Resource Electricity, computed at 3.07 tines consumption.
Source: E.Hirst (Ref.16).
- 79 -
-------
Such efforts might be expected to have two main consequences.
Constraints (whether economic or regulatory) on the substitution of
aluminum for steel and lumber would mean that use of aluminum would tend
to be confined to products in which it contributes an essential and
non-trivial function, as in aircraft. (Aluminum furniture might be
eliminated, for instance.) Constraints on the rapid expansion of the
chemical industry would retain dominance of cotton and woolen, rather
than synthetic, fabrics; plastics would be used, not as substitutes for
paper or wool, but only where their unique characteristics are
essential.
If a regulatory body were to try to define which uses were
essential and which were not, there would be many serious problems. For
example, aluminum siding is an energy-intensive material, yet it lends
Itself to more energy-conserving residential construction. Should it be
encouraged or discouraged in particular uses? If each of the materials
were purchased for a price which included the full resource costs of the
inputs, including energy, and if the lifetime energy-use of a dwelling
were well defined for various construction choices, then the builder and
owner would automatically make the best social choice whenever they
chose the cheapest alternative for a particular dwelling; this is far
better than trying to define the alternatives in a regulatory scheme.
The case of aluminum raises another Interesting point. If
regulators were to ban aluminum from some uses, there would be far less
incentive or opportunity than at present for electricity-saving aluminum
processes to come into use. (Several promising alternatives exist, but
their economic feasibility is uncertain.) On the other hand, if
electricity prices rise, they would create strong forces to encourage
development of such energy-saving processes. This is the kind of trend
toward greater energy efficiency which the 1971 Presidential Energy
Message sought to restore.
Perhaps the most significant displacement which has accompanied
the rapid growth of industrial power consumption in the United States is
the displacement of labor by electricity following the large-scale use
of capital equipment in production processes. In some instances,
increases in power productivity could require a disproportionate
increase in labor because of the reintroduction of hand labor in place
of machine operations. There are, however, far more technical changes
which would certainly not require reductions in labor productivity.
The fact that power productivity in industry has been steadily
declining since 1947 indicates that low energy prices have been inducing
industry to substitute low-productivity power for other inputs,
including some low-productivity labor. If this trend is halted, or even
reversed, the result will be a slower-than-otherwise increase in labor
productivity, but a higher-than-otherwise employment. (Lower
- 80 -
-------
unemployment generally means adding less productive workers, hence lower
labor productivity; this is not a fault in energy conservation.)
STRATECY 1-3; Promote Energy-Saving Materials in Construction.
Additional energy savings are possible in the building industry.
It has been suggested (Ref.14) that structural safety standards are
generally pyramiding in nature and that reductions in these safety
standards would not increase the real risk of disasters, but would
permit, for Instance, concrete structures to be designed with less than
half the material now used. For buildings, there is a cumulative
savings, since the weight of the building itself is substantially
reduced. The size of the footings can be considerably reduced, with
further material savings, reflecting both the more realistic structural
analysis and the reduced loadings that the foundations and footings are
designed to support. In cement production alone, there would be
resulting savings of about 20 billion kWh/year; enough energy savings to
provide the electric energy of 3 million families. Table XVII gives a
summary of electrical use in building construction.
/
In the construction industry the use of different materials also
requires different amounts of energy consumption. For example,
synthetics and plastics, as noted above, generally require more energy
than the natural materials that they displace, because the processes of
making them require large ratios of energy to basic materials
(petrochemicals) in order to break them down and rearrange their
molecular structure into the product filaments and powders.
The large energy requirement of aluminum refining (about 5 times
the energy requirement of steel on a poundage basis) is due to a major
electrolytic requirement. (This process is highly efficient in relation
to the molecular bonding energy required; but other processes, mentioned
earlier, may succeed in bypassing the requirement for the energy to be
electrical.)
Replacement of aluminum by steel Is possible, for example, in the
construction of office buildings. A Chicago office building required A
million pounds of aluminum for the exterior covering. This could be
replaced by about 5.75 million pounds of stainless steel and would have
the same structural and weathering characteristics. In energy terms,
the aluminum would require 2.1 million kWh to process and assemble,
about three times the 0.77 million kWh necessary for the stainless
steel. The difference would therefore be about 1.3 MkWh on this
building alone. (The cost-effectiveness of such a substitution depends
on the prices, including energy costs, of the choices. Replacing
aluminum pipe guard rails along roadways with galvanized steel in New
York City was cost-effective, and resulted In energy savings of
approximately 1.6 BTU per twenty-foot section.)
- 81 -
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TABLE XVII
ELECTRICAL USE
IN BUILDING
I
m CONSTRUCTION
N)
t
Electric lighting and wiring equipment
Heating, plumbing, structural
metal products
Other fabricated metal products
Primary copper manufacturing
Primary aluminum manufacturing
Primary iron and steel manufacturing
Stone and clay products
Lumber and wood products except
containers
Petroleum refining and related
industries
Electric utilities
Gas utilities
Motor freight transportation
and warehousing
Wholesale and retail trade
Business services
, x
' (U c
o *-' .5
to o '
.- o r»-^
j^ J* W
,„ *-> E -C O
>/J ..-4 .^ ^n ,f4
OJ 3 ..4 *""*
^™l O J^* <~* . .
t, 3
31.5 8.25
201 46.2'
•
31.6 9.7i
58.2 13.13
4.8 2.4i
82.5 41 i
239 130
94 39
21.3 7.0-2
I "'
;.
23 12 •'•
0.4 0.04
14.6 5.79'
1
145 105
62. 8\ 31.6
1 i '•
!-, J-
<" L '? :
S ° £• •
••-« M r1
U[ 1 W.
t~ ^*
•*-» — QJ
O "^ -*-J •
r^ a> to
'"' — ^~
^ui . • 0
U oe^S
23.25.
154.8:
.
21.88.
44.9
2.4
41.5
109
55
14,28
,
11
0.36
8.81
40
31.2
I
J^
' ?
•.-* tn
13 In
O 3
O TD -_
w •£
CO 1
rt s.,"^
K tucTS
1.05
0.78
1.43
0.74
0.32
n.78
1.04
1.23
0.74
0.87
0.12
0.875
0.875
0.875
. . |
* ;|j-z:
. •"* ^!
> "in
GO !-.
«3 "o "?
C M j;
H >> c
. *~* c
M -4-» -V
" 0 -^
m ° ^
^> t- p
W ^ 0
790
5, 920
680
1,780
720
5. 250
12,500
3, 1(50
950
1,380
3C
66C
12,00
tio *n j_
C3
i— pj
^ >»-^
2 ^ §
"a ^ S
^ 73 '?
W .5-5
2,6C(
17,600
2.500
5,130
V280
4,750
12,500
6,290
1,630
1,260
40
1.010
4.57
3,62( •*
J 0 §
^ w =2
O ^ c
—• LC
3,450
23,520
3.180
6.910
1.000
10,000
25,000
9,450
2.580
2,640
7C
1,670
16,570
7,190
This represents electric energy use in 88. 5 percent of the construction industry's share of the Gross
National Product (excluding highways) 49.3 percent represents materials; 39.2 percent represents
value added. Extrapolating for 100 percent produces a figure of 128,000 million kw-hrs. Total US
production of electric energy in 1969 (according to Edison Electric Institut.fe) was 1, 556, 996 kw-hrs.
113,230
million
kw-hrs
Sources: Scientific American. "The Input/Output Structure of the United Slates Economy," 1970;
US Consuls of Manufacturers, 19R7,
-------
STRATEGY 1-4: Promote Investments in Energy-Saving Equipment.
The steel industry used 58% of the energy consumed in the primary
metal market in 1963. 51% of this was used in blast furnaces and steel
mills. It has been estimated that by the year 2000 there could be a
reduction of from 25% to 39% in energy consumption, as a result of
substitution of the basic oxygen process and other related reduction
processes in place of those currently in use.
A number of add-on modifications are currently available, and
cost-effective even at current prices, for the saving of energy in
heat-intensive applications. Such energy saving devices as heat wheels
could result in as much as a 30% reduction of energy use in appropriate
applications. Suitable insulation on gas-fired vacuum furnaces,
advanced heat-pipe technology, and known Improvements in heat transfer
and combustion techniques can reduce energy use in some steelmaking
activities by as much as 75%.
Even more relevant, an optimum set of stich modifications can be
installed so as to yield a return (in saved energy costs) of some 60% to
90% (depending on amortization) on the investment cost of the
modifications. The fact that such opportunities are being ignored by
industry prompts some further questions on the whole topic of the
effectiveness of price-based strategies in changing energy use. If a
firm is ignoring as 60% return, will they respond to energy price
increases that make the return 70% or 75% for their investment in energy
saving? Or are the numbers themselves incorrect?
