Nordhaus’s Programming Model of Energy Futures Revisited

We conduct a small-scale linear programming simulation of an energy future based on the work of Nordhaus. We are able to link our quantity model (a primal model) quite precisely to its price problem (a dual model). Our amended Nordhaus formulation, with our present-value adjustments, has a dual (price) program that solves problems under correct dynamic efficiency conditions, standard in economics. We present, then, a corrected Nordhaus template, a linear program, suitable for simulating energy futures with good-quality data. We elevate the trajectory analysis of resource prices to a central role in the analysis of energy futures.