Energy-Environment-Economic Tradeoffs: Synfuels as an Illustration Much of the concern of this conference is on the environmental and ecological

aspects of global modeling. The most obvious of the interrelationships to reflect is of course the physical diffusion or "export" of environmental residuals, caused by produc- tion and/or consumption in one country, from that country to another. Among such diffusion problems leading t o potentially dangerous health problems are the disputed effects of chlorofluorocarbons (CFCs) on the atmosphere. Based on studies completed over the past five years, CFCs released from aerosol containers (and other sources) dif- fuse into the upper stratosphere; there the liberated chlorine can react with the ozone, reducing its ability to screen us protectively from ultraviolet radiation. Another atmo- spheric problem is that of acid rains. The combustion of fossil fuels leads to sulfur and nitrogen compounds being carried considerable distances in the air and then being returned to earth as rain or snow with provably adverse effects on agricultural and forest output and freshwater fish, depleting effects on soil nutrients and aquatic ecosystems, and corrosive effects on materials. Still another problem is the international protection of water quality as it is affected across national boundaries.

Physical (diffusion) effects have received the most public attention from among international environmental experts. Economists, however, have posed a host of other effects which are much less tangible but involve the indirect import and/or export of residuals flowing, simply, from production and consumption actions within each nation (Van Zele, 1978). Many of these "nondirectly physical" externalities arise from uncoordi- nated national decision making about research and development on energy technology, subsequent national investment strategies, and how environmental standards are developed and enforced - nation to nation - in the light of changing world energy patterns and policies. These are not necessarily "hostile" actions on the part of the pollution-exporting nations. More frequently than not it is primarily an unknowing action, the indirect effects (through secondary and even more indirect rounds) of which are "externalities" not obvi- ous to the originator! Examples of such indirect externalities include activities related to both public and private policies such as the environmental analysis of synthetic liquid fuels (synfuels). The international and national ramifications of worldwide extraction and production patterns for C 0 2 , NO,, SO2, and particulates as well as more localized, regionally induced, and secondary environmental-quality impacts on air, water, hazardous waste, toxics, and visibility are among those international externalities which will flow from global decision making about synfuel investment, extraction, production, and use patterns. Existing analyses of the environmental impacts of alternative synfuel options, referred to in the foregoing, were purely national in geographic scope. The analytic models and data bases of the US Department of Energy do not generally allow an examination of international consequences: unanticipated indirect environmental effects could affect other nations depending on the technology of the particular synfuel selected, which coal supplies are used, the degree to which production takes place in the United States or else- where (e.g. the United Kingdom, South Africa), how the synfuel product is transported and used, and many other factors.

We have not examined other global models from this standpoint but it is likely that the best systems for studying the world consequences of synfuel options will be the Leontief UN input-output model and/or an expanded SEAS modeling system. (For the

Global modeling ^- a user perspective 2 3 reader who is not familiar with the SEAS system and its associated data bases we have attached a short description in Appendix 1 .) The Wharton Project LINK system, modified for the occasion, would seem to be ideal as the frontend economic model. Apparently, extensive data bases have been developed in Project LINK to support the construction of econometric models of other economies. (Owing to data limitations these models have usually been constructed on the basis of an annual time period, and therefore the corre- sponding data bases have almost invariably contained annual data.) In the current operational versions of LINK, models of both Mexico and Brazil are presently used in the preparation of regular interindustry economic (conditional) forecasts. These models are supported by annual data bases containing 1000 and 400 variables respectively. In addition, data bases have been assembled for the construction of models of Puerto Rico, Panama, Chile, and Venezuela. (Previous work has also resulted in the assembly of a data base containing 3000 variables relating t o the economy of the Soviet Union.)

2.4 The Introduction of New Energy Technologies: Employment and Environmental Dynamics

Another commonly raised set of questions, which is difficult to analyze using current global models, concerns the degree t o which dynamic employment and environ- mental consequences flow from the introduction of a variety of energy technologies, perceived by each nation t o be most beneficial relative t o its own national economy. For the United States, for example, such a list could well look like Table 1. These energy sectors are "new" in the sense that they are not typically included in the traditional national econometric and/or input-output models. (In the United States these tech- nologies (and their technological coefficients) are being incorporated into the large- scale Bureau of Labor Statistics input-output model (see US Bureau of Labor Statistics, Office of Economic Growth (1978) and CONSAD Research corporation (1979)).)

