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Electricity in Economic Growth A Report Prepared by the Committee on Electricity in Economic Growth Energy Engineering Board Commission on Engineering and Technical Systems National Research Council NATIONAL ACADEMY PRESS Washington, D.C. 1986

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NATIONAL ACADEMY PRESS 2101 CONSTITUTION AVE., NW WASHINGTON, D.C. 20418 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This report has been reviewed by a group other than the authors according to procedures approved by a Report Review Committee consisting of members of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The National Research Council was established by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy's purposes of furthering knowledge and of advising the federal government. The Council operates in accordance with general policies determined by the Academy under the authority of its congressional charter of 1863, which establishes the Academy as a private, nonprofit, self-governing membership corporation. The Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in the conduct of their services to the government, the public, and the scientific and engineering communities. It is administered jointly by both Academies and the Institute of Medicine. The National Academy of Engineering and the Institute of Medicine were established in 1964 and 1970, respectively, under the charter of the National Academy of Sciences. This is a report of work supported by Subcontract 9-X54-K6585-1 between Los Alamos National Laboratory, in its capacity as prime contractor to the U.S. Department of Energy, and the National Academy of Sciences. LIBRARY OF CONGRESS CATALOG CARD NUMBER 86-70372 INTERNATIONAL STANDARD BOOK NUMBER 0-309-03677-1 First Printing, March 1986 Second Printing, December 1986 Third Printing, May 198 8 Printed in the United States of America

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Committee on Electricity in Economic Growth MARTIN BAUGHMAN (Chairman), Department of Electrical and Computer Engineering, The University of Texas at Austin BARBARA R. BARKOVICH, University of California, Berkeley, California ATIF S. DEBS, Department of Electrical Engineering, Georgia Institute of Technology, At- lanta, Georgia DALE W. JORGENSON, Department of Economics, Harvard University, Cambridge, Massa- chusetts PAUL L. JOSKOW, Department of Economics, Massachusetts Institute of Technology, Cam- bridge, Massachusetts EUGENE W. MEYER, Kidder, Peabody & Company, Incorporated, New York, New York LAWRENCE T. PAPAY, Southern California Edison Company, Rosemead, California DAVID B. ROE, Environmental Defense Fund, Berkeley, California SAM H. SCHURR, Electric Power Research Institute, Palo Alto, California ROBERT L. SEALE, Department of Nuclear and Energy Engineering, University of Arizona, Tucson, Arizona MASON WILLRICH, Pacific Gas and Electric Company, San Francisco, California Liaison with Energy Engineering Board: GEORGE S. TOLLEY, Department of Economics, University of Chicago, Chicago, Illinois Staff: DENNIS F. MILLER, Executive Director, Energy Engineering Board JOHN M. RICHARDSON, Principal Staff Officer, Committee on Electricity in Economic Growth HELEN D. JOHNSON, Staff Associate, Energy Engineering Board CHERYL A. WOODWARD, StaffAssistant, Committee on Electricity in Economic Growth . . .

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Energy Engineering Board HERBERT H. WOODSON (Chairman), School of Engineering, The University of Texas at Austin ERNEST A. BAILLIF, R&E Whirlpool Corporation, St. Joseph, Michigan ALLEN J. BARD, Department of Chemistry, The University of Texas at Austin ROBERT J. BUDNITZ, Future Resources Associates, Berkeley, California THELMA ESTRIN, School of Engineering and Applied Science, University of California at Los Angeles WILLIAM R. GOULD, Southern California Edison Company, Rosemead, California S. WILLIAM GOUSE, Mitre Corporation, McLean, Virginia NICHOLAS J. GRANT, Department of Materials Science and Engineering, Massachusetts Institute of Technology, Cambridge, Massachusetts BRUCE H. HANNON, Department of Geography, University of Illinois at Urbana-Champaign GARY H. HEICHEL, U.S. Department of Agriculture and Department of Agronomy and Plant Genetics, University of Minnesota, St. Paul, Minnesota EDWARD A. MASON, Amoco Corporation, Naperville, Illinois ALAN D. PASTERNAK, Sacramento, California ADEL F. SAROFIM, Department of Chemical Engineering, Massachusetts Institute of Tech- nology, Cambridge, Massachusetts WESTON M. STACEY, JR., School of Nuclear Engineering and Health Physics, Georgia Institute of Technology, Atlanta, Georgia RICHARD STEIN, The Stein Partnership, New York, New York THOMAS E. STELSON, Georgia Institute of Technology, Atlanta, Georgia LEON STOCK, Department of Chemistry, University of Chicago, Chicago, Illinois GRANT P. THOMPSON, The Conservation Foundation, Washington, D.C. GEORGE S. TOLLEY, Department of Economics, University of Chicago, Chicago, Illinois RICHARD WILSON, Department of Physics, Harvard University, Cambridge, Massachusetts 1V

