The energy model combines a growth process in production with a partial equilibrium process. The energy model automatically replaces the energy sector in the full economic model unless the user disconnects that linkage.
The production growth process in energy is simpler than that in agriculture or the full economic model. Because energy is a very capital-intensive sector, production depends only on capital stocks and changes in the capital-output ratio, which represents technological sophistication and other factors (such as decreasing resource bases) that affect production costs.
The partial equilibrium structures have distinct demand and supply sides, using price to seek a balance. As in the economic model, however, no effort is made to obtain a precise equilibrium in any time step. Instead stocks serve as a temporary buffer and the model again chases equilibrium over time.
Gross domestic product (GDP) from the economic model provides the basis for energy demand calculations. Energy demand elasticities tend, however, to be quite high. Thus the physical constraints on the supply side are terribly important in determining the dynamics of the energy model.
IFs distinguishes seven energy production categories: oil, natural gas, coal, hydroelectric, nuclear, other renewable, and unconventional hydrocarbons. IFs computes only aggregated regional or national energy demands and prices, however, on the assumption of high levels of long-term substitutability across energy types and a highly integrated market. The model also conducts energy trade only in a single, combined energy category. On the production side IFs treats the seventh energy category, unconventional oil, separately from the other six and creates special linkages to the conventional oil. Equations refer only to the first six categories unless otherwise noted.
For help understanding the equations see Notation.