14-i CHAPTER 14. EMPLOYMENT IMPACT ANALYSIS

TABLE OF CONTENTS

14.1 INTRODUCTION ......................................................................................................... 14-1

14.2 ASSUMPTIONS............................................................................................................ 14- 1

14.3 METHODOLOGY ........................................................................................................ 14-114-1 CHAPTER 14. EMPLOYMENT IMPACT ANALYSIS

14.1 INTRODUCTION

The Department of Energy (DOE) intends the employment impact analysis to estimate national job creation or job elimin ation resulting from possible new standards, due to reallocation of the associated expenditures for purchasing and operating equipment. DOE will conduct this analysis as one of the analyses for the no tice of proposed rulema king (NOPR). DOE will estimate national impacts on major sectors of th e U.S. economy, using publicly available data and incorporating different energy price scenarios that it will carry out as pa rt of the analysis for

the NOPR. DOE will make all methods and documentation available for review.

The imposition of standards can impact employme nt both directly and indirectly. Direct employment impacts are changes in the number of employees at the plants that produce the covered equipment, along with the affiliated dist ribution and service companies, resulting from the imposition of standards. DOE will evaluate direct employment impacts in its manufacturer impact analysis, as described in chapter 12. Indirect employment impacts may result from expenditures shifting between goods (the substitution effect) and ch anges in income and overall expenditure levels (the income effect) that occur due to the impositi on of standards.

14.2 ASSUMPTIONS

DOE expects new equipment standards to decr ease energy consumpti on, and therefore to reduce expenditures for energy. The savings in energy expenditures may be spent on new investment and other items. The standards may increase the purchase price of equipment, including the retail price plus sales tax, and increase installation costs.

Using an input-output model of the U.S. ec onomy, this analysis seeks to estimate the year-to-year effect of these expenditure impacts on net economic output and employment. A simple model might involve reduced expenditu res for energy and reallocation of that money toward other sectors in the economy. DOE intends the employment impact analysis to quantify the indirect employment impacts of these expe nditure changes. It will evaluate direct employment impacts in the manufacturer impact analysis step of the process.

14.3 METHODOLOGY

To investigate the combined direct and i ndirect employment impacts, DOE will use the Pacific Northwest National Laboratory (PNNL)’s Impact of Sector Energy Technologies (ImSET) model. 1 PNNL developed ImSET, a spreadsh eet model of the U.S. economy that

focuses on 188 sectors most releva nt to industrial, commercial, and residential building energy14-2 use, for DOE’s Office of Energy Efficiency a nd Renewable Energy. ImS ET is a special-purpose version of the U.S. Benchmark National Input-Ou tput (I-O) model, which has been designed to estimate the national employment and income eff ects of energy saving technologies that are deployed by DOE’s Office of Energy Efficiency and Renewable Energy. In comparison with the previous versions of the model used in earli er rulemakings, this version allows for more complete and automated analysis of the essentia l features of energy effi ciency investments in buildings, industry, transportation, and the electric power sectors.

The ImSET software includes a computer-based I-O model with structural coefficients to characterize economic flows among the 188 sectors. ImSET’s national econo mic I-O structure is based on the 1997 Benchmark U.S. table, specially aggregated to 188 sectors. 2

DOE intends to use the ImSet model to estima te changes in employment, industry output, and wage income in the overall U.S. economy resulting from changes in expenditures in the various sectors of the economy due to an ener gy conservation standard. For example, small electric motor standards may reduce energy expe nditures and increase equipment prices in primarily the commercial and industrial sectors. These expenditure changes are likely to cause some near-term reduction in commercial, industrial and energy sector employment. At the same time, over the longer-term these equipment stan dards may increase commercial and industrial sector investment, and increase employment in other sectors of the economy. DOE designed the employment impact analysis to estimate the yea r-to-year net national employment effect of these different expenditure flows.14-3 REFERENCES

1 Roop, J. M., M. J. Scott, and R. W. Schultz. ImSET: Impact of Sector Energy Technologies

, 2005. Pacific Northwest National La boratory, Richland, WA. PNNL- 15273.

2 Lawson, Ann M., Kurt S. Bersani, Mahnaz Fahim-Nader, and Jiemin Guo. “Benchmark Input-Output Accounts of the U. S. Economy, 1997,” Survey of Current Business , December 2002. pp. 19-117.