A Model of Energy Supply from Western Canada

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 labour 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 are 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 obtain 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 the approach are. (i) 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 (ii) 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. The model can be used to address such supply-oriented questions as the short term consequences to provincial wealth accrual and economic rents of energy price adjustments in international markets, the impact of increased or reduced restrictions on energy product supply or transportation, the implications of technical developments in product supply or co-product yields, or the outcome of government attempts to promote economic development of specific provincial energy industries.