Such energy savings have been validated by specific installations
of the equipment in question, which is within current state of the art.
It seems that industry generally places a considerably higher price on
initial capital costs for energy-using equipment than on the energy
bills for that equipment. Why? Further research is needed; it may be
that there is a distrust of projections on energy savings
(standardization of energy-use characteristics could help), or that
industry is responding to differences in tax treatment of capital costs
relative to operating costs (so that investment tax credits related to
energy conservation might help), or that industry is responding to
uncertainty about the future availability of specific energy sources (so
that more confidence in both the energy system, and the role which EPA
might play in regulating use of specific fuels, would help.) These are
obviously serious questions.
An interesting and constructive example of the role of
environmental protection is emerging in the paper industry. So-called
"dry processing" is being introduced, partly in response to controls on
water pollution. In this process, pulp is 97% water rather than 99.5%
water; the direct effect is that only one-sixth as much water is used,
and the final effluent is six times as concentrated, making for easier
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removal of the more concentrated pollutants. The interesting indirect
effect is that only one-sixth as much energy is required for drying the
final paper; this is an 847 reduction in energy use.
Because of the nyriad uses, noted above, that energy finds in
industrial processes, and the thousands of variations in these
processes, the magnitude of a tax credit or penalty which might be used
to induce energy-saving technical changes is impossible to determine in
an a priori fashion. Specific industry studies are needed in order to
determine the size of the economic incentive credit or tax which would
induce the adoption of these techniques. Such a data base does not
exist at this time, and therefore meaningful estimates of the magnitude
of these mechanisms cannot be derived at present.
STRATEGY 1-5; Encourage Energy-Saving Shifts in Illumination.
Lighting is responsible for 24% of all electricitv sold in the
United States. Consolidated Edison has estimated that the percentage of
electricity that goes into lighting is as high as 652 due to large
commercial and industrial applications. In their area, it appears that
substantial savings could be made by eliminating unnecessary lighting.
Energy savings could be achieved by substituting fluorescent lamps for
standard filament bulbs. Estimates of the AAAS/CKA Power Study Croup
(Ref.14) indicate that adequate lighting could be installed in
institutions, commercial buildings, and schools with less than 5H/' of
current energy use. More selective switching arrangements could result
in additonal savings, as well as eliminating usage of artificial light
when adequate daylight exists. Air conditioning loads ciould be
lightened, since the extra heat created by unnecessary lights would be
eliminated. Fewer electric fixtures, smaller wiring loads, and reduced
size of switch gear would generate further savings. Of some 5400
million kWh that are used in the construction industry for electric
lighting and wiring components of buildings, at least 25% or 1350 !1kWh
could be saved.
It has been indicated above that the proposed technical
modifications in industry could probably be implemented with minimum
shifts within the industrial sector. Rut the strategy of reducing
electrical demand by regulating the pattern of use might, nevertheless,
have serious consequences. Such reductions might not be possible
without changes in the economic factors which govern industrial
production and the distribution of wealth, and dislocations . of
industrial production. It must be understood that these impacts are not
by any means certain outcomes of policies to reduce industrial energy
demands, but rather they are possibilities on which further research is
required, and about which we must be constantly concerned as
conservation policies take effect.
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Whatever these Impacts of demand reduction, they are sure to be
less efficient and equitable if we rely on regulation alone than if we
allow the price system to furnish the basic incentive for conserving
energy. If energy becomes more expensive, the strategic areas where
demand will decline are probably those which have just been listed.
They are identical with the areas where direct controls would be applied
if controls were our only tool. If prices are allowed to rise*
Strategic intervention will be necessary only where cases of market
failure develop.
The strategies suggested above to induce the estimated benefits
presented in this section are essentially implementable in the short-run
period 1972-1975. In addition, other short-term measures which would be
supportive to them include:
1. Government sponsorship of research and development
on specific energy-saving industrial technologies.
2. Additional research on the energy-use implications
of industry-wide recycling of energy-intensive metals.
3. Regulations specifying minimum levels of efficiency
of energy use for industrial machinery.
4. A program of rating the life-cycle energy requirements
of alternative industrial processes and equipment.
Strategies for the mid-term and long-term (1976-1980 and beyond
1980, respectively) would encourage further implementation of the
short-term strategies where necessary, and in addition would direct some
attention to the building of demonstration projects utilizing the total
energy system approach to energy conservation.
Unfortunately, it has not been possible to perform an analysis
which would detail the aggregate savings possible in industrial energy
use. We are well aware that this report is only a fragmentary sample of
energy uses and possible savings. But it is noteworthy that the
heaviest users of energy consistently are given the lowest prices, hence
the least incentive to save.
Table VII projected an industrial energy saving of 3.3 Quads in
1980, and 6.8 Quads in 1990, due solely to electric rate adjustments
which left industry's average rate unchanged, and only altered the
marginal rate.
As we noted earlier, industry's share of energy use is projected
to grow from 41% now to 50% in 1990; from 30 Quads to 70 Quads.
Remember that most of the 1990 demand must be from capital equipment
that does not yet exist (assuming 20-year equipment life and a 3-year
lead time means that about 60 Quads of 1990 projections will be from
equipment not yet on the drawing boards.)
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In Section III.A we calculated that appropriate residential energy
savings would become economical if there were net increases in energy
prices of about 25%, in addition to the no-net-cost revisions of
electric rates which increased marginal rates about 11%. The
residential ratio of added environmental costs to internal rate
revisions, and the ratio of their effects, was about 2.5:1. It appears
reasonable to assume that this same ratio would apply to the impacts of
the two kinds of rate increases upon industry. In this case, increases
of energy costs due to scarcity and environmental costs would motivate
further savings of about 17 Quads in 1990, in addition to the 6.8 Quads
just mentioned; a total saving of 24 Quads of industrial demand in 1990.
This saving is relative to a projected demand of 70 Quads; it would be
achieved if industry's new equipment during that period aggregates only
36 Quads, rather than 60 Quads, of energy demand. Even while making
such a shift toward processes and products that use less energy,
industry's energy use would still grow by 53%, and its share of national
energy use will still grow from 41% to 46%.
The dynamics of the free enterprise system are such that this
saving (a 40% decrease in energy-use by new equipment over the next 15
years) should be readily obtained by means of net increases of only 25%
in the real price of energy. Such increases would induce energy-saving
production methods, and a slowing of the trend toward energy-intensive
materials; these would compound into the total savings mentioned. This
need not mean a slowing of economic growth, but only a shift away from
ever-greater reliance on cheap energy.
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SECTION V
THE TRANSPORTATION SECTOR
GENERAL DISCUSSION
According to Hirst (Ref.15), the transportation sector consumed
16.5 QBTTT of fuel and operating electrical energy in 1970, which was 24%
of total TT. S. energy consumption. Over 957 of this energy comes from
petroleum; the transportation sector is the Nation's number one user of
petroleum, consuming more than half of the annual total. A more graphic
view of this rate of consumption may he obtained by noting that the
entire Alaskan oil strike is considered to contain about 100 OBTTT of
petroleum, about enough to supply the transportation sector for six
years at 1970 levels. Projections to the year 2000 estimate that
transportation will keep its one-quarter share of total TJ. S. energy
consumption, with an annual sector consumption of about 21.5 OBTTT by
1980 and 42.9 QBTTT by 2000.
Fuel energy alone does not fairly represent the total impact of
the transportation sector on energy resources. If the energy
consumption of transportation activities such as road building, fuel
refining, vehicle manufacture and maintenance, raw material production,
etc., are included in the total, the sector's share of total consumption
is considerably greater. For instance, Hirst estimates this additional
energy to be over 7 OBTTT annually for automobiles alone; although this
estimate seems high, we may expect that the transportation sector's true
share of total TT. S. energy consumption is over 35 percent.
We have already discussed some of these indirect costs in treating
the industrial sector, where we were concerned with manufacturing
alternatives. Nothing was said there about reducing the total
production for any particular use, as by reducing the total need for,
and number of, automobiles. In this discussion, we will also not treat
the savings on indirect energy costs, mainly because little is known
about the relative energy costs, for instance, of manufacturing a
transit system rather than a highway/auto system.
