Future demand for fuel and electricity

A simple energy demand model for the United States has been developed. In the model, goods and services are produced using three factors: fuel, electricity, and capital-labor. Fuel and electricity are not perfect substitutes. The tradeoff between fuel and electricity is simulated by using a production function to produce energy from inputs of fuel and electricity. Energy conservation, the tradeoff between energy and capital-labor, is simulated by using a production function to produce goods and services from inputs of energy and capital-labor. The model has four parameters and a lifetime for capital stock. The parameters were estimated using data from 1960 to 1982 for values for the lifetime ranging from four years to 30 years. The errors are small when the lifetime is greater than 14 years. Energy demand forecasts were made for two sets of fuel prices: high and low. For the high fuel prices case, the model forecasts a steady decline in the demand for fuel. For the low fuel price case, the demand for fuel declines and then rises; by 2010, the demand for fuel is slightly larger than the demand in 1979. For both sets of fuel prices, the demand for electricity grows substantially.