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Technical Advisory Panel: HAROLD M. AGNEW, GA Technologies, Incorporated, Solana Beach, California FLOYD L. CULLER, JR., Electric Power Research Institute, Palo Alto, California *DAVID J. ROSE, Department of Nuclear Engineering, Massachusetts Institute of Technol- ogy, Cambridge, Massachusetts CHAUNCEY STARR, Electric Power Research Institute, Palo Alto, California ALBERT R. C. WESTWOOP, Martin Marietta Corporation, Baltimore, Maryland Staff: DENNIS F. MILLER, Executive Director HELEN D. JOHNSON, Staff Associate *Deceased v

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Preface This study of electricity and economic growth originated from the need of the U.S. Department of Energy to understand more fully the complex relationships between economic activity and electricity use. Such understanding is basic to policy and program decisions about legislation, research, and incentives for the private sector. The objectives of the study were twofold. The first was to show how trends in the growth of electricity demand may be affected by changes in the economy. The second was to examine the connection between the use of electrotechnologies and productiv- ity. The influences of prices and regulatory measures on electricity demand are acknowledged in the report, but the substantial analyses and projections needed to address these effects had to be left for other studies. Similarly, we did not try to build new models of electricity demand, make demand forecasts, estimate the best mixes of supply technologies, or address specific policy recommendations that might influence electricity supply and demand. We reviewed literature our members knew to be relevant and heard briefings by experts who had conducted! research on electricity in the economy. Other experts briefed the committee on specific uses and technological trends in the manufacturing, commercial, and industrial sectors. The report is intended for officials in the Department of Energy concerned with policy analysis and planning, federal and state regulatory officials, and managers of electric utilities. Members of the broader public concerned with energy, electricity, and conservation will also find information of interest here. It is a pleasure to recall the interest and support of Ronalc} I. Sutherland of Los Alamos National Laboratory and of David H. Meyer, Howard H. Rohm, and Edward F. Mastal of the tr.s. Department of Energy, all of whom were concerned with the sponsorship of the study. All the members of the committee gave generously of their time and experience. Nor would the task have been completed without the constant support of Dennis F. Miller, Executive Director of the Energy Engineering Board, who was responsible for the concept of the study. Cheryl A. Woodward handled the manifold administrative and logistic matters with a competence and graciousness admired by all. John M. Richardson, of the board's staff, deserves special commenda- tion for his efforts in support of the committee's work, including, but not limited to, . . V11

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his assistance in synthesizing and integrating the written material of the committee, the direction and continuity he provided throughout the project, and his warm and cheerful demeanor in the pursuit of the committee's business. ~ acknowledge all these contributions with sincere thanks. MARTIN BAUGHMAN, Chairman Committee on Electricity in Economic Growth vail

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Contents SUMMARY 1 INTRODUCTION, CONCLUSIONS, AND RECOMMENDATIONS Introduction / Conclusions / 7 Recommendations / 13 HISTORICAL PERSPECTIVE Historical Patterns: 1902 to 1983 / 16 Post-WorId War II Trends: 1947 to 1983 / 22 Continuity and Change: Pre- and Post-Embargo Trends / 49 References / 55 .. xv - . 15 3 ELECTRICITY AND PRODUCTIVITY GROWTH 57 The Concept of Productivity / 58 The Background / 60 The Recent Decline in Economic Growth / 63 The Econometric Mode} / 68 Interpretation of the Recent Decline in Growth / 80 References / 84 4 EXAMPLES OF ELECTRIFICATION AND PRODUCTIVITY GAINS 88 Electricity and Technological Progress / 89 Kinds of Technical Change That Alter Electricity Use / 90 Examples of Electricity-Dependent Technical Change / 91 Other Industrial Technologies / 106 The Significance of Electrification / 106 References / 109 1X

