Sectoral Business Decision Model

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Project the Total Costs of Clean Power Plan Compliance in Your State

Supported Intelligence developed the Sectoral Business Decision Model (SBDM) to help interested parties analyze the real impacts of different Clean Power Plan compliance options in individual states and over multiple years. These compliance options can involve billions of dollars of additional costs to be passed along to ratepayers and taxpayers in the state, with significant effects on employment and business decisions, and therefore on demand for electric power and resulting emissions in the future.

 
 

The SBDM first projects paths for state-level economic, emissions, and power generation variables under a baseline scenario. The baseline scenario does not assume any changes to a state’s current policies in response to the CPP. It then models how these important factors change under various regulatory scenarios, such as a tax on CO2 emissions and various versions of a cap-and-trade based emissions allowance system. The SBDM also incorporates various tax options, including changes to the state sales or income tax rates.

 
 

The Sectoral Business Decision Model reflects significant improvements over traditional models used to analyze electricity dispatch, as well as short-term input-output economic models. In particular:

  • For each scenario, additional costs, regulatory impositions, and any related tax changes are natively incorporated into projections for future economic growth.
  • The level of economic activity strongly affects demand for electricity, and therefore electricity generation and related emissions. The SBDM natively takes this feedback loop into account.
  • Business decisions that involve prices and availability of electricity are modeled for the major sectors of the economy, with different scenarios having different sensitivities to price changes.
  • Each state’s economy is modeled using different assumptions about power generation, economic sectors, prices, and potential regulatory scenarios.
  • Business decisions related to prices are modeled using sector-specific response functions that are informed by recursive decision models, which were pioneered by Supported Intelligence. These response functions are not constrained to simple linear or log-linear elasticity relationships as in many traditional input-output and other models. They can also identify industrial sectors that are at risk under certain regulatory regimes.

 

The SBDM is not intended to replace traditional utility dispatch models for modeling electricity dispatch prices within a short period and with known generation capacity. Such models can be used to complement the multi-year projections of economic, emissions, and energy usage possible within the SBDM.

Using the SBDM you can Investigate

  • Personal Income

  • Electricity Prices

  • Electricity Consumption

  • Regulatory Revenue to the State Government

  • Electricity Generation

  • Carbon Intensity of Electricity Generation

  • CO2 Emissions from Electricity Generators

Basic Structure of the Model


Click to enlarge

We begin with a number of inputs describing the state economy, power production technology in the state, and the regulatory and tax regimes we wish to consider. These inputs, along with values for a base year, are passed to our economic growth model, where we project values for the next year. These outputs are fed back into the growth model to project values for the following year and so on until we reach the final year of interest. For each year, we record a number of output variables, including total personal income, electricity generation, CO2 emissions, tax rate and revenue, and other changes to government revenue. This process is outlined in the figure at the left.

About the Clean Power Plan Rule

On August 3, 2015, the Environmental Protection Agency (EPA) issued the Clean Power Plan (CPP) final rule. The goal of the CPP is to reduce Carbon Dioxide (CO2) emissions from existing coal- and natural gas-fired power plants across the country. Through the CPP final rule, the EPA allows states to develop their own plans for achieving their CPP emissions goals. State governments, utilities, think tanks, and businesses and environmental groups are keenly interested in the true costs of various CPP compliance options, as well as their technical feasibility.

 
 

The EPA’s CPP rule has attracted controversy on a number of fronts, including constitutional challenges from some states, as well as strongly different assertions regarding potential costs, benefits, and risks. The SBDM gives interested parties an objective tool to evaluate the likely effects of specific regulatory options—as well as the option to take no additional actions—for their state’s economy.

 
 

Background of the SBDM

Supported Intelligence developed the SBDM in late 2015, with the assistance of the economists and policy experts at Anderson Economic Group. AEG’s experts have over two decades of experience in modeling state economies, and have published extensively on state and metropolitan area economies, tax climates, and technology employment.
 

The SBDM is maintained and licensed by Supported Intelligence. To learn more about our Sectoral Business Decision Model, please contact us at sales@supportedintelligence.com or call us at +1 (517) 333-7024.