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Pathways to Conservation
There are three pathways towards conserving or reducing the
constunption of energy for transportation} we can reduce the
transportation demand; shift traffic toward more energy-efficient modes;
or increase the energy-efficiency of existing modes by technological
change, better utilization of present technology, or improving vehicle
load factors in present modes. Each of these pathways may be applicable
to the four major transportation sectors: inter-city freight traffic;
urban freight delivery; inter-city passenger traffic; and urban
passenger traffic. However, selection of major pathways and specific
solutions to the energy conservation problem must rely on an analysis of
the character and importance of the transportation sectors and travel
modes.
It must be noted that TI. S. transportation is dominated by the
least-efficient (in terms of energy consumption) transport modes. In
addition, these modes are increasing their share of the transportation
market. Table XVIII shows a breakdown, by market and energy
consumption, of all significant transport modes within three of the four
important sectors of the T7. S. transportation system. (The remaining
sector, urban freight delivery, is dominated by truck transport.) The
table also compares the energy-efficiency of the various modes.
Inspection of the table leads to specific observations about the three
sectors.
Inter-City Freight
The two most efficient modes, pipelines and waterways, play an
important and growing role in inter-city freight transport. However, it
is,suspected that there is little that the government can do directly to
effect a significant shift from less efficient modes to these two.
Future growth in the pipelines' share of the freight market may come
from the shipment of bulk solids in slurry form; existing market
incentives should be sufficient to encourage this growth. It is
certainly clear that ICC rate-setting policies shift traffic between
modes; what is uncertain is the net effect of these shifts on energy
consumption.
Although railroads presently have 35% of the freight market, their
market share has been declining in competition with trucks and
pipelines. From an energy standpoint, any shift in market share from
railroads (efficiency of .00147 ton-mile/BTTT) to trucks (.00043
ton-mile/BTtl) is undesirable. This area deserves further analysis.
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TABLE XVIII - MODAL SHARES & EFFICIENCY BY TRANSPORT SECTOR
FRACTION 1970 SECTOR CHANGE, SECTOR 1970 SHARE OF
MOPE OF RAIL MARKET MARKET SHARE TRANSPORT
EFFICIENCY SHARE, % 1950-1970 ENERGY, %
INTER-CITY
Rail
Truck
Waterway
Pipeline
Air
INTER-CITY
Auto
Air
Bus
Rail
FREIGHT
1.00 35.
.29 19.
1.26 27.
1.51 19.
.02 .15
PASSENGER
.85 87.
.35 10.
1.81 2.
1.00 1.
-22. 3.19
+ 3. 5.95
+12. 1.95
+ 7. 1.15
+ .12 .74
-0- 20.08
+ 8. 5.70
- 3. .22
- 5. .20
URBAN PASSENGER
Auto
Bus
Rail
Bicycle
.51 97.
1.11 2.
1.00 1.
20.50
+ 7. 33.82
- 4. .32
- 3. .18
- —
Source: Hirst (Ref.15), modified,
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The air freight market has been expanding rapidly; however, it
still controls only a tiny share of the inter-city freight market.
Although thr. extremely low energy-efficiency of the airplane makes air
freight an undesirable (from an energy standpoint) transport mode, the
Department of Transportation estimates of air freight growth show no
urgent need for government Intervention. On the other hand, a report of
the FCST Energy R&D Goals Committee (Ref.16) forecasts a dominant role
for air freight in the inter-city transportation market. The report
presents a well-reasoned argument that may be summarized as follows:
- "Air-eligible" cargo is either high-value cargo or else cargo
which can show net economic benefit from air freight's speed;
- less than 20% of "air-eligible" cargo actually moves by air
because of poor marketing, air terminal delays, or other
reasons;
- present air cargo projections are based only on the national
growth of the 20% of "air-eligible" cargo that now flies;
- current trends in airport design and construction and
increased marketing will increase the percentage of
"air-eligible" cargo that actually flies; and
- reduction of air freight rates, made possible by more
efficient ground handling, information, and documentation,
will greatly expand the total amount of freight that is
"air-eligible".
If these arguments are correct, air freight may experience an
order-of-magnltude increase over and above normal Increases due to
expansion of the economy. This would place air freight in the role of a
major energy-using mode. It may be advisable to study this trend more
carefully; it will be necessary to determine whether freight bears a
full share of air frame and terminal costs, or only the marginal
operating costs, and whether Increased fuel costs will help prevent such
exorbitant growth in an energy-wasteful mode.
Inter-City Passenger Travel
The inter-city passenger sector is dominated by the
lowest-efficiency modes, the automobile and the airplane. Buses and
railroads are rapidly losing their tiny share of the market; until
recently, railroads were vigorously deleting their remaining passenger
services. Strong government policy should be aimed at reviving the
energy-efficient modes, while Increasing automobile efficiency.
It should be carefully noted that no major shifts of inter-city
travel modes can occur unless convenient and inexpensive transportation
is available within the urban areas, so that inter-city transit
passengers will have continued mobility at their destination.
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Urban Passenger Travel
The urban passenger sector is dominated by the lowest-efficiency
mode, the automobile. Government policy should be aimed at reviving bus
and rapid transit modes, and decreasing the automobile's share of the
transportation market. In addition, that portion of urban travel which
results from unnecessary separation of origins (residential areas) and
opportunity destinations (work places, shopping, recreation) may be
amenable to reduction through government influence on land use
decisions. Finally, measures that will increase the energy efficiency
of automobile travel should be pursued.
Because the automobile is ubiquitous, improvements in its
efficiency can, at least conceptually, account for greater savings of
direct energy use than very heavy investments in particular
transportation systems which are each geographically limited. In fact,
it is not possible at this time to draw up a very accurate energy
balance for alternatives to the auto, because of difficulties In
determining how many autos any specific system might replace. Perhaps
the most accurate representation would be to say that transit systems
which are justified by their ability to alleviate congestion and
pollution problems will also save energy, though they may not be
justified by an energy basis alone.
Interactions of Energy Strategies
Any energy conservation measure will tend to shift the structure
of the transport market to which it is applied. Traffic will expand,
contract, and shift from one mode to another whether or not this is what
the measure was intended to accomplish. As an example, any measure that
Is designed to make a transport mode more energy-efficient, and that Is
cost-effective (i.e., causes total transport cost per unit of traffic to
be lowered) will cause traffic to shift from other modes to that one
(providing rates are lowered to reflect the lower costs, or, more
generally, that costs are fully internalized to the final user). If the
shift Is from high-energy-efficiency modes to a lower-efficiency mode
(for instance, truck transport to air transport), the total energy
expenditure for that portion of the transportation sector may actually
increase. This is the opposite of energy conservation!
This phenomenon makes it clear that studies of the competition
between transport modes must be an Integral part of any evaluation of
energy conservation strategies. Such studies are dependent upon a
knowledge of the modal elasticities and cross elasticities of demand as
functions of transport price and service parameters. Unfortunately, the
body of data that might allow us to calculate these elasticities and
thus evaluate intermodal tradeoffs is very meager. Some studies of
demand elasticity do exist, for instance, in the Inter-city freight
- 91 -
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market. However, a brief examination of a few of these reveals their
resttlts to he quite contradictory. Scores, perhaps hundreds, of modal
split studies of urhan and regional passenger travel have heen
conducted; their results have heen shown to he highly area-specific and
usually inadequate to predict future travel hehavior even in the areas
for which they were conducted.
Thus it is clear that we have heen unahle to fully evaluate the
effect of the conservation strategies we investigated on competitive
transport modes. However, in all cases we remained alert to modal
competition as an important qualitative parameter. The 197?. National
Transportation Report (Ref.17) hriefly descrihes a model designed to
predict the shifts of modal shares of inter-city freight as a function
of changes in service parameters. The Department of Transportation is
supporting this, and other studies designed to predict modal split, in
an attempt to give policy makers the quantitative tools they need to
evaluate transport improvement strategies. It is highly desirahle that
the Environmental Protection Agency give strong support to these
studies; it is also desirahle that transportation studies in general pay
more attention to energy aspects than they have in most previous cases.
The following three sections discuss transportation energy
conservation strategies that could be followed in the "short term"
(1973-1975), "mid term" (1976-1980), and "long term" (heyond 1
-------
SHORT-TERM (1973-1975) STRATEGIES
Inter-City Freight
\
As noted previously, the key issues in energy conservation in this
market are the continuing shifts in freight traffic from railroad to
truck and airfreight (and from truck to airfreight), which entail a
significant decrease in energy-efficiency for the market as a whole. In
the near term, improvements in energy utilization may be most accessible
through changes in freight rate structures and simple alterations in
services.
STRATEGY T-lt Improve the Competitive Position of Rail Freight.