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FUTURE ECONOMIC INFLUENCES ON ELECTRICITY USE The Range of Recent Forecasts / 112 The Changing Composition of National Output / 114 Prices of Electricity and Other Fuels / 124 Practices and Potentials for Efficiency Improvements: Conservation and Load Management / 126 The Outlook / 130 References / 132 APPENDIX A STATEMENT OF WORK .......................................... APPENDIX B MEASURES OF ECONOMIC GROWTH AND OF ELECTRICITY DEMAND . ~ APPENDIX C ECONOMETRIC MODEL OF PRODUCTION AND TECHNICAL CHANGE APPENDIX D EXCERPTS FROM AN ANALYSIS OF THE EXPECTED IMPACT OF VARIOUS ELECTROTECHNOLOGIES ON ELECTRICITY DEMAND GLOSSARY x .. 110 - ... 133 ...... 135 143 .. 155 164

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fist of Tables 2-~. 2-2. 2-3. 4-l . 4-3. 4-4. Average Annual Growth Rates in Total Energy, Electricity, and Non- electric Energy Consumption for Selected Periods, 1902 through 1983 U.S. Electricity Sales by Sector (Percent of Total) 18 26 Gross Product Originating (GPO) in the U.S. Economy for Selected 36 Years, 1950 to 1983 (Percent of Total) Employment in the U.S. Economy for Selected Years, 1950 to 1983 36 (Percent of Total) Gross National Product (GNP) by Major Type of Product for Se- 37 lected Years, 1950 to 1983 (Percent of Total) Average Annual Growth Rates of Electricity and Gross National Product (GNP) and Their Ratios over Selected Postwar Periods 50 Relative Annual Growth of Various Quantities in the U.S. Economy 65 for Selected Periods, 1948 through 1979 Classification of Industries by Their Patterns of Biases of Productivity Growth Comparative Costs for Producing Molten Steel (:1982 Dollars per Ton) Primary Energy Requirements for Molten Steel The Comparative Cutting Speeds of Lasers and Saws Comparative Labor Costs for Cutting Titanium Aircraft Components (Including Setup and Postprocessing Time), with Band Sawing and Laser Cutting Techniques X1 75 94 94 97 97

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4-5. Titanium Cutting Cost Comparisons (in 1982 Dollars) 98 4-6. Comparison of Electron Beam (EB) and Metal Inert Gas (MIG) Weld- 101 sing 4-7. Estimated Power Requirements for Electronic Office Equipment 105 4-~. Industrial Electrotechnologies and Their Applications 107 Average Annual Percentage Growth Rates of Selected Indicators and 113 the Ratio of Growth Rates of Electricity Consumption and Gross National Product (GNP) 5-2. Electricity Consumption by Industry Sector and End Use, 198Q (Bil- 117 lions of Kilowatt Hours) 5-3. B-1. B-2. B-3. Efficiencies of Typical and Best Household Appliances (1982 Models) 123 and Potential Increases in Efficiency from Typical to Best Capability, Peak Load, and Kilowatt Hour Requirements, for the 138 Total Electric Utility Industry Excluding Alaska and Hawaii, 1963 to 1984 Compound Growth Rate in Peak Loads and Energy Requirements, by 139 Region, 1979 to 1983 (Percent per Year) Projections of Growth in Annual Load and Energy Requirements, by Region, 1984 to 1993 (Percent per Year) 142 D-1. Effects of Using Some Electrotechnologies in Industrial Applications 157 D-2. Effects of Using Some Electrotechnologies in Commercial Applica- 159 lions D-3. Effects of Using Some Electrotechnologies in Residential Applica- 161 lions D-4. Effects of Using Some Electrotechnologies in Transportation Applica- 163 lions . . X11

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List of Figures 1-1 . 2-1. 2-3. Relationships affecting electricity and economic growth. 5 Historical trends in U.S. energy consumption, 1902 through 1983. 17 Electricity consumption vs GNP in the United States, with lines of= regression by periods, 1902 through 1983. Electricity use and GNP the transitions. 20 21 Electricity consumption vs GNP in the United States, 1947 through 23 1984. (a) Growth rates of U.S. electricity use and GNP, (b) ratio of the growth rates. 25 Electricity use-economic measure relationships, by economic sector, 28 1947 through 1983. Growth rates of electricity sales and sectoral output indicators, 1947- 29 1983: (a) residential, (b) commercial, (c) industrial. 2-8. Residential electricity use patterns, 1950, 1960, and 1970. 30 Residential electricity use patterns, 1970 and 1980. 2-11. 2-12. 32 Electricity intensities in the U.S. economy, 1947 through 1984. Electricity intensity of manufacturing, 1973 and 1981 compared. 39 41 Six-SIC share of constant dollar manufacturing GPO, 1947 through 42 1983. . . . X111

