On the global economic potentials and marginal costs of non-renewable resources and the price of energy commodities

TL;DR

This paper introduces a model to simulate the evolution of marginal costs and depletion of non-renewable energy resources, aiding long-term energy price and resource use analysis with policy implications.

Contribution

It presents a novel mathematical framework for endogenous resource flow and cost modeling, integrated into the FTT:Power model for global energy sector analysis.

Findings

Provides limiting scenarios for resource use and costs.

Characterizes current and future non-renewable resource utilization.

Offers policy insights based on resource depletion and cost dynamics.

Abstract

A model is presented in this work for simulating endogenously the evolution of the marginal costs of production of energy carriers from non-renewable resources, their consumption, depletion pathways and timescales. Such marginal costs can be used to simulate the long term average price formation of energy commodities. Drawing on previous work where a global database of energy resource economic potentials was constructed, this work uses cost distributions of non-renewable resources in order to evaluate global flows of energy commodities. A mathematical framework is given to calculate endogenous flows of energy resources given an exogenous commodity price path. This framework can be used in reverse in order to calculate an exogenous marginal cost of production of energy carriers given an exogenous carrier demand. Using rigid price inelastic assumptions independent of the economy, these two approaches generate limiting scenarios that depict extreme use of natural resources. This is useful to characterise the current state and possible uses of remaining non-renewable resources such as fossil fuels and natural uranium. The theory is however designed for use within economic or technology models that allow technology substitutions. In this work, it is implemented in the global power sector model FTT:Power. Policy implications are given.