The competitive position of rail freight in the inter-city market
may be altered either by improving rail's service characteristics, or by
changing the rate structure of either rail or of competitive modes.
Rail's average costs, in dollars per ton-mile, are on the order of
one-fourth to one-fifth those of trucking. For instance, by dividing
total revenues by total ton-miles (Ref.17, Tables IV-3 and 1^-4), we
obtain an average rail freight cost of 1.49 cents/ton-mile, and an
average truck freight cost of 6.24 cents/ton-mlle. However, these
averages are very misleading when comparing the competitive position of
rail versus truck freight. Railroads carry much bulk freight which is
totally unsulted to truck transport. If freight which is eligible for
either rail or truck is compared, "in spite of the railroad's large cost
advantage over trucks,, rail rates for specific shipments are only
about 20 percent below truck rates for the same shipments." (Ref.17)
Also, in comparing costs to the shipper, we must add such items as
Investments lost due to delayed revenues caused by the rail's slower
service, and other factors. Still, the same source (Ref.17) calculates
that fully "24 percent of existing truck traffic could move more
economically by rail even if there were no improvements In rail
service." (However, "the major questions of access facilities and
shipper preferences were not considered.") If this 24 percent could be
shifted to rail, a savings of 8 billion dollars In transportation costs
and .17 OBTII in energy could be achieved annually. The Report (Ref.17)
suggests that a major step towards this shift would be for the ICC to
allow railroads to lower their marginal rates.
Data presented by Morton (Ref.18) raise serious questions about
the practicality of lowering freight rates. The author calculates the
price elasticity of rail freight demand to be -.54, which means that a
102 decrease in rail rates wll result in only a 5.4% increase in traffic
volume. This inelasticity of demand indicates that a unilateral
lowering of rail freight rates could be financially disastrous for the
industry, for costs will rise with increased volume, while total
revenues actually fall. The author thus argues that changes in rail's
r
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service characteristics, not changes in ite rates, are necessary to
increase rail's dwindling share of the inter-city market. If this is
indeed the case, it seems doubtful that significant improvement in
rail's competitive position can be achieved in the short term.
On the other hand, it can be argued that what is needed is not an
across-the-board decrease of rates for the kinds of bulk cargo which now
comprise most of rail traffic, and which is obviously price-inelastic;
but rather, a removal of the floor on rates for certain truck-eligible
goods, or else simply an increase in the corresponding truck rates.
This last is apt to happen anyway, given the internal!zation of
environmental costs associated with both the gasoline and the highways
needed for truck traffic. To settle such questions, a much more
detailed scrutiny of rates and elasticities for specific goods will be
required.
On the basis of findings to date, we recommend further study of
ICC rates and regulations with respect to improving rail's competitive
position, and more study on ways to improve rail's service efficiency.
("The average speed of a freight train, including allowances for idle,
grade crossings, train make-up, etc., is less than 20 raph" (Ref.16).)
STRATEGY T-2; Improve the Energy-Efficiency of Trucks.
Although several changes in truck configuration are possible, the
most promising is probably a change in the truck body shell to reduce
aerodynamic drag. The FCST Energy R&D Goals Committee (Ref.19)
estimates that the typical truck's aerodynamic drag coefficient is twice
that of the typical automobile (which isn't so good itself) and three
times that of an "ideal" teardrop-shaped vehicle. It is felt that a
modest design program, completed in the short term, could result in
truck design achieving a 5% reduction in energy consumption (about .05
OBTU/year in 1970, assuming saturation of the inter-city truck market.)
Although the energy savings are modest, the cost is neglgible.
In addition to changing truck aerodynamics, possibilities for new
truck powerplants may be explored. Some additonal efficiency here may
come from comparable trends in the automotive sector, which is discussed
below; in both, changes in fuel costs will probably be a major
motivation for such developments.
Urban Freight
As noted above, the urban freight market is dominated by trucking.
This mode really consists of two fairly distinct submodes: (1) the
direct delivery of inter-city freight with no vehicle change, entailing
the entrance into the city of large tractor trailers; and (2)
intra-urban and terminal-urban delivery, often involving the tise of
smaller delivery trucks and vans.
-------
In the near term, energy conservation in urban freight delivery
should concentrate on the planning for (and, where possible, the early
implementation of) the following strategy:
STRATEGY T-3; Centralization of Truck Terminals.
As a corollary to terminal centralization, computer techniqxies
commonly applied toward optimizing inter-city shipments must he applied
to urban freight delivery. An optimization of urban freight delivery
will include combining shipments from different companies, requiring
lightly loaded vehicles to transfer their loads at the terminals,
contalnerizatlon of cargo, and possibly the banning of large inter-city
tractor-trailers from congested urban areas, requiring freight transfer
to smaller delivery vehicles.
Implementation problems which may arise for urban freight
centralization include: problems of availability of large tracts of
land (for the terminals) close to cities but suitable for
industrial-type activity and for heavy concentrations of truck traffic;
opposition of small specialty trucking firms that may be put out of
business by a combination of terminal centralization and required cargo
transfers to smaller delivery vehicles; opposition from drivers who may
see the added efficiency as requiring them to spend more hours at
high-speed driving, or as eliminating jobs; and product diversity or
requirements for special treatment (such as refrigeration) which might
restrict consolidation.
The EPA's Office of Planning and Evaluation has computed potential
savings for urban freight "clustering" to be on the order of .5
OBTU/year. This analysis is based on the assumption that urban truck
traffic Is "clusterable" where SMSA population exceeds 250,000 persons
(this yields 468 clusters nationally) and that energy savings of 90%
(for intercluster shipments) and 33% (for intracluster shipments) are
possible.
Inter-City Passenger
One major key to conserving energy in inter-city passenger travel
is the shifting of the predominant mode of travel from airplanes and
automobiles to mass transit modes. (As pointed out In a previous
section, the probabilities for such mode shifts are tied to a
simultaneous shift of urban passenger travel somewhat away from tbe
private auto.) There are five main strategies for encouraging such mode
shifts.
STRATEGY T-4; Raise Automobile Operating Costs.
Auto operating costs may be increased by: raising fuel prices by
increased taxation (related to society's costs, using market forces to
pressure Increased auto energy-efficiency); establishing tolls, or
- 95 -
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raising exist.ing tolls, on inter-city highways; and internalizing some
previously external costs of auto travel (especially by requiring
installation of air pollution control devices.)
Although such policies are certainly possible within the short
term, the lack of good alternative inter-city travel nodes in this time
frame is likely to prevent any substantial shift of mode by the majority
of motorists. Thus, the higher costs nay simply restrict the nobility
of some lower-income groups without creating many compensating benefits.
Two additional implementation problems with elements of this
strategy are the increased fuel consumption which is caused by some air
pollution control alternatives, and the presence of a very strong
pro-automobile lobby which would attempt to head off any attempts to
raise Federal fuel taxes or to tax the use of "freeways." On purely
economic grounds, it may be argued that highways are fjally funded from
user charges, and that users should not be charged an extra burden to
pay for the development of other modes of transport. However,
construction costs are only a fraction of a highway's social and
environmental costs; extra user charges would simply be a belated
recognition of these costs.
Quite aside from tax rises, new government requirements, and the
like, the cost of operating an automobile is very likely to experience
sharp increases in the near future on account of normal market
mechanisms together with the governmental actions which have already
been taken. Increasing demands for added revenues from the suppliers of
fuel, together with dwindling reserves, are going to force especially
sharp increases in the price of gasoline. If pollution control devices
require the use of lead-free gas, another increment is added. Thus,
fuel costs may represent a larger share of total transportation cost in
the future, and energy efficiency may be a more important factor in
modal choices than it is now.
STRATEGY T-5; Increase Energy-Efficiency of Auto by Technology.
A number of physical improvements are available to increase the
energy efficiency of the present automobile. According to FCST
(Ref.19), four simple changes could all be through the design stage by
1975, and could probably begin reducing total energy demand by 1977 or
1978, with market saturation essentially complete by 19R6. These four
measures are:
- Require the use of low friction tires.
FCST calculates the potential fuel savings of a massive switch
to steel belted radial ply tires to be on the order of 102.
Additional advantages of these tires include greater tread
life, improved stopping ability, and better puncture
resistance. It is noteworthy that these tires are being
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sold in the replacement market, without reference to their
efficiency; if their characteristics were better known, they
might be a natural preference as initial tires on new cars,
where their tread-life is far more meaningful.
- Promote body shell redesign.
FCST estimates that aerodynamic drag can be reduced enough to
give a potential fuel saving of 5%.
- Promote redesign of power trains.