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Electricity intensities in manufacturing (Index: 1971 = 100~. Trends in real energy prices to U.S. personal consumers, 1935 through 1984. Trends in real energy prices, 1967 through 1984. Electricity price ratios in the United States, 1960 through 1984. 2-18. 4-1. 4-2. 4-3. B-1. 43 44 1 Electricity vs GNP: (a) the 1947-1983 record, (b) some possible future relationships. Gross energy use by economic sector, 1960 through 1984. 46 47 52 54 Comparison of steelmaking processes: (a) integrated blast furnace, (b) 93 electric furnace. (a) Comparison of heat-affected zones for conventional and electron beam welding, (b) distortion of parts from shrinkage. The lower residual stresses in the parallel weld minimize regions susceptible to cracking and failure. Office building resource energy intensity, 40-year trends. U.S. Regions of the North American Electric Reliability Council (ECAR, East Central Area Reliability Coordination Agreement; ERCOT, Electric Reliability Council of Texas; MAAC, Mid-AtIantic Area Council; MAIN, Mid-American Interpool Network; MAPP, Mid-Continent Area Power Pool; NPCC, Northeast Power Coordinat ing Council; SERC, Southeastern Electric Reliability Council; SPP, Southwest Power Pool; WSCC, Western Systems Coordinating Coun cil). xiv 99 102 140

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Summary From 1973 through 1982 a number of general trends that previously characterized electricity use showed distinct changes. Such changes have given rise to significant uncertainty about the future relationship between electricity use and economic growth. It is therefore useful to examine the forces that now underlie electricity use and to ask whether basic changes have occurred or are occurring, and, if so, to determine what we can about their nature and extent. We address two fundamental relationships between electricity use and the economy in this report. One is how electricity use depends on various economic and technical factors, that is, the demand for electricity, to use the term of economics. The second is to what extent applications of electricity, as an especially high grade of energy, may facilitate technological advances and stimulate the economy through productivity gains. How electricity should be supplied we leave for others to analyze. Ordinary experience indicates that electricity use should depend at least in part on the general level of economic activity, the prices of electricity ant} its alternatives, public policy, regulation, and the development and diffusion of novel and more efficient applications. It is important to understand the relationships between electricity use and the economy, regarding both consumption and productivity, to formulate public policy, regulate the industry, and manage individual firms. Public policies may need to encourage chance in the system's operation through legislation. re~ulatorv changer ~ ~ ~ ~ _ t~ ~ ~ ~ ~ _ = ~ ~ ^ _ _ ^ _ ~ A ~ ~ _ = ~ ~ ~ ~ _ ^ ~ ~ ~ ~ = _ ~ ~ Investment Incentives, or research. Better knowledge of the relationships between electricity use and the economy, both in the aggregate and for particular end uses, should permit better regulatory decisions to facilitate economic efficiency. The man- agement decisions of individual utilities and their suppliers will of course also benefit from a better framework for analysis of their business choices. The committee's task was to assess the role of electricity in domestic economic growth. Our charge was to review the historical importance of electricity in U.S. economic growth, analyzing structural economic changes that have or may take place ant! that could influence the future growth of electricity use and reviewing recent changes in electricity use with attention to their significance for the future. We die] not construct new models or make particular forecasts. xv

