Energy Economic Linkages

Some of the difficulties of using even the extended, energy denominated input-output framework for analyze energy policy issues were alluded to in the closing sections of Chapter 6. In our analysis of Republica, for example, we saw the need to use an iterative approach if one were interested in determining that combination of economic activities that would result in oil imports of a given level. One way around such situations is to combine the input-output model with some kind of optimization framework, that in particular allows the solution of constrained optimization problems (whose constraint set might include, for example, upper bounds on energy imports, or lower bounds on particular levels of renewables). Moreover, given that we introduce an element of choice in the energy system, there is no reason why one cannot relax some of the more confining assumptions of conventional input-output analysis (only one industry producing one product using a single technology) to allow choice also in terms of the technologies of the productive sector: and include in the analysis, for example, the choice between say, electric arc, open hearth, or sponge iron processes in steelmaking. Indeed, there is no reason why industrial process models cannot be directly integrated into the energy system LP.