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 model represents energy production in oil, gas, coal, hydroelectric, nuclear, other renewable, and unconventional oil categories.
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 key equilibrating variable is again inventories. It works via investment to control capital stock and via prices to control imports, exports, and domestic consumption.
Specifically, as inventories rise, investment falls, restraining capital stock and energy production, and thus holding down inventory growth. And as inventories rise, prices fall, thereby decreasing imports, increasing exports, and reducing domestic consumption, all of which hold down or decrease inventories.
Given country/region prices, it is possible to compute world energy prices (WEP). Similarly, we can compute world energy stocks (WENST).
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