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Recommendations We discuss the conclusions supporting our recommendations more fully below and in Chapter I. In brief, two important conclusions underlie the recommendations that follow. First, there has been a strong correlation between the use of electricity and the size of the gross national product. Second, the recent research described in Chapter 3 was judged sufficiently significant to say with some confidence that there is a strong connection between electncity and productivity growth. 1. The relationship between electricity and productivity-is so important that it should be considered in developing federal and state energy and economic policies. Productivity growth is critical in attacking many problems facing the United States, including the federal deficit and the balance of trade. Consequently, all possibilities of stimulating productivity growth, including attention to electricity supply and use, should be evaluated and pursued in accord with their promise. * * * * * 2. To foster increased productivity, policy should stimulate increased efficiency of electricity use, promote the implementation of electrotechnologies when they are economically justified, and seek to lower the real costs of electricity supply by removing any regulatory impediments and developing promising technologies to pro- vide electricity. The findings of this report establish a connection between electricity and productivity growth when two factors coexist: technical change and favorable electricity supply conditions. In addition, cost-effective increases in the efficiency of electricity use will themselves not only increase productive output for a given input of electncity but also free income for other purposes. These points suggest that federal and state policies that promote lowering the real costs of electricity supply and use, through research and development and through more efficient pricing by regulatory authorities, will benefit productivity growth. * * ~ * * 3. Further research should be undertaken to identify and quantify the forces affecting the relationships between electricity and economic growth in view of their critical importance, complexity, and regional diversity. The strong and persistent relationship between electricity use and gross national product requires that close attention be paid to the adequacy of electricity supply to sustain a high future rate of economic growth. The adequacy of electricity supply can be maintained not only through new generation facilities but also through efficiency improvements that use existing generating capacity better. Although favorable electric- ity supply conditions of themselves will not assure economic growth, a lack of xv

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adequate supply would almost certainly constitute a serious impediment to such growth. We need to learn more about the correlations and causal relationships be- tween economic growth and the use of electricity. Well-directed policy, regulatory, and managerial decisions rest on such knowledge. Conclusions For the reader's convenience our principal conclusions, along with brief supporting rationale, are given here and are covered more fully in Chapter I. Electricity Consumption Electricity use and gross national product have bet a, and probably will continue to be, strongly correlated. In this century there have been four well-defined periods in the relationship between electricity use and gross national product, periods in which the relationship has been linear and stable. The fourth period began after World War II and may still be . . continuing, although the character of the relationship following the 1973 Arab oil embargo is in dispute. It is not yet possible to conclude whether changes in the data after 1973 reflect only variations from the most recent trend line, as have occurred before, or whether they indicate a fundamental shift in the relationship. Regarding the future course of the relationship, no reasons yet seem likely either to compel a change or to inspire great confidence that past trencis will continue. Hence the strongest statement that can be made is that the continuation of the long-term correlation is probable. Historic trends in the relationship between electricity use and gross national product include the effects of a host of factors not explicitly identified in the simple linear equation relating the two variables. Factors believed to be important include the prices of electricity and of competing energy forms, the composition of national output, shifts in regional economic activity, technical change, conservation, ant! government poli- cies. Other representations of the relationship may be used to analyze such factors more fully. However, it is only when there are major changes in these underlying variables that we should expect changes in the fundamental relationship between electricity use and gross national product. Even then some effects may cancel each other (such as rises in both electricity and other energy prices). Two forces believed important in determining the basic trenc! of future relationships between electricity use and economic activity are the introduction of electrotechnologies and conservation. However, their future effects, like those of other underlying variables, are not readily quantified. Electricity and nonelectrical energy prices are generally acknowledged as factors determining electricity consumption. However, by far the most important contribution to explaining consumption in the past has been gross national product. The observed departure on occasion of electricity consumption from the main trend line may be explained in part by taking price changes into account. Furthermore, there is an . . XV11

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implicit dependence of electricity consumption on energy prices through the depen- dence of gross national product in part on productivity growth, which in turn is shown to depend partly on energy prices. Productivity Growth Productivity growth may be ascribed partly to technical change; in many industries technical change also tends to increase the relative share of electricity in the value of output, and in these industries productivity growth is found to be the greater the lower the real price of electricity, and vice versa. Economic growth, conveniently expressed as percentage change in gross national product, results from growth in capital input, labor input, and productivity. Productiv- ity represents increases in output that are not accounted for by contributions of the first two factors. Productivity growth for the economy as a whole derives mainly from sectoral productivity growth. The decline in the rate of U.S. economic growth since the early 1970s is associated with a decline in sectoral productivity growth rates, rather than other factors, and is strongly associated with increased energy prices. These associations were established by an econometric model, which shows that the relationships among technical change, price, and productivity growth are such that, for many industries, technical change in combination with low electricity prices drives up overall productivity growth, and conversely. Regarding nonelectrical energy, such effects are found in even more industries. The decline in the real cost of electricity, in part due to dramatic increases in the thermal efficiency of electricity generation, increased electricity use and stimulated productivity growth until the early 1970s. The rise of electricity costs, combined with a rise in the prices of primary fuels after the international of} price increases of 1973 and 1979, has been a factor in reduced productivity growth in many industries, which may partly be explained by the substitution of other, less efficient inputs for these energy inputs. Technical Change Technical change has made possible many new opportunities for exploiting the special qualities of electricity. In the past these changes were often associated with increased intensity of electricity use, but in the future their net effect on that intensity will depend on the balance between their increased penetration and the increased eff- ciency of these applications. Electricity has unique properties that make it an attractive form of energy: its highly ordered nature, its flexibility, and its cleanliness. There is still a large potential for further electrical applications that take advantage of these special properties. Some electrotechnologies increase the intensity of electricity use (electricity use per unit of economic output, or electricity intensity) through wider application of electrical processes; others decrease it through productivity gains. In the economy as a whole . . . xv

