Assumptions to the Annual Energy Outlook 2023

Introduction

This series of reports presents the major assumptions of the National Energy Modeling System (NEMS) the U.S. Energy Information Administration (EIA) used to generate the projections in the Annual Energy Outlook 2023 (AEO2023), [1] including general features of the model structure, assumptions concerning energy markets, and the key input data and parameters that were critical to formulating the model results. Every other year, EIA publishes a full Annual Energy Outlook (AEO), and although AEO2023 is not a full report, it does contain the standard side cases. Detailed documentation of the modeling system is available in a series of documentation reports. [2] This report highlights important changes made since the release of AEO2022.

The National Energy Modeling System

EIA’s Office of Energy Analysis develops and maintains NEMS, which generated the AEO2023 projections. In addition, EIA uses NEMS to complete analytical studies for the U.S. Congress, the Executive Office of the President, other offices within the U.S. Department of Energy (DOE), and other federal agencies. Nongovernmental groups, such as the Electric Power Research Institute, Duke University, and the Georgia Institute of Technology, also use NEMS.

EIA develops projections in NEMS by using a market-based approach, subject to regulations and standards. For each fuel and consuming sector, NEMS balances energy supply and demand, accounting for economic competition across the various energy fuels and sources. The projection period in NEMS currently extends to 2050. To represent regional differences in energy markets, the component modules of NEMS function at the regional level. These regions are

• The nine census divisions for the end-use demand modules
• The production regions specific to oil, natural gas, and coal supply and distribution
• The 25 regions and subregions of the North American Electric Reliability Corporation
• The eight refining regions within the five Petroleum Administration for Defense Districts (PADDs) and one international region representing eastern Canada and the Caribbean

Complete regional and detailed results are available on the EIA Analysis and Projections Page.

NEMS is a modular system (Figure 1). The modules represent each of the fuel supply markets, conversion sectors, and end-use consumption sectors of the energy system. The modular design also allows EIA to use the methodology and level of detail most appropriate for each energy sector. NEMS executes each of the component modules to solve for the prices of energy delivered to end users and the quantities consumed by product, region, and sector. The delivered fuel prices encompass all activities required to produce, import, and transport fuels to end users. The information flows also include such areas as economic activity, domestic production, and international petroleum supply. NEMS calls each supply, conversion, and end-use demand module in sequence until the delivered prices of energy and the quantities demanded have converged within tolerance, thereby achieving an economic equilibrium of supply and demand in the consuming sectors. AEO2023 offers a solution for each year from 2021 through 2050. EIA also evaluates other variables—such as petroleum product imports, crude oil imports, and several macroeconomic indicators—for convergence.

Each NEMS component represents the effects and costs of legislation and environmental regulations that affect the corresponding sector. NEMS accounts for all combustion-related carbon dioxide (CO₂) emissions, as well as emissions of sulfur dioxide (SO₂), nitrogen oxides (NO_X), and mercury from the electricity generation sector. NEMS also accounts for CO₂ resulting from non-combustion uses of fossil fuel inputs.

The Integrating Module of NEMS controls the execution of each of the component modules. To facilitate the modular process, the components do not pass information to each other directly but rather communicate through a central data storage location. This modular design allows modules to execute individually, allowing decentralized development of the system and independent analysis and testing of individual modules that appropriately reflect each energy sector.

The version of NEMS EIA used for AEO2023 generally represents current legislation and environmental regulations, including recent government actions for which implementing regulations were available as of the end of November 2022. The potential effects of proposed federal and state legislation, regulations, and standards—or sections of legislation that have been enacted but require funds to execute or do not have the required implementing regulations in place—are not reflected in NEMS. Each module’s Assumptions document contains a list of the federal and state legislation and regulations included in the AEO and how EIA incorporated each one. A separate document called Summary of Legislation and Regulations Included in the Annual Energy Outlook 2023 summarizes the requirements of new legislation and regulations. That document also includes summary tables that represent both new and existing legislation and regulations represented in NEMS.

Component modules

The component modules of NEMS (Figure 1) represent the individual supply, demand, and conversion sectors of domestic energy markets and also include international and macroeconomic modules. In general, the modules interact through values representing prices or expenditures for energy delivered to the consuming sectors and the quantities of end-use energy consumption. The individual Assumptions documents contain details on each module.

Notes and sources

[1] U.S. Energy Information Administration, Annual Energy Outlook 2023 (AEO2023), (Washington, DC, March 2023).

[2] NEMS documentation reports are available on the EIA website.