FCST estimates that if the power train provided a better match
of vehicle load to the engine, fuel savings would be on the
order of 10%-15%, at a cost to the customer of $100-$200 per
car; or else, as an alternative depending on vehicle use:
- Encourage the use of smaller engines.
FCST estimates that for an incremental cost of less than $100
per car, autos could be powered by small engines plus a
supercharger or turbocharger, to yield performance similar to
that obtained with larger engines when needed, but with much
less waste in routine operation.
By 1986, these changes would yield an energy saving of about 4 QBTTT per
year. The dollar value of the savings to the consumer is over $10
billion per year (135,000 BTU/gallon, 36e/gallon) at present prices.
The Investment cost to consumers would be about $30-535 billion dollars,
so the program would be cost-effective even at present prices. If fuel
prices rise, as seems certain (and desirable, considering environmental
costs), then this program could be very attractive from a cost savings
as well as an energy conservation standpoint.
The above, reductions are worthwhile to the individual owner in
most cases, in simple dollar terms; the need is to make them better
understood, so that they will be more widely adopted by the owners who
would find them beneficial. In addition, there are other options which
are further from realization, which are not so generally economical
(under some driving conditions, they do not pay for themselves), or
which require some of the costs to be paid in non-monetary intangibles.
Some or all of these may be worthwhile, depending on the size of the
needed energy savings; but they cannot be directly compared with the
earlv and 'general effectiveness of the above-mentioned choices. They
incliide the use of transmission overdrives, alternative power plants,
and a forced shift to smaller cars.
The use of overdrives is actually a specialized version of the
power train improvements suggested above. Overdrives are useful only
for sustained high-speed driving, but these are exactly the conditions
that prevail in inter-city travel. An overdrive can probably be added
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to present transmissions for about S150. A representative fuel saving
might be about 20% in high-speed driving. Assuming that the owner of an
overdriverequipped car might actually utilize the overdrive for 5000
miles per year, a fuel-related savings of approximately $20/year would
result, \7ith some additional benefits fron reduced engine wear.
Alternatives to the present internal-combustion engine are
discussed in the section on long-term strategies.
Any plans to ban or penalize high-weight, high-powered automobile
designs must recognize that buyers of these cars are, with full
knowledge, already willingly paying a substantial penalty for these
designs and may be willing to pay more. Also, the more "efficient"
lightweight, low-powered cars may be less safe than larger cars in terms
of structural rigidity and high-speed passing reserve.
It should be noted that a significant switch to small cars is
already taking hold in today's market (sales of small cars are currently
in the neighborhood of one-fifth of the total.) Although average fuel
consumption for small cars is presently much better than for large cars
~ about 21 miles per gallon versus 13 or so miles per gallon for large
cars and "intermediates" — much of this saving is not due to size alone
and there is no guarantee that the present fuel advantage will continue.
Much of the fuel consumption advantage of snail cars is due to such
factors as loxrer horsepower-to-weight ratios and fewer accessories (air
conditioning, automatic transmissions, power steering and brakes, etc.);
some present owners of large cars may "switch" to smaller models but nay
demand many of the fuel-using "advantages" of their previous cars.
It seems clear that the appropriate economic tool for eliminating
energy-wasting large cars (or energy-wasting anything else) is an
incremental charge on the energy, together with full consumer knowledge
of the alternatives.
STRATEGY T-6: Improve Airline Passenger Load Factors.
Present airline load factors are hovering around 50 percent.
Shifts in FAA policy which would reduce excess capacity maintained
because of competition for traffic on popular routes, and reduce or
eliminate scheduled service on little-used feeder routes, might raise
load factors and thus substantially improve air travel
energy-efficiency. However, many questions of unfair restrictions on
competition and discrimination against smaller cities may arise upon
attempts to promote this type of strategy. As noted above in
considering autos, it is desirable to pursue strategies whose costs are
measured in dollars, rather than reduced service and resultant
inconvenience. It will also be important to ensure that the airlines
are not simply goaded into using the spare planes to carry marginal air
freight, at higher energy costs than competing modes.
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In addition to all the above strategies, further research is
needed on the degree to which various positive and negative flow taxes
work on the various modes at the present tine. The airlines practice a
substantial degree " of subsidization of short-haul flights by their
longer flights; this wastes energy. Also, property taxes paid locally
by railroads (as against public right-of-way for trucks) need more study
of their energy role.
Urban Passenger
Conservation of energy in the urban passenger travel sector has a
variety of potential strategies available for the near term. These
focus primarily on promoting mode shifts from auto to transit and
improving the energy-efficiency of the dominant auto mode.
STRATEGY T-7: Raise Urban Operating Costs of Autos (Parking, & T-4).
Theonly tactic this adds to Strategy T-4 (for Inter-City
Passenger Travel) is that of raising parking fees. But increases in
parking fees may well be the single most effective short-term method of
promoting car-pooling and shifts to transit. It has been shown that
highly visible costs ~ such as parking fees — are far more Important
determinants of travel behavior than are the somewhat less visible fuel
costs, maintenance costs, automobile depreciation, and the like. Recent
experience in the District of Columbia has shown that the
characteristics that make a parking tax effective in influencing travel
behavior ~ high visibility — also make such a tax highly unpopular and
thus politically hazardous. However, this obstacle might be
substantially mitigated if good alternative transportation Is provided,
and the tax should be a reasonable longer range measure.
It must be remembered that this report has constantly stressed the
need for internalizing environmental costs. With respect to auto
emissions, this means that the optimal approach would be to charge for
the social costs associated with the use of each gallon of gas. These
costs vary with the location where the gasoline is used, and with the
emission characteristics of the vehicle.
Consider a commuter who lives fifteen miles from work, and burns
10 gallons of gas a xreek commuting. Even a 25% surtax or emission
charge on his gas would be only about $1.00 per week, the same as a 20$
parking tax. It could pay the commuter to drive up to 50 miles from
town to buy gas without the tax, even if he bought only what his tank
would hold. If all gas within 50 miles of town carries the surtax, many
people are paying extra even though they never drive into town. If such
a fee is enough to discourage commuting, It Is probably enough to
encourage drivers to disconnect their emission-control devices to get
better gas mileage. There is no practical way at present to make the
tax proportionate to the emission characteristics of the vehicle, or to
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check for disconnected controls. All these problems grow worse as the
tax rises; yet most people would agree that 20c/day would not make a
major impact on commuters, since it is the opportunity cost of only
about 2 minute's waiting time each way.
In many ways, a tax collected at the parking space can come closer
to a valid price on externalities than a surtax on gasoline purchased.
At the parking space, the tax (especially for monthly spaces for
commuters) could be made proportionate to both the vehicle's
characteristics and the distance from the commuter's home; and the
vehicle could more easily be subjected to occasional spot checks of
emission controls while parked than while moving on the highway. A tax
approaching $1.00/day for uncontrolled cars, scaling down to zero for
cars which meet 1975 standards, might make a 10-minute delay for transit
or car-pooling worth while for the uncontrolled cars, and might
accomplish at least as much as a very large gasoline tax toward both
pollution control and energy conservation in cities.
An additional alternative here is, of course, simply to ban autos
from the center city during business hours. Although this policy has
frequently been advocated, it seems clearly Impractical in most cities
where transit cannot handle the increased load or provide the required
flexibility, at least in the short term. For the longer term, severe
problems still exist; these will be discussed In a later section.
It is to be expected that severe pressure would be brought against
such a strategy, generated by commuters, retail establishments, parking
garages, and so forth.
STRATEGY T-8; Subsidize Short-Term Improvement of Existing Transit.
Improvements which might be made in the short term Include
increased levels of service, replacement of obsolete vehicles, lowering
of fares, and the use of exclusive lanes where feasible. Funding for
such efforts might come from the Highway Trust Fund, or more directly
from gasoline taxes or parking fees. (The latter arrangement is a
carrot-and-stick approach; those who choose to drive pay a fee which
helps keep both the air and the streets clear enough so they can have
this convenience.)
This kind of strategy is difficult to evaluate quantitatively.
The effects of transit Improvements cannot easily be extrapolated
outside the areas where they have been tried. For this reason,
generalizations are dangerous. Hedges (Ref.20) refers to transit
improvements in Boston and Peoria, Illinois. The Instigation of free
transit was calculated to reduce Boston auto work trips by only 6%-7%,
with even less change in the volume of non-work trips. A Boston
demonstration project which reduced transit fares by 242-30% Increased
peak hour riding by only 27. On the other hand, the Peoria
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demonstration, a very fast commit er bus service, attracted 542 daily
riders, of whom 75% has previously used the automobile. The results of
other transit experiments can be discussed almost without limit, but
they mainly confirm that the record Is haphazard.