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the increase in electricity intensity with increased gross national product has proved to be relatively small because of these offsetting effects. Historically, technical change exploiting the special qualities of electricity has con- tributed to increased productivity and thereby to increases in gross national product. We can expect this trend to continue. The Effects of Price Changes Electriciry prices and alternative fuel prices affect electricity consumption in two ways:first, they directly affect the use of electricity and nonelectricluels as input factors of production; second, they indirectly affect productivity growth and thereby economic growth. If electricity prices alone rise, electricity use will decrease according to its elasticity of demand with respect to its own price. A rise in the price of competing fuels, without a rise in the price of electricity, will increase electricity consumption through elasticity of demand with respect to the prices of other fuels. If electricity prices rise because of a rise in primary fuel prices, a reduction in electricity use through own-price elasticity will occur and will be offset to some degree by an increase in the use of electricity instead of primary fuels, that is, through cross-price elasticity. Any increase in the real price of electricity will also indirectly further decrease its use because it will lower productivity growth rates in many industries, in turn leading to a lowered rate of general economic growth. Conservation There is further potential for increasing the efficiency of electricity use, particularly in the residential and commercial sectors. Particularly in the residential and commercial sectors, efficiency improvements can be made economically in both new construction and existing buildings under the incentive of higher energy prices. These improvements would reduce the intensity of electricity use. On the other hand, such reductions could be offset by new uses of electricity in production ant! household applications. In adclition, some established electricity appli- cations, such as air conditioning and electric space heating still show potential market growth. Efficiency improvements through conservation and load management can also bene- fit economic growth by reducing the long-term costs of electricity supply, and thus the price of electricity. Composition of National Output Changes in the composition of national output toward less electricity-intensive goods and services have been offset by growth in the intensity of electricity use within all the major use sectors so that the combined effect on electricity demand growth has not yet been great. However, if the trend toward a leveling off in sectoral electricity intensity growth that began in the late 1970s continues, future shifts toward less electricity-in~ensive goods and services are likely to dampen electricity demand growth relative to national output. Ax

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Since 1950 the share of gross product originating in the commercial sector has in- creased steadily, while that in the industrial sector as a whole has declined. The electricity intensity of the industnal sector is about three times that of the commercial sector so that shifts away from industry, other things being equal, would lead to a decline in electricity intensity for the total economy. There were large increases in average electricity intensity within all consuming sectors after World War IT that more than counteracted the negative influences on overall intensity from intersectoral shifts. However, almost all of the growth in average sectoral intensity occurred prior to 1973. By 1983 industrial and commercial sector electricity intensities were back near their values in 1973, and residential electricity intensity remained at about its 1977 value. It is not yet clear whether these recent declines in sectoral electricity intensity growth represent a new long-term trend or only short-term responses. Regional Differences Valid conclusions about electricity demand drawn from national data do not necessar- ily pertain to regional circumstances; there are significant regional differences in such factors as economic output, prices, electricity supply mix, availability of generating capacity, climate, and regulatory environment. Regarding economic activity, the regional factors important to electricity consumption include overall output, industry mix, labor and resource availability, and the relative importance of a region's commercial and industrial sectors. Regarding energy use, important regional factors include electricity and nonelectrical energy prices, electric- ity supply mix, climate, and regulation. National policy decisions should be sensitive to these regional differences. xx