Forecasting Change in Industry and the Economy with Restricted Resources

Abstract

The objective of this model study is to show how cost-conscious managers in the petroleum refining, electric power and basic chemical industries will respond to policy decisions limiting or not limiting the discharge of any major water or air pollutant and the availability of petroleum fuels for use in electric power generation. This is accomplished by an integrated model of the above industries with economic supply functions for crude oil natural gas and coal and with economic demand functions for important energy end-products. The results of this study show the critical importance of regulating fuel use in electric power generation to achieve within the United States in 1985 both energy goals of independence at acceptable price and environmental goals of clean air and clean water at minimum costs. Prohibition of the use of petroleum fuel in new electric power generating plants is practically mandatory according to the model studies to substitute coal for clean fuels in electricity generation. This prohibition minimize both the market price for natural gas and the capital investments in new plants and equipment. It maximizes the economic conservation of energy by end product consumers and the attainment of clean water and relatively clean air. Unfortunately, greater sulfur dioxide emission must be tolerated, although this may be reduced by 83% if environmental standards with air emission controls are met.