1 The NEMS projections are based on detailed end use and technology information that is not available annually for the U.S. economy. For example, NEMS provides projections of residential space heating energy consumption and stock efficiency for heat pumps in single-family homes in the South Atlantic Census Division on a year-by-year basis. This type of information is not collected on an annual basis.

2 For additional information on NEMS, see Energy Information Administration, National Energy Modeling System, An Overview 2000, DOE/EIA-0581(2000) (Washington, DC, March 2000), web site www.eia.doe.gov/oiaf/aeo/overview/index.html. Details on individual modules are available in recent model documentation reports at web site www.eia.doe.gov/bookshelf/docs.html.

3 Energy Information Administration, Annual Energy Outlook 2002, DOE/EIA-0383(2002) (Washington, DC, December 2001), web site www.eia.doe.gov/oiaf/aeo/index.html.

4 Site electricity consumption refers to electricity consumption as it would be registered by a customer’s meter. Another method for measuring end-use electricity consumption is to include the electric conversion and transmission and distribution losses that were incurred in supplying the electricity to the customer. This concept is called “primary energy consumption for electricity.” If the electricity generation sector were not explicitly treated, then primary energy would be the appropriate concept; however, when primary energy is modeled and the generation sector is not explicitly treated, any efficiency gains in generation are inappropriately attributed to the end-use sectors.

5 This is a typical definition of energy efficiency. For a thorough discussion of the issues involved in measuring efficiency, see Energy Information Administration, Measuring Energy Efficiency in the United States’ Economy: A Beginning, DOE/EIA-0555(95)/2 (Washington, DC, October 1995); web site www.eia.doe.gov/emeu/efficiency/contents.html; and S.J. Battles and E.M. Burns, “United States Energy Usage and Efficiency: Measuring Changes Over Time,” Presented at the 17th Congress of the World Energy Council (Houston TX, September 14, 1998), web site www.eia.doe.gov/emeu/efficiency/wec98.htm.

6 The LDV fleet includes cars, light trucks (sport utility vehicles, pickup trucks, and vans), and motorcycles.

7 This assumption is bolstered by the increasing popularity of sport utility vehicles despite their higher prices. Possible differences between the transportation services provided by light trucks and those provided by cars include increased safety in collisions with smaller vehicles, better view of the road, four-wheel drive capability, and larger cargo capacity.

8 As for many of the assumptions made in the implementation of the efficiency calculations, this assumption could also be debated. Some might argue that compact fluorescent bulbs do not actually produce energy services equivalent to incandescent bulbs because their light is not as pleasing to some, and when they are first started, their output does not reach full intensity immediately.

9 There may be other short-run responses to rising energy prices, such as reducing water heater temperatures or cutting back on non-task lighting.

10 This is a difference in site energy consumption and is obtained by converting kilowatthours from a homeowner’s electricity bill to Btu using the Btu content of electricity of 3,412 Btu per kilowatthour.

11 At the economy level, replacing a fuel-based furnace with an electric heat pump requires additional electricity generation and the attendant conversion losses and transmission and distribution losses.

12 This is another example of a choice that is debatable. It is made here for two reasons. First, by defining separate end uses for each space heating fuel, the efficiency calculations become “fuel neutral.” That is, a shift in fuel preference will have virtually no effect on measured energy efficiency. Second, certain consumers prefer one space heating fuel to another. By exhibiting a preference, consumers express the view that the energy services are indeed different.

13 This ratio includes both conversion losses and transmission and distribution losses. Conversion losses reflect the fact that converting a fuel to electricity requires more energy input than the Btu content of the electricity produced. Transmission and distribution losses stem from transformer inefficiencies as voltage is stepped-up for transmission and down for end uses, as well as from resistance in electric lines as the electricity is transmitted from the generation site to the end-use site.

14 There are a variety of ways to measure energy intensity for the residential sector. If it is measured on a per household basis, then energy intensity will increase as housing size increases (all else being equal), as hypothesized in the example. If it is measured on a floorspace area basis, energy intensity will be unchanged in the example. If it is measured per unit of real GDP, the change in energy intensity will depend on the growth rate of real GDP relative to that of floorspace area.

15 In general, the technologies do not have to service only a single end use; however, within a defined end use, the output measures will all be in the same terms, making the concept less complicated.

16 The relevant weights for aggregating technologies into an efficiency index are energy consumption shares by technology. The weights and weighting procedures are discussed below.

17 Results for the Törnqvist Index also produce an estimated efficiency change of 10.8 percent.

18 A service demand proxy is used when a direct indicator of service demand is not available. An example in the transportation sector is that there is no readily available service demand indicator for lubricants. The proxy in this case is indicated in Table 1 under the 10th subsector under the Transportation Sector heading as Real Gross Domestic Product.

19 The current schedule for updating the expenditure weights for the CPI is every 2 years, introduced into the index with a lag. The weights are 2 years old when introduced and 4 years old when retired. Previous updates were less frequent. See U.S. Department of Labor, Bureau of Labor Statistics, “Future Schedule for Expenditure Weight Updates in the Consumer Price Index,” web site http://stats.bls.gov/cpi/cpiupdt.htm (December 18, 1998).

20 The Törnqvist Index uses the average of base period and current period weights applied to percentage changes computed logarithmically. For more information on its properties, see W.E. Diewert, “Exact and Superlative Index Numbers,” Journal of Econometrics, Vol. 4 (1976), pp. 115-145; and B.M. Balk and W. E. Diewert, “A Characterization of the Törnqvist Price Index,” Discussion Paper No. 00-16, The University of British Columbia (October 2000). Ang and Liu have recently proposed a modification of this formula that adjusts the calculation of the weights (Log-Mean Divisia Index Method I); however, the differences in the calculations are insignificant when applied to the AEO2002 projections. The results of a partial test indicate agreement in the index values to at least 5 significant digits, and results are presented to only 3 digits. For further details, see B.W. Ang and X.Q. Liu, “A New Energy Decomposition Method: Perfect in Decomposition and Consistent in Aggregation,” Energy, Vol. 26 (2001), pp. 537–548.

21 The residential and commercial subsectors include dimensions for Census Division and building types, because energy consumption and efficiency characteristics vary across these dimensions. For the transportation, industrial, and generation sectors, regional differences are judged to be less important. The total number of subsectors used in index construction is 2,539. For the residential sector, the number of subsectors is 731 (9 Census Divisions times 3 building types times 27 specific end uses plus 2 aggregated end uses—marketed renewable energy and other fuels. For the commercial sector the number of subsectors is 1,785 (9 divisions times 11 building types times 18 end uses plus 3 aggregated end uses—other fuels, biomass, and renewable energy. For the transportation sector there are 10 subsectors, for the industrial sector there are 13 subsectors, and for the electricity generation sector there are no subsectors.

22 A different method for developing the economy-wide index would be to use a two-stage procedure of first computing sectoral indexes and then aggregating the indexes to form the economy-wide measure. In general, the two-stage Törnqvist aggregation of sector indexes to the economy-wide level will differ from the single-stage aggregation across all sectors and subsectors. In practice, for the AEO2002 projections described here, the difference is insignificant, differing only in the 6th significant digit.