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Bush Meets Hotelling: Effects of Improved Renewable Energy Technology on Greenhouse Gas Emissions

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  • Michael Hoel
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    Abstract

    Fossil fuels are non-renewable carbon resources, and the extraction path of these resources depends both on present and future demand. When this "Hotelling feature" is taken into consideration, the whole price path of carbon fuel will shift downwards as a response to the reduced cost of the renewable substitute. An implication of this is that greenhouse gas emissions in the near future may increase as a response to the reduced cost of the renewable substitute. If this is the case, increased climate costs may outweigh the benefits of reduced costs of a substitute, thus reducing overall social welfare.

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    File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2008/wp-cesifo-2008-12/cesifo1_wp2492.pdf
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    Bibliographic Info

    Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2492.

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    Date of creation: 2008
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    Handle: RePEc:ces:ceswps:_2492

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    Related research

    Keywords: climate change; exhaustible resources; renewable energy;

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    References

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    1. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer, Springer, vol. 15(4), pages 360-394, August.
    2. Jon Strand, 2007. "Technology Treaties and Fossil-Fuels Extraction," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 129-142.
    3. Olli Tahvonen, 1997. "Fossil Fuels, Stock Externalities, and Backstop Technology," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 855-74, November.
    4. Ujjayant Chakravorty & Bertrand Magne & Michel Moreaux, 2003. "A Hotelling Model with a Ceiling on the Stock of Pollution," Emory Economics, Department of Economics, Emory University (Atlanta) 0321, Department of Economics, Emory University (Atlanta).
    5. Bohm Peter, 1993. "Incomplete International Cooperation to Reduce CO2 Emissions: Alternative Policies," Journal of Environmental Economics and Management, Elsevier, vol. 24(3), pages 258-271, May.
    6. Donald A. Hanson, 1980. "Increasing Extraction Costs and Resource Prices: Some Further Results," Bell Journal of Economics, The RAND Corporation, The RAND Corporation, vol. 11(1), pages 335-342, Spring.
    7. Hoel Michael, 1994. "Efficient Climate Policy in the Presence of Free Riders," Journal of Environmental Economics and Management, Elsevier, vol. 27(3), pages 259-274, November.
    8. Withagen, Cees, 1994. "Pollution and exhaustibility of fossil fuels," Resource and Energy Economics, Elsevier, Elsevier, vol. 16(3), pages 235-242, August.
    9. Michael Hoel, 1984. "Extraction of a Resource with a Substitute for Some of Its Uses," Canadian Journal of Economics, Canadian Economics Association, vol. 17(3), pages 593-602, August.
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    Cited by:
    1. Groth, Christian & Ricci, Francesco, 2010. "Optimal growth when environmental quality is a research asset," TSE Working Papers, Toulouse School of Economics (TSE) 10-214, Toulouse School of Economics (TSE).
    2. Frederick van der Ploeg & Cees Withagen, 2010. "Is there really a Green Paradox?," Tinbergen Institute Discussion Papers 10-020/3, Tinbergen Institute, revised 27 Aug 2012.
    3. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo Group Munich.
    4. Hassan Benchekroun & Cees Withagen, 2010. "On Price Taking Behavior In A Nonrenewable Resource Cartel-Fringe Game," Departmental Working Papers, McGill University, Department of Economics 2010-02, McGill University, Department of Economics.
    5. Hart, Rob & Spiro, Daniel, 2011. "The elephant in Hotelling's room," Energy Policy, Elsevier, Elsevier, vol. 39(12), pages 7834-7838.
    6. Michielsen, T.O., 2011. "Brown Backstops versus the Green Paradox (Replaced by CentER DP 2011-110)," Discussion Paper, Tilburg University, Center for Economic Research 2011-076, Tilburg University, Center for Economic Research.
    7. Michael Hoel, 2010. "Climate Change and Carbon Tax Expectations," CESifo Working Paper Series 2966, CESifo Group Munich.
    8. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, Springer, vol. 1(1), pages 115-148, March.
    9. Frederick Van der Ploeg & Cees A. Withagen, 2011. "Too Little Oil, Too Much Coal: Optimal Carbon Tax and when to Phase in Oil, Coal and Renewables," CESifo Working Paper Series 3526, CESifo Group Munich.
    10. Reyer Gerlagh, 2010. "Too Much Oil," Working Papers, Fondazione Eni Enrico Mattei 2010.14, Fondazione Eni Enrico Mattei.
    11. Hassan Benchekroun & Cees Withagen, 2008. "Nonrenewable Resource Oligopolies And The Cartel-Fringe Game," Departmental Working Papers, McGill University, Department of Economics 2008-02, McGill University, Department of Economics.

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