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Alternatives to conventional crude oil: When, how quickly, and market driven?

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  • Kaufmann, Robert K.
  • Shiers, Laura D.

Abstract

We examine the effect of uncertainty concerning remaining supplies of conventional crude oil and its production path on: the date alternative fuels will be needed, the quantity of alternative fuels needed, and how this uncertainty affects firms' willingness to provide alternatives in a timely fashion. Despite large uncertainties about the quantity of oil that remains and its production path, the start date for replacements is likely to fall within a twenty-two year period that is narrower and earlier than previous estimates. The twenty-two year window represents considerable uncertainty about the date of the peak and this uncertainty creates an asymmetry in the strategy that maximizes the welfare of firms relative to total social welfare, which works against the market's ability to generate a smooth transition from oil to alternative fuels. The timeliness of this transition is critical--the production paths generated here suggest that 10Â million barrels per day or more of alternative fuels will be needed within a decade of the peak in production of conventional crude oil.

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Bibliographic Info

Article provided by Elsevier in its journal Ecological Economics.

Volume (Year): 67 (2008)
Issue (Month): 3 (October)
Pages: 405-411

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Handle: RePEc:eee:ecolec:v:67:y:2008:i:3:p:405-411

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Web page: http://www.elsevier.com/locate/ecolecon

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Keywords: Oil supply Peak oil Alternative energy Externality Asymmetric risk;

References

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  1. Donald W. Jones, Paul N. Leiby and Inja K. Paik, 2004. "Oil Price Shocks and the Macroeconomy: What Has Been Learned Since 1996," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 2), pages 1-32.
  2. Dermot Gately, 2007. "What Oil Export Levels Should We Expect From OPEC?," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 2), pages 151-174.
  3. G. C. Watkins, 1992. "The Hotelling Principle: Autobahn or Cul de Sac?," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 1), pages 1-24.
  4. Dees, Stephane & Karadeloglou, Pavlos & Kaufmann, Robert K. & Sanchez, Marcelo, 2007. "Modelling the world oil market: Assessment of a quarterly econometric model," Energy Policy, Elsevier, Elsevier, vol. 35(1), pages 178-191, January.
  5. Jeffrey A. Krautkraemer, 1998. "Nonrenewable Resource Scarcity," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2065-2107, December.
  6. Dermot Gately, 1995. "Strategies for OPEC's Pricing and Output Decisions," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 3), pages 1-38.
  7. Robert K. Kaufmann & Cutler J. Cleveland, 2001. "Oil Production in the Lower 48 States: Economic, Geological, and Institutional Determinants," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 1), pages 27-49.
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Cited by:
  1. Sorrell, Steve & Miller, Richard & Bentley, Roger & Speirs, Jamie, 2010. "Oil futures: A comparison of global supply forecasts," Energy Policy, Elsevier, Elsevier, vol. 38(9), pages 4990-5003, September.
  2. van Ruijven, Bas & van Vuuren, Detlef P., 2009. "Oil and natural gas prices and greenhouse gas emission mitigation," Energy Policy, Elsevier, Elsevier, vol. 37(11), pages 4797-4808, November.
  3. Robert J. Brecha, 2013. "Ten Reasons to Take Peak Oil Seriously," Sustainability, MDPI, Open Access Journal, vol. 5(2), pages 664-694, February.
  4. Reynolds, Douglas B. & Baek, Jungho, 2012. "Much ado about Hotelling: Beware the ides of Hubbert," Energy Economics, Elsevier, Elsevier, vol. 34(1), pages 162-170.
  5. Sorrell, Steve & Speirs, Jamie & Bentley, Roger & Brandt, Adam & Miller, Richard, 2010. "Global oil depletion: A review of the evidence," Energy Policy, Elsevier, Elsevier, vol. 38(9), pages 5290-5295, September.
  6. Verbruggen, Aviel & Al Marchohi, Mohamed, 2010. "Views on peak oil and its relation to climate change policy," Energy Policy, Elsevier, Elsevier, vol. 38(10), pages 5572-5581, October.

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