A review of the Energy Productivity Center's Least-Cost Energy Strategy study

Abstract

The Mellon Institute's Energy Productivity Center (EPC) has recently completed a study asking the question, "How would the nation have provided energy services in 1978 if its capital stock had een reconfigured to be optimal for actual 1978 energy prices?" Interest in this question is motivated by the unanticipated increases in oil prices since 1973. If policy makers are to learn from history it is important to know what would have happened if the increases in energy prices had been foreseen and if the nation had taken full advantage of that knowledge to minimize costs.

EPC concludes that if the 1978 capital stock had been transformed in conformance with a least-cost principal for providing energy services, then, given actual 1978 energy prices and energy service demands, per capita energy service costs would have been reduced by 17%. Market shares of the various energy types would also have been affected substantially. For example, while the gas share of total energy service demand would have increased slightly from actual 1978 levels, the share of purchased electricity would have fallen from 30% to 17% of total energy service demand, and improvements in energy efficiency would have increased from 10% to 32%.

EPC's findings have received considerable attention, both from the press and from policy makers. EPC interprets its results as indicating "... the direction in which we coul move to begin realizing some of the benefits of a least-cost strategy." The purpose of this report is to assess and evaluate the EPC methodology, data base, and results. Here we briefly summarize our principal findings.