Abstract for: Oil Policy Regret Analysis With System Dynamics Models
A simple system dynamics model was used to explore the potential benefits of using regret analysis to develop sensible government energy policies. Regret analysis evaluates the relative impact of unexpected futures to design policies that reduce the risk of losses rather than trying to optimize benefits. It is very useful when it is impossible to assess or agree on the probabilities of future events and, especially, those events that can have a large impact on the system behavior. We focused our attention on understanding the system behavior and the potential benefits that might be derived from this approach, which appears to be previously unreported in the petroleum industry and system dynamics literature. We tested the technique assuming an uncertain future oil price, which was the primary driver of our system model. This allowed us to easily evaluate the impacts of potential government tax policies on the state as well as the oil producer. With other assumptions, there could be many more variables that could impact the results. In that case, more sophisticated techniques may be needed to identify the best policy alternatives.