The impact of resource royalties on the development of marginally economic discoveries: The case of Nova Scotia

Abstract

Traditional econometric models no longer provide an adequate means of assessing the attainment of stated resource-development objectives because these objectives are now beginning to include statements about the desirability of developing marginally economic resources. Econometric models do not include specific consideration of the geologic parameters of the resource exploration and development problem and, therefore, cannot be used to determine whether announced policies succeed or fail to encourage the development of marginal resources. A modelling framework incorporating geologic and economic data was used here to study the attainment of the resourcedevelopment objectives set out for the development of Nova Scotia's offshore natural gas potential. In our study, we compare the announced Nova Scotia regime to a hypothetical regime and demonstrate that the announced Nova Scotia regime fails to meet its resource development objectives. The study is intended as a demonstration of the ways in which geologic and economic information might be combined to develop new policy-analysis tools. As resource depletion continues and resource development policies come to be increasingly stated in quantity terms, this class of tools will provide a new means of comparing and assessing competing policy proposals.