Assessing the Economic Impact of Energy Price Increases on Washington Agriculture and the Washington Economy: A General Equilibrium Approach

A general equilibrium, multi-sector economic model of the Washington economy was developed to examine the economic impact on the Washington economy, especially the agricultural industries, from increasing energy prices experienced in 2005 and 2006. The energy group includes such fossil fuel-based commodities as gasoline and diesel fuel (refined petroleum products), natural gas, nitrogenous fertilizer, and petrochemical products. The economic model shows how the Washington economy adjusts to the energy price changes in the short-run under the assumption of no technological change. Industries that are most dependent on fossil fuelbased energy inputs experience increased costs and a loss of economic competitiveness, resulting in economic damage (loss of profits and jobs) to the industry. However, all industries in Washington except for the energy sectors experience some damage, either directly or indirectly. The purpose of this study is to provide a benchmark of fossil fuel use in the Washington economy and provide estimates of the expected loss in gross state product from energy price shocks under the assumption of existing energy efficiency and technology. As such, the estimates in this paper provide an idea of the economic costs that may be mitigated by the adoption of more energy efficient technologies and substituting renewable energy for fossil fuelbased energy products.