The primary disadvantage of the traditional overall macroapproach is that one cannot obtain from it the dynamic direct and indirect employment, and ensuing environ- mental, impacts of introducing a quad* of one energy technology versus another. These unit impacts are also of key interest from a policy point of view in order t o compare employment and pollution-control requirements against other factors related to these sectors. Thus as an addition to the current global modeling analysis we suggest that additional types of analyses be performed with the data currently being developed jointly by the US Department of Energy and the US Department of Labor as well as in the SEAS effort. This section outlines a framework within which these two distinct types of analyses can be carried out.

The starting point of our revised macroanalysis would be a scenario developed from an existing large-scale input-output model (such as a global ''BLSW** model) that implied certain broad assumptions regarding overall energy use in the economy and its mix by fuel type. In this regard, while the BLS model focuses on the dollar transactions between the energy sector and other sectors of the economy, implicit British thermal unit (Btu) to

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* 1 quad = 10" Btu = 1.055 X 10Ie joules.

** _{BLS =} Bureau o f Labor Statistics.

24 W. Steger, N. Dossani, T. Williams, P. House

FIGURE 1 Employment impacts of disaggregated energy sectors with the BLS model.

Assumptions on

Compare penetration of

disaggregated with baseline energy sectors BLS run

dollar conversion factors are available to enable the user to estimate the Btu forecast implicit in the input-output forecasts.

Using this as a starting point one could introduce the new disaggregated sectors and could recompute the forecast based on alternative assumptions regarding their projected use. Several examples are as follows.

(1) One could change the mix of type of coal mining. The existing model has one coal-mining sector. One could vary the mix of the four coal sectors and could recompute employment and other forecasts.

(2) One could change the mix of type of electric utilities.

(3) One could shift to coal gasification.

Preprocessor:

Global modeling - a user perspective 25

(4) One could increase the use of solar energy in residential facilities.

The calculations with these sectors would involve using the input-output (capital and A matrix) coefficients developed earlier, together with projected levels of output and capital expenditures. The output forecasts are generated endogenously in the model but adjustments to the input-output coefficients would need to be made to account for the shift from one technology to another (e.g. gas-fired to coal-fired utilities, natural gas to gasified coal). Capital expenditures could be generated in a "preprocessor" run prior to the model that would take the supply forecasts and convert these to capital expenditures using the unitcost and "phasing" data developed for this study.

Estimates on the number of years required to construct various energy facilities are provided in the Bechtel and other data bases. These estimates also indicate the portion of construction activity and in turn the level of capital investment which will occur in each year o f the construction cycle. To incorporate these estimates into a run of the BLS model, information is required on depreciation or replacement rates for various capital structures and equipment. Figure 1 depicts the previous discussion relative to modifications to the BLS model to assess the employment impacts of disaggregated energy sectors. In Appendix 2 this procedure is described in mathematical terms.

2.5 Other Global Modeling Issues

We can only refer briefly to a few additional issues which are important in global matters but which are for the most part excluded from most global models. Examples include the following.

(1) The behavior of multinationals. Many economic consequences flow from little understood actions of multinationals. There are a number of microsimulation models (e.g. Brookings, the US Treasury Department) which could be used in side analyses; particularly in the case of the very large energy corporations, the omission of behavioral considerations is very unrealistic and makes it difficult to study different (national and international) incentives and sanction structures.

(2) Game aspects. Intelligent self-seeking national behavior, e.g. the exportation of specific pollutant residuals, can best be studied through application of the theory of games. No global analysis model that is realistic enough to be used in policy analysis currently includes such aspects;methods for considering such dynamic "gaming" behavior, even if not included endogenously within a global model system, would be most helpful.

(3) Regulatory/incentives aspects. There is much interest in the effects of economic deregulation and more market-oriented incentives to promote good environmental practice. No existing global analysis model has sufficient detail to study alternative regulatory/incentives arrangements, for example, encouraging the development and pro- duction of renewable energy technologies.