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Improving the Contribution of Economic Models in Evaluating Industrial Energy Efficiency Improvements
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Traditional representation of improved end-use efficiency in the manufacturing sector has tended to assume “a net cost” perspective. In other words, the assumption for many models is that any change within the energy end-use patterns must imply a cost without concomitant energy bill savings. This tends to significantly overstate the cost of new energy policies. Yes, the range of technologies available to satisfy end-use service demands does require (admittedly) a significant level of capital. But more often than not, there is a return on that investment; and that return on investment is typically overlooked in many of the standard economic policy models. This paper describes the differences between many of the conventional energy models now used for energy policy assessments compared to those which more properly reflect a trade-off between new capital investment and end-use energy savings – as both capital and energy are used to satisfy a specific industrial service demand. The paper builds on a discussion provided by Neal Elliott for approximating service demands within food products manufacturing (NAICS 311). It then shows how the proper treatment of investment flows may provide a different outcome for policy assessments than might be provided by the standard policy models.
Laitner, J. A. (2007). Improving the Contribution of Economic Models in Evaluating Industrial Energy Efficiency Improvements. Energy Systems Laboratory (http://esl.tamu.edu); Texas A&M University (http://www.tamu.edu). Available electronically from