Integrative Analysis of Non-Renewable and Renewable Energy Sources for Electricity Generation in U.S.: Demand and Supply Factors, Environmental Risks and Policy Evaluation

Abstract

An equilibrium economic model for policy evaluation related to electricity generation has been developed; the model takes into account the non-renewable and renewable energy sources, demand and supply factors and environmental constraints. The non-renewable energy sources include three types of fossil fuels: coal, natural gas and petroleum, and renewable energy sources include nuclear, hydraulic, wind, solar photovoltaic, biomass wood, biomass waste and geothermal. Energy demand sectors include households, industrial manufacturing and commercial enterprises (non-manufacturing businesses such as software firms, banks, restaurants, service organizations, universities, etc.). Energy supply takes into account the electricity delivered to the consumer by the utility companies at a certain price which maybe different for retail and wholesale customers. Environmental risks primarily take into account the CO2 generation from fossil fuels. The model takes into account the employment in various sectors and labor supply and demand. Detailed electricity supply and demand data, electricity cost data, employment data in various sectors and CO2 generation data are collected for a period of seventeen years from 1990 to 2006 in U.S. The model is calibrated for the aggregate data. The calibrated model is then employed for policy analysis experiments if a switch is made in sources of electricity generation, namely from fossil fuels to renewable energy sources. As an example, we consider a switch of 10% of electricity generation from coal to 5% from wind, 3% from solar photovoltaic, 1% from biomass wood and 1% from biomass waste. It should be noted that the cost of electricity generation from different sources is different and is taken into account. The consequences of this switch on supply and demand, employment, wages, and emissions are obtained from the economic model under three scenarios: (1) energy prices are fully regulated, (2) energy prices are fully adjusted with electricity supply fixed, and (3) energy prices and electricity supply both are fully adjusted.