Although we strongly recommend a carefully conceived program to
expand existing transit services, we are not able to venture an estimate
of the results in energy conservation. As we have mentioned before,
transit's main benefits seem to be in controlling pollution and
congestion in urban places where the existence of transit can be
justified; comparable investments in auto efficiency would yield
nationwide energy savings which are larger. (One estimate, by. FPA's
Office of Planning and Evaluation, is that shifting to small cars
throughout a given urban area saves just as much energy as shifting 70%
of the commuters to buses.)
STRATEGY T-9t Promote the Use of Fringe Parking Facilities.
Unfortunately, fringe parking is practical only where very
efficient transit service is available. Inherent problems of personal
safety, discomfort in inclement weather, and loss of commuting time in
transferring between modes are difficult to overcome. The availability
of large tracts of close-in suburban land is questionable In many areas,
and neighborhood opposition to such a traffic concentrator may be
substantial. There are also some questions about the net energy
efficiency (and pollution) of warming up an automobile just to get to
the transit line.
STRATEGY T-10; Initiate the Restructuring of Urban Transportation.
Most of the suggested short-term energy conservation measures for
urban transportation are very limited In nature. Mid-term and long-term
measures will require massive planning efforts for successful
Implementation. Some of the more straightforward measures that could be
suggested for the mid-term (1976-1980) ~ for instance, exclusive bus
lanes and computerized traffic control systems — can be fully planned
and/or designed by 1975 or earlier.
If history is any guide, the most favorable focus for
mode-shifting strategy will be the urban work trip. Urban commuting has
traditionally been the mainstay of transit systems and will probably
remain so. Present government programs provide considerable support for
planning efforts in this area, and these programs should be continued
and exp'anded. Additional emphasis should be placed on the energy
requirements of various alternatives, and on the effects of price shifts
on the demand for those alternatives.
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Strategies for Improving the efficiency of the automobile includes
STRATEGY T-ll; Promote Technological Improvements of Autos (T-5).
Energysavings in the urban-travel sector will be somewhat
different than those experienced in the inter-city sector. For
instance, transmission improvements will have a greater impact on urban
driving whereas aerodynamic improvements have the most impact on
inter-city high-speed driving.
STRATEGY T-12t Promote Carpooling.
In addition to the pressures exerted by increased costs of auto
operation (as in T-7), it would be possible to establish computerized
carpools, or to give some form of preferential treatment to automobiles
with three or more occupants.
Inter-city automobile trips have high load factors — about 2.4
occupants, averaged on a passenger-mile basis — and incentives for
carpooling are probably wasted in this sector. Urban auto travel, on
the other hand, has low occupancy rates. Hirst (Ref.15) uses 1.4
occupants per car, though other data support somewhat higher estimates.
In addition, this mode and sector has a very high total energy
consumption — 34% of the total consumption of the whole transportation
sector. A strategy which results in a 10T< increase in vehicle load
factors would save about .6 OBTU per year, assuming total demand for
travel service was unchanged. Unfortunately, there are no data that
show exactly what it might take to achieve such an increase in load
factor.
All the above strategies will partly cause, and partly be helped
by, traffic flow improvements. Some such improvements might include
reversible lanes, one-way streets, stagger-timing of traffic signals on
major corridors, and strict regulation and enforcement to prevent
motorists and trucks from double-parking, blocking intersections, and so
forth.
Measures that promote smooth traffic flow of all urban vehicles
constitute something of a two-edged sword in an energy conservation
program. Although such measures prevent the waste of gasoline and the
production of pollutants through excess idling time and acceleration
cycles, and improve the service of urban buses, they also make driving
more attractive and thus complicate the effort to shift commuters to
transit.
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Suggested Strategies /
Based on the above discussion, several energy strategies
for the near term seem particularly worthy of attention:
Stimulate Increased Energy Efficiency in Automobiles, by
(1) Technology/Design/Vehlcle Size
- radial tires, especially on new cars
- better load-to-engine match in power train
- smaller cars, especially for urban commuting
- decreased aerodynamic drag
- small-engine-plus-booster for large engines
* POTENTIAL ENERGY SAVINGS: low in short term, about 4 QBTU
by 1985 (30% fuel savings.)
* COSTS: investment of $30 billion by total car population
less fuel savings of $10 billion/year at current
prices, and lower costs for small cars.
(2) Promotion of Increased Use of Car Pools, by
- increased parking fees
- computerized matching
- preferential treatment
* POTENTIAL BENEFITS: about .6 QBTU by 1975 with 302 increase
In commuter car occupancy; and less urban congestion,
* COSTS: low net cost: parking fee would be a transfer from
drivers to transit & car pool riders.
(3) Stimulation of Research into Power Plant Alternatives.
* POTENTIAL BENEFITS & COSTS UNKNOWN.
Improve Existing Mass Transit Service in and between Cities -
* POTENTIAL ENERGY SAVINGS: unknown but probably low.
* COSTS: Variable.
Plan/Design Centralized Systems for Urban Freight delivery -
* POTENTIAL ENERGY SAVINGS: none in short run.
* COSTS: $25,000-$500,000 per urban cluster.
Maintain Railroad's Share of Inter-City Freight Market -
* POTENTIAL ENERGY SAVINGS: Low in short run.
* COSTS: $200,000 for preliminary studies.
Begin to Restructure Urban Transportation -
*~~POTENTIAL ENERGY SAVINGS: None In short run.
* COSTS: $50,000-$5,000,000 per urban area for plans;
more comprehensive efforts into mid-term.
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MID-TERM (1976-1980) STRATEGIES ,
Inter-City Freight
Based on the results of the studies of ICC rates and regulations
which are suggested for the 1973-1975 period, the fallowing strategies
may he indicated? increase taxes on trucks; provide direct subsidies to
rail freight; and/or provide construction and maintenance grants for new
rail freight facilities, Including terminals and right-of-way. All of
these measures will be subject to protest by competing interests; it is
essential that we develop adequate understanding of the interactions
among all present subsidies and the role of regulated prices.
Plans should be developed for making rail freight technologically
competitive with truck freight. Strategies might include the massive
use of automated freight handling equipment and computerized scheduling,
and the exploration of trade-offs between energy-efficiency degradation
caused by high-speed operation of freight trains, vs. improved
competitive position of rail freight through improved delivery times.
It is worth repeating here that we have not obtained the type of
data that would enable us to explore some of the implications of the
above strategies in a quantitative manner. The 1<*72 National
Transportation Report (Ref.J.7) had held out some hope that we could
present the. results of a mid-term rail strategy that accomplished a 20?
increase in rail freight speed (the 20% Is Input to the model; no actual
strategy Is defined.) However, we could not reconcile the results with
the study assximptions (although a key study assumption was that total
traffic remained unchanged, the summation of the modal changes did not
add to zero) and we were forced to temporarily abandon this effort.
Despite this lack of appropriate quantitative methods, we can
demonstrate in a very rough manner the type of energy savings available.
We do this by calculating the savings obtained if the 1980 freight modal
split were somehow replaced by a return to the 1060 modal split (which
is more favorable to rail transport and considerably less favorable to
air freight.) Table XIX was derived In this manner, with the assumption
that modal energy-efficiencies remain constant with time, by applying
the 1960 splits to 1980 traffic and calculating the resultant total
energy, then comparing It to the actual 1980 energy forecast for
inter-city freight. T-Je obtain an energy savings of about .4 OBTU in
1980.
A final strategy for this subsector Is to pursue higher
energy-efficiency in trucks. The substitution of hipher-effJcJencv
powerplants in trucks must receive continued study. There, are also
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TABLE XIX - RETURNING 1980 FREIGHT TRAFFIC TO 1960 MODAL SPLITS
1960 % of Efficiency 1980 Projected
Mode Ton-Miles BTIJ/T-M Traffic Energy
1980 Modified
Traffic Energy
Air
Truck
Rail
Water
Pipeline
0.05
18
38
25
19
37000
2340
680
540
450
14
537
967
811
614
518
1257
658
438
276
1.5
530
1118
736
559
56
1240
760
397
252
Totals
2943
3147
2943
2705
Energy Savings in 1980 * .442 QBTU/yr ,
)•*•••*•••••<
TABLE XX - RETURNING 1980 PASSENGER TRAFFIC TO 1960 MODAL SPLITS
Mode
1960 % of Efficiency 1980 Projected
Pass.-Miles BTU/P-M Traffic Energy
1980 Modified
Traffic Energy
Air
Rail
Auto
Bus
4.3
2.8
90.4
2.5
8400
2900
3400
1600
314
9
1575
27
2633
25
5355
43
83
54
1737
48
696
156
5900
77
Totals
1922
8056
1922
6829
y Savings in 1980 - 1.227 QBTTT/yr.
