The Hidden Future Shock in Current Energy Economics

Abstract

With the flurry of low-cost and no-cost energy conservation measures largely over, American industry is settling down to the frustrating task of assessing medium and large conservation projects. It seems that most of the ones selected for implementation are either being imposed by EPA, used for public relations tokenism or as trial balloon efforts. The result can be a patchwork, house-of-cards, compendium of energy conservation 'fixes' which reduce plant availability or limit future process flexibility. As this paper will develop, the way energy conservation projects have been justified in the past promotes this type of approach.

A simple approach to long range energy planning is presented which directly addresses risk and variability. The focus of this method is the economic measure of long term profit planning. As part of this presentation, the issues of energy price, availability, uncertainty, and the cost of 'doing nothing' are addressed. The conclusion is that our current lethargic attitudes about energy conservation and planning come from using economic measures that do not accurately reflect the future earnings capabilities and characteristics of industrial firms.