For long-term modeling, modeling structures should be much simpler, because in projecting the longer term there are many more unknowns. Long-term modeling systems stress uncertainty about possible outcomes and allow the uncertainty itself to be easily examined. Issues of interest for long-term energy modeling include fuel substitution, physical limitations of natural resources, technological evolution, lifestyle changes, and effects of population growth. Basic concepts for long-term analysis were discussed briefly in Chapter 2, and these also will not be pursued further here.

The proposed modeling system for the medium term would consist of modules linked together in a larger analytical system. It should be possible to run these models separately, all together, or in combinations, depending on the analytical needs.

This modeling system should be designed primarily to simulate or project energy futures based on assumptions about policies and other driving variables. NEMS should also be useful for some kinds of planning and optimization. In optimization, possible future patterns are compared to objectives encoded in the model. For example, patterns of energy use the modeler deems optimal can be compared with observations about actual rates of energy use and production under various conditions. In what follows, it is assumed that NEMS models will be used mostly for simulations rather than optimizations.

NEMS should be structured to project supply and demand equilibria in U.S. energy markets. Prices, which guide the energy system toward a supply-and-demand equilibrium, should be explicitly accommodated in both supply and demand modules (for discussion of general equilibrium analysis, see Ballard and Goulder, 1985; Roger and Goulder, 1984). The modeling system should be able to analyze the impacts of policy options and other variables on the economy, the environment, and the security of energy supplies. Existing regulatory impacts should be represented in the individual modules and the system should allow analysis of contemplated regulatory regimes. In addition, supply and demand modules should allow the examination of non-policy factors (e.g., demographic trends) that, in addition to prices, shape supply and demand.

Individual modules would include energy supply and demand models and an interindustry economic growth model brought together in one “integrating system,” and auxiliary models that would generally use outputs from the integrating system once its solution were found. Figure 3-1 provides a simple illustration of the proposed NEMS architecture.

The interindustry growth model would take prices of energy and supply and demand-side investments as inputs and project the economic activities resulting from those inputs. Each energy demand model in the integrating system would take as inputs the prices of energy (P) and levels of economic activity (A), and would produce as outputs the quantities of energy utilized (Q) and the demand-side investments associated with that energy use (I). The integrating system's supply and conversion modules would take as inputs the quantities of energy demanded in this system and provide as outputs the prices at which those quantities of energy would be made available. In addition, the supply and conversion models would provide the levels of investments associated with those energy quantities.

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