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opportunities for major savings through reductions in aerodynamic drag.
In the discussion of short-term strategies it was indicated that a 5%
savings in truck fuel consumption was possible, with a "negligible" R&P
effort on lowering the aerodynamic drag of current vehicles. FCST
concludes (Ref.19) that a "moderate" level of R&D and production
engineering could produce a 20-30% energy savings in the mid-term. This
would amount to roughly a .5 QBTTI/year savings by 1985, assuming near
saturation of the truck market.
Urban Freight
Strategies should continue to focus on improvements in the
energy-efficiency of present and slightly modified truck delivery
systems. However, planning should also begin for utilizing new modes of
urban freight movement. There are several specific strategies for this.
Centralization of truck terminals and computerized optimization of
freight deliveries might be required in all major urban centers. The
use of energy-efficient electric delivery trucks should be explored.
Advanced planning for new urban transportation systems must Include
freight movement as an integral factor. Possibilities of using
high-speed automated freight handling equipment in conjunction with
dual-use (i.e., both passenger and freight) transit systems should be
explored for Implementation in the 1980fs and beyond. Obstacles to
these measures will be similar to those for short-term measures for
freight improvement. Those providing present services may be expected
to voice opposition to any plans to change the present system, even
where it is clearly inefficient.
Inter-City Passenger
In the mid-term, a strategy for reducing energy consumption for
inter-city passenger travel can utilize the three pathways discussed
previously — shifting of demand to energy-efficient modes, traffic
reduction, and increases in modal energy-efficiencies. There should be
a continued promotion of increased energy-efficiency in the automobile.
The concept of exclusive bus lanes might be extended to inter-city
travel. Although it would be quite expensive, high-speed rail service
might be provided in all major inter-city corridors.
Research should be supported for new high-speed Inter-city
transport modes, and demonstration projects might be Instituted.
High-speed Inter-city'travel modes, whether based on rail transport or
on some other mode, will consume a very large amount of energy; they
must therefore carry a considerable number of passengers in each train
or vehicle in order to fulfill their energy-saving potential. Thus,
Metroliner-type service In inter-city corridors makes sense only when
passenger load factors can be kept high.
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We should institute measures that will ensure efficient
connections between inter-city and urban transit modes; this means a
requirement for coordinated planning, regional transportation
authorities, and linked computer ticketing systems. Among the possible
problems are the existence of overlapping and opposing political
jurisdictions, and the unwillingness, of municipalities to cede control
to regional authorities. As with inter-city freight, we cannot quantify
the energy savings from the above measures; but we have repeated the
exercise of applying I960 modal splits to 1980 traffic in order to get
an idea of the magnitude of energy savings that might be obtained by
1980. Such energy savings come to about 1.2 OBTTT/year (Table XX.)
Urban Passenger
In the mid-term, conservation of energy in the urban passenger
travel sector may also utilize all three pathways discussed previously.
However, assuming that the automobile energy-efficiency measures
advocated in the near-term strategy discussion have begun to be
instituted in force, the key to any further substantial decrease in
energy use lies in reducing automobile travel.
One of the simplest strategies would involve promotion of walking
and bicycling to substitute for short (less than 2.5 miles) automobile
trips. We should plan for, and construct, pedestrian walkways and
bicycle paths. According to the AHA (Ref.?.l) 547 of all automobile
trips are less than 5 miles long. These trips account for 11 percent of
automobile mileage. If we assume that half of this mileage is for trips
less than 2.5 miles in length, and that we can convert one-fourth of
these trips to walking or bicycling (admittedly very optimistic), then
the energy savings is about .2 QBTU/year in 1985.
There must be long-range urban/suburban planning aimed
specifically at developing multi-use population centers with combined
residential, work, and recreational activities. All planning is aimed
at some degree of restructuring of urban and suburban life in an effort
toward decreasing the environmental costs of urban living. However, it
should be noted that much of this restructuring flies in the face of the
current living and travel preferences of a majority of urban dwellers.
It is pure conjecture to assume that these preferences are solely
the result of economic and social distortions wrought by a pattern of
government promotion of the automobile and the single-family house, and
the advertising industry's catering to this promotion. Instead, it is
far more logical to assnne that the flexibility of the automobile and
the privacy, security, and sense of ownership afforded by the
single-family housing pattern play as important a role in present travel
and'living patterns as do other factors. It trouW seem that the
restructuring of our living and traveling patterns is a far more
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difficult sociological problem than has heen admitted hy many current
planners. We would conclude that the planning segment of this
restructuring process, as it addresses the more radical and potentially
disrupting strategies, . nust he given a very large resource base, a
maximum of initial planning flexibMity, and a strong charge to fully
address all the sociological and secondary environmental consequences of
the restructuring alternatives.
One promising circumstance for such restructuring may he found in
the fairl^ recent trends toward smaller families, and toward larger
numhers of childless family units. Planners have often sought to create
fully heterogeneous communities, almost as an end in itself; and it has
heen expensive and difficult , (not to say impossible) to design a
working/shopping community which would stay amenable to children.
Perhaps much of the congestion problem could be alleviated if we at
least tried to accommodate the residences of more of the childless
within ottr urban places, even if this means excessively homogeneous
areas.
Toward this same end, there should be stronger government
sponsorship of the construction of neighborhood activity centers for
recreation and leisure, to reduce somewhat the demand for recreational
travel.
In the mid-term, all existing transit services should be expanded,
with the help of subsidies where necessary. We should begin the
installation of advanced transit and traffic control systems which will
have been designed in the early and mid 1970*s. Such transit systems
should be tied into fringe parking facilities in the nearer suburbs.
Although most of the proposed rapid transit systems for some of
the nation*s larger cities forecast only a very modest modal split
(Atlanta, 57 of daily trips; Los Angeles, ?./'; St. Louis, 67;
Washington, 5% (Ref.22)) they do not normally represent truly
comprehensive systems. If plans for a wide range of transit services
are fulfilled, and urban plans for clxistered development are followed,
then modal splits to transit might become an order of magnitude higher
than these forecasts, and savings of several OBTTT's per year are
possible. Unfortunately, such modal splits are entirely speculative at
this time. We must reaffirm the urgent need for demonstration programs
and modeling efforts that may allow rational evaluation of alternative
transportation futures.
We described a center-city ban on cars as unrealistic in the short
run. With the expansion of transit services in cities that is expected
to occur in the mid-term, a traffic ban of this sort will become a
feasi.ble strategy. However, there are some important obstacles to the
acceptance of such a ban. First, a significant number of exemptions
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must be granted — for handicapped workers, actual residents of the CBT),
and others — and this will greatly complicate enforcement. Retail
establishments within the area may strongly protest, especially if they
sell goods that are difficult for the average shopper to carry on a
transit vehicle. Finally, a han during husiness hours will increase the
severity of transit's normally harsh rush hour peaking problem.
Suggested Strategies
Continue Auto-Efficiency Improvements from Short-Term.
Improve Transit Services, by
- Expand/Improve Existing Urban Mass Transit Services
- Initiate New Urban Mass Transit Systems
- Link Urban Transit Systems to Inter-City Modes
- Expand High-Speed Rail Service in Inter-City Corridors
- Build Connected Fringe Parking as Appropriate
* POTENTIAL ENERGY SAVINGS: Speculative, possibly a few OBTIT/year
by 1985 (beyond short-term savings.)
* COSTS: Variable, but in any event high (several $10 billions);
balanced by benefits of decreased pollution and congestion.
The DOT Needs estimate is about $65 billion for 1970-1990.
Improve Freight fleltvery Efficiency, by
- Terminal Centralization
- Container!zation
- Computerized Optimization
* POTENTIAL ENERGY SAVINGS: About half a QBTIT/year by 1980.
* COSTS: Unknown.
Stress Transport Energy-Efficiency in All Urban Planning -
- Pedestrian Circulation
- Multi-Use Population Centers
- Neighborhood Activity Centers
*POTENTIAL ENERGY SAVINGS AND COSTS: Variable.
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LONG-TERM (BEYOND 1980) STRATEGIES
Long-term strategies for the four major transportation sectors
involve implementing those, new systems and technologies for which
planning was begun in the 1970's:
Install New Motor Vehicle Power Plants
There are a considerable number of power-plant technologies that
are candidates for supplanting the Otto-cycle engine in the long term.
