A Model of Energy Supply from Western Canada

Abstract

This paper discusses a static multiregional linear programming model of energy supply from western Canada. This model has been constructed as part of an effort to measure production labor requirements, regional wealth accrual, and economic resource rents associated with different energy resource development scenarios. Demands and prices are exogenous to the model and supplies determined to maximize the increment to gross domestic product generated by energy resource production. The optimal solution yields a pattern of production and economic rent distribution which would be obtained if actual prices were specified exogenously and energy markets functioned in a perfectly competitive manner to meet demands. Thus the most economic supply alternatives are utilized most intensively, low-cost producers rewarded most heavily, and highest rents awarded to production capacities and reserves in particularly short supply. Two major advantages of approach are (1) the most economic patterns of production and transport of energy products can be determined independently of the externally imposed restrictions characterizing Canadian energy product markets, allowing inefficiencies to be pinpointed and quantified, and (2) it allows the price of each energy product to have a direct impact on the shadow prices of constraints on energy production and consumption, in turn allowing empirical estimation of changes in natural resource rents as energy product prices change.

Without implicating him, I would like to express my deep appreciation to Dr. Lawrence W. Copithorne of the Economic Council of Canada for many helpful suggestions relating to conceptual and practical problems of the modeling approach described here and for helpful comments on a preliminary draft of this paper. This paper is a highly condensed version of my “Energy Supply from Western Canada: Preliminary Work on a Comprehensive Programming Energy Model for Canada.” I am grateful to Bill Ziemba for very helpful editorial assistance.