The DOE and peak:
For his Ph.D. dissertation at Dartmouth, again under the supervision of Dennis Meadows, Naill expanded the boundary of his natural gas model to include all major US energy sources (energy supply), as well as US energy consumption (energy demand). He called his dissertation model COAL1, because his analysis showed that the best fuel for the US to rely on during the energy transition was coal.
After he had completed his Ph.D., Naill worked with the Dartmouth Resource Policy Group to improve and extend COAL1 as part of the Group’s National Science Foundation grant activities. The improved and extended version of the model was called COAL2. In 1975, the Energy Research and Development Administration (which later became the US Department of Energy) provided support to further improve and extend COAL2 for use in government energy planning. This improved and extended model was called FOSSIL1, since it looked at the transition of an economy that is powered by fossil fuels (i.e., by oil, gas, and coal) to one that is powered by alternative energy sources.
The FOSSIL1 model (as were its predecessors) was thus based on Hubbert’s theory of resource abundance, depletion, and substitution, and used to analyze and design new legislation that would enable the US economy to pass through the energy transition smoothly. It consisted of four main sectors: (1) energy demand, (2) oil and gas, (3) coal, and (4) electricity, and addressed, among others things, the following questions:
Is energy independence for the US feasible and, if so, when?
Should a national energy strategy emphasize conservation or increased supply?
Which transition energy source should be accelerated?
The results from using FOSSIL1 to analyze the energy transition questions were that:
Due to the momentum of past energy policies and the inherent delays before new policies become effective, in the short term the US energy problem cannot be solved.
Neither supply side nor demand side policies alone will ameliorate the transition problem sufficiently.
Smoothly passing through the energy transition requires policies that both stabilize energy demand and increase alternative energy supplies.
The FOSSIL2 and IDEAS Models
In response to the United States’ first energy crisis in 1977, the Carter Administration created the first National Energy Plan. Shortly thereafter, the US House of Representatives asked the Dartmouth Resource Policy Group to evaluate the Plan using the FOSSIL1 model. After the evaluation of the Plan was completed, Roger Naill left the Resource Policy Group to head the Office of Analytical Services at the Department of Energy and, among other things, prepare energy projections in support of future National Energy Plans.
To prepare the energy projections for future National Energy Plans, Naill implemented FOSSIL1 in-house at the Department of Energy and supervised a team that extensively modified it so that national energy policy issues could be analyzed. The modified version of FOSSIL1 was called FOSSIL2.
From the late 1970s to the early 1990s, the FOSSIL2 model was used at the Department of Energy to analyze, among other things:
the net effect of supply side initiatives (including price deregulation) on US oil imports.
the US vulnerability to oil supply disruptions due to political unrest in the Middle East or the doubling of oil prices.
policies aimed at stimulating US synfuel production.
the effects of tax initiatives (carbon, BTU, gasoline, oil import fees) on the US energy system.
the effects of the Cooper-Synar CO2 Offsets Bill on the US energy system.
In 1989, the Congress directed DOE to conduct a study of energy technology and policy options aimed at mitigating greenhouse gas emissions. FOSSIL2 was used for this purpose. Some preliminary conclusions from the study were that:
Reforestation is a promising alternative to taxes or standards.
Effectively promoting cost-effective conservation measures would be worthwhile.
There needs to be a significant long-term switch from coal to advanced nuclear power and renewables (environmentally benign) in the US electric power sector.
Due to compensating feedbacks in the US energy system, a combination of policies, rather than any single policy, is going to be necessary to successfully combat the global warming problem.
Policy makers should not aim policy changes at a single sector of the US energy system because this approach ignores the ramifications of the policy changes in other sectors of the US energy system.
In recent years, extensive improvements have been made to FOSSIL2’s transportation and electric utilities sectors. The improved version of FOSSIL2 has been renamed IDEAS, which stands for Integrated Dynamic Energy Analysis Simulation. The IDEAS model is now maintained for the DOE by Applied Energy Services of Arlington, Virginia.
Sterman's Model of Energy-Economy Interactions
During the late 1970s John Sterman, an MIT Ph.D. student and former Dartmouth College undergraduate, was hired by Roger Naill to work with a team to modify and extend the FOSSIL1 model into the FOSSIL2 model. During this work, Sterman came to realize that the FOSSIL2 model ignored important feedbacks and interactions between the energy sector of the economy and the economy itself. For his Ph.D. dissertation, Sterman built a system dynamics energy model that captured, for the first time, significant energy-economy interactions.
To be more precise, Sterman noticed that in the COAL-FOSSIL-IDEAS family of models, the energy sector is modeled in isolation from the rest of the economy. That is:
GDP is exogenous to the model. It is not affected by the price or availability of energy.
Costs of unconventional energy technologies are exogenous to the model.
Investment in energy is unconstrained by the investment needs of other sectors of the economy.
Interest rates are exogenous to the model.
Inflation is unaffected by domestic energy prices, production, or policies.
World oil prices are unaffected by domestic energy prices, production, or policies.
Sterman addressed these deficiencies through his modeling and found that:
The economic consequences of depletion are much more severe during the transition period (extending to approximately 2030) than during the long run or equilibrium state.
The magnitude of the economic effects are substantial in absolute terms and include reductions in economic growth; increased unemployment;inflationary stress; higher real interest rates;reduced consumption per capita.
Energy price increases (sudden or gradual) alone cannot produce sustained inflation. An accompanying increase in the money supply, relative to real economic activity, is also required (or an increase in the velocity of money).
The model’s major behavior modes are remarkably robust -- i.e., insensitive to parameter variations (uncertainties).
In the model, a large exise tax on energy coupled with offsetting income tax reductions caused economic performance to improve; energy prices to fall; OPEC revenues to fall; short term inflationary pressures to worsen; income taxes to be reduced only during the transition.
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