Some Long-Term Impacts of $(US)15 Oil on Energy Policy and on Engineering R&D Policy: Results from the EMCAN Model

Abstract

The sharp drop in international oil prices during the first half of 1986 caused many analysts and policy-makers to change their views on the appropriate energy policies. Clearly the short-term effects of this drop have a significant impact on the finances of governments and the industry (Plourde, 1986). The longer-term effects depend on the duration of the low oil price as well as its magnitude. This paper focusses on long-term effects such as energy economy interactions, interfuel substitution, energy conservation and the role of the tar sands plants. We define issues on which detailed policy development studies are needed, show how they depend on the duration of the period of low oil prices, and discuss the implications for engineering R&D policy. This paper describes some of the long-term impacts of $(US)15/bbl. oil. The questions of energy policy are self-sufficiency, the structure of the petroleum industry, the development of the tar sands, the growth of the electricity supply industry and energy conservation. The questions of engineering R&D policy reflect our need to respond flexibly to possible oil price paths in the 1990s. The impacts are estimated using a Canadian energy-economy model, the EMCAN model, by running it under a base case assumption of $(US)23/bbl oil and an alternative of $(US) 15/bbl. The focus of this work is not on forecasting values such as oil production in a given future year, but rather it is on the difference between the policies that would need to be adopted in each case. The central portion of this paper consists of five parts. The first part describes the concepts incorporated into the structure of the EMCAN model. The second describes the key assumptions about the Canadian energy system and its economic environment. The third section de-