FCST lists (Ref.19) the following: stratified charge engine;
light-weight diesel; advanced gas turbine (open-cycle Bravton); Rankine
cycle engine; Stirling-cycle engine; closed-cycle Brayton; and the
electric motor. Engine types that lack Federal funding for research
inclitde the diesel and the Rankine cycle engines. It is suggested that
research projects be initiated for these power plants.
These power plants offer a variety of cost/benefit trade-offs
including high or low energy-efficiency and pollution production, and so
forth. The interested reader is directed to the FCST Report (Pef.lQ)
for further details of these trade-offs.
The high level of interest in electric propulsion warrants a bit
further discussion at this point, however. According to calculations by
Crimer and Luszczynski (Ref.23), electrification of all automobiles in
the U. S. could save approximately half the total energy that would
have been utilized with no changeover. Assuming a target date of 1990
for total conversion of all automobiles, it is estimated that a savings
of more than 7 QBTU/year would be realized at this time. The analysis
that leads to this result may be questioned, however.
According to Netschert (Ref.24), 65% of the electrical energy
supplied to an efficient electric vehicle is used in actual propulsion
and 35% is wasted. According to various sources, the overall efficiency
of the production and distribution of electricity is about 29% (less for
older atomic plants, but about the same for the newest and more
efficient plants now under construction.) Thus, the total energy-system
efficiency of the electric car is about 19%. Specifically:
Overall efficiency (19%) » coal production efficiency (96%) *
coal transportation efficiency (97%) * power plant
generation efficiency (36%) * electricity transmission
efficiency (90%) * motor control efficiency (90%) * battery
efficiency (80%) * transmission-to-wheels efficiency (90%)
In contrast, the authors compute the efficiency of the gasoline-powered
automobile to be on the order of 10%:
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Overall efficiency (10%) = petroleum production efficiency (97%)
* refining efficiency (87%) * transportation efficiency
(97%) * engine thermal efficiency (70%) *
transmission-to-wheels efficiency (70%)
Besides this 19% to 10% advantage in converting total energy to
propulsion energy, the electric car enjoys the further advantage of not
consuming engine energy while idling; an important factor in urban
travel.
As far as supplying the requisite amount of electrical energy, the
authors compute the delivered energy needs for a population of electric
automobiles to be 1.54 QBTtJ's in 1968 (assuming all 83.7 million cars
were electric, and were driven an average of 9,500 miles each in 1968),
or 34% of all the electricity sold in the U. S. that year. Given
flexible hours of use (e.g., overnight charging) this additional power
might be supplied without massive expansion of IT. S.
electricity-generating capability.
Although the above calculations seem appealing, there are some
definite problems with them. For instance, the analysis does not
include a battery-charging step; FCST (Eef.19) estimates the efficiency
of this step to be about 80%. The average power plant efficiency is
closer to 34% than to 36%, and the efficiency of transmission to wheels
is given by FCST as 85%, not 90%. Inserting these values, an overall
efficiency of 14% is calculated for the electric propulsion system. The
gap between electric propulsion and internal combustion (Otto-cycle)
engines has been considerably narrowed.
There is also a considerable amount of R&D that will be necessary
before a practical mass-produced electric system is possible. Although
battery design is the major hurdle, other obstacles such as the design
of suitable motor/control packages, system integration, materials
problems, and others will block the way to a massive switch to electric
cars. It is estimated that a 10- or 15-year program costing $200
million is necessary to bring the electric car to life.
A more pervasive problem is the following issue: given
petro-chemical shortages and pollution problems, are we wiser to shift
to heavier dependence on nuclear-fueled power plants for electric cars?
Or would this be too rapid a move to a technology which may well prove
to have its own, and worse, environmental problems?
On the basis of the above discussion, it is clear that it is much
too early to make explicit recommendations concerning electric
automobiles beyond asking for further study of their potential.
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Install New Systems
Earlier sections have discussed the ramifications of new freight
handling systems, new mass transit systems, and new urban designs. In
addition, there are long-term implications for transportation in the
development of new communication systems.
It is worth remembering, always, that transportation is not an end
in itself, nor even always a good; a great deal of transportation is
simply a necessary evil. We have already applied this philosophy to
such matters as reducing the number of recreational trips by providing
closer opportunities. Advanced communications systems offer the
possibility of eliminating the need for a considerable number of trips
— many business trips, delivery of printed material (newspapers and
magazines night be "printed" in the home via computer connections), many
types of shopping trips (via direct computer links between home and
stores) and trips for some transactions! business (such as cashing
checks or taking out loans.)
The potential for achieving really substantial transportation
energy reductions through the use of advanced communication systems
might seem limited because those trips to be first eliminated are the
short trips. (Food shopping via computerized selection and delivery may
be more acceptable — especially considering the trend towards packaged
foods ~ than trips involving potential purchases of furniture,
clothing, and other goods which often entail longer shopping distances.)
However, the success of mail order and catalog stores in selling
everything from carpeting to sports equipment to art to electronics gear
may indicate that most American consumers would be willing, in time, to
do far more of their shopping by means of such communications systems.
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References
Fisher, F.M. and C. Kaysen, The Demand for Electricity in the
United States. Amsterdam: North Holland, 1962.
Wilson, J.W. , "Residential Demand for Electricity," The Quarterly
Review of Economics and Business, 11:1 (Spring 1971).
elasticity of demand coefficient is represented by the ratio
of the percentage change in quantity demanded by the percentage change
in price. A coefficient between 0 and -1 indicates a relatively un-
responsive change in quantity demanded to a change in price and a
coefficient less than -1 indicates a relatively strong response to
a change in price.
4
Federal Power Commission, The 1970 National Power Survey, Part I, U.S.
Government Printing Office, Washington, D. C., 1971.
Chapman, Duane; Timothy Tyrrell, and Timothy Mount, "Electricity
Demand Growth, The Energy Crisis and R & D", unpublished discussion
paper, June 1972.
Halvorsen, Robert, "Residential Electricity: Demand and Supply,"
unpublished discussion paper, December 1971.
Office. of Emergency Preparedness.,- -Energy^ -ConserNvation , A Staff Study
Energy, \Sukcommit tee: oCE the sDomesti-c Coun'cil, July 1972.
Tfew York Department of Public Service, "The Inverted Rate Structure,"
February 1972.
Q
Federal Power Commission, "Typical Electric Bills", 1971.
Federal Power Commission, "Statistics of Privately Owned Electric
Utilities in the United States", 1970, page XVII.
Federal Power Commission, "Statistics of Publically Owned Electric
Utilities in the United States", 1970, page XVII.
1 *J
R. D. Doctor, K.P. Anderson, "California's Electricity Quandary;
Slowing the Growth Rate", Rand Corporation, September 1972, page 53.
13Moyers, John C. , "The Value of Thermal Insulation in Residential
Construction: Economics and The Conservation of Energy," Oak Ridge
National Laboratory, 1971.
^"Electric Power Consumption and Human Welfare, The Social Consequences
of the Environmental Effects of Electric Power Use," AAAS/CEA Power Study
Group, Section III.
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E. Hirst, Energy_Consumptign for Transportation in the U. S. ,
OKNL-NSF-EP-15, March, 1972
Draft Report of the Heavy Duty Transportation, Sub-Panel Transportation
Energy Panel, FCST Energy R&D Goals Committee, Energy Research and
Development Opportunities for Heavy Duty Transportation, July, 1972.
U. S. Department of Transportation, 1972 National Transportation
Report, Washington, D. C., July, 1972.
18
A. L. Morton, "A Statistical Sketch of Intercity Freight Demand,"
Highway Research Board, Record 296, 1969.
19
Draft of the Summary Technical Report of the Transportation Energy
Panel to the FCST Energy R&D Goals Committee, Research and Development
Opportunities for Improved Transportation Energy Usage, July, 1972.
20
C. A. Hedges, "An Evaluation of Commuter Transportation Alternatives,"
Highway Research Board, Record 296, 1969.
23-1971 Autotnobile Facts and Figures, Automobile Manufacturers Association,
Detroit, Michigan, 1971.
22Wilbur Smith and Associates, Transportation and Parking for Tomorrow's
Cities, New Haven, Connecticut, 1966.
23D. P. Grimmer and K. Luszczynski, "Lost Power," Environment. Vol. 14,
No. 3, April, 1972.
^Netschert, B. C., 1970 Bulletin, of^ AtLomic Scientists, p. 29, May.
*U.S. GOVERNMENT PRINTING OFFICE: 1974 546-318/357 1-3
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