Energy demand (ENDEM) is a function of GDP and the energy demand per unit of GDP (ENRGDP). Energy production (ENP) is a function of capital stock in each energy type, the capital/output ratio (QE) for that energy type, and a capacity utilization factor (CPUTF).
The following key dynamics are directly linked to the dominant relations:
DEMAND Energy demand per unit of GDP depends on GDP per capita, energy prices, and an autonomous trend in energy efficiency. The first two of these are computed endogenously, the latter exogenously. The user can control the price elasticity of energy demand ( elasde ) and the autonomous trend in efficiency of energy use ( enrgdpgr ). The user can also use an energy demand multiplier ( endemm ) to directly modify energy demand.
PRODUCTION For fossils fuels and hydro, there are upper bounds on production. For fossil fuels, these are based on reserve production ratios, as well as user-specified upper bounds ( enpoilmax , enpgasmax , and enpcoalmax ). For hydro, the upper bound relates to hydropower potential. The model user can also control production using an energy demand multiplier ( enpm ) to directly modify energy production by energy type.
CAPITAL/OUTPUT RATIO The capital/output (capital/production) ratios for all fuel types decline over time due to technological improvements at rates determined by two user controllable parameters ( etechadv and etechadvuncon ). For fossil fuels, this is counteracted by a factor that increases the capital/output ratio as the amount of remaining resources decreases. Something similar happens for hydro and other renewables, but here the capital/output ratios increase as production approaches a maximum possible level. The user can further modify the capital/output ratios with the multipliers ( qem and qeunconm ).
CAPITAL Energy capital, by fuel type, is initialized based on the initial levels of production and capital/output ratios. Energy capital depreciates at a rate determined by the lifetime of energy capital ( lke ) and it grows with investment. Total desired investment in energy capital is influenced by many factors, including existing capital, domestic and global energy demand, the production of other renewables, changes in the global capital/output ratio, world and domestic energy stocks, expected overall profits in the energy sector, and imports. Users can influence this in the aggregate (via eninvm ) and can also control the effect of expected profits ( eleniprof and eleniprof2 ) and world energy stocks ( elenpr and elenpr2 ). Desired investment by energy type increases with individual profit expectations, but also by limits related to reserve production factors (for fossil fuels and hydro), any exogenous restrictions on maximum production (for fossil fuels), ultimate potential (for hydro), and other, unspecified factors (nuclear). Users can influence the effect of profit expectations by fuel type (via elass ) as well as influence the desired investment by energy type in the aggregate (via eninvtm ). The user can also specify an exogenous growth rate for energy investment by fuel type ( eprodr ). The economic model ultimately determines whether all of the investment needs can be met; in case of shortfalls, the investment in each type of energy is reduced proportionately.
RESOURCES/RESERVES/STOCKS IFs separately represents ultimate resources and reserves, where the latter are the amount of energy resources available to be produced. Resources and reserves, both conventional and unconventional, are set in the pre-processor. The user can modify the default assumptions on ultimate resources, either directly ( resor , resoruncon ) or via the use of multipliers ( resorm , resorunconm ). Reserves decline with production and increase with discoveries. The rate of discovery depends on the ultimate resources remaining, the intensity of current production, world energy prices, and a base rate of discovery ( rdi ). The user can control the effect of world prices on discovery ( elasdi ), augment the base rate of discovery ( rdinr ), and use a multiplier to affect the rates of discovery ( rdm ). Finally, IFs keeps track of any production not used in the current year, i.e., stocks, and shortages.
ENERGY PRICES Domestic energy prices are influenced by world stocks, domestic stocks, and the ratio of capital to production at the global level. The user can control the effect of domestic stocks on prices ( epra and eprafs ). Users can also include a “cartel premium” ( encartpp ) and a carbon tax ( carbtax ). More directly users can set domestic energy prices exogenously for just the first year ( enprixi ) or for multiple future years ( enprix ). The world energy price is calculated as a weighted sum of the domestic prices.
TRADE The energy model also provides representation and control over energy trade. The levels of imports and exports depend upon levels of production and demand, as well as past propensities to import and export energy. The user can set maximum limits on of energy imports ( enml ) and energy exports ( enxl ), as well as general limits on trade ( trademax ).