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Too Much Oil

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  • Reyer Gerlagh

    (Tilburg University)

Abstract

Fear for oil exhaustion and its consequences on economic growth has been a driver of a rich literature on exhaustible resources from the 1970s onwards. But our view on oil has remarkably changed and we now worry how we should constrain climate change damages associated with oil and other fossil fuel use. In this climate change debate, economists have pointed to a green paradox: when policy makers stimulate the development of non-carbon energy sources to (partly) replace fossil fuels in the future, oil markets may anticipate a future reduction in demand and increase current supply. The availability of ‘green’ technologies may increase damages. The insight comes from the basic exhaustible resource model. We reproduce the green paradox and to facilitate discussion differentiate between a weak and a strong version, related to short-term and long-term effects, respectively. Then we analyze the green paradox in 2 standard modifications of the exhaustible resource model. We find that increasing fossil fuel extraction costs counteracts the strong green paradox, while with imperfect energy substitutes both the weak and strong green paradox may vanish.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2010.14.

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Date of creation: Feb 2010
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Handle: RePEc:fem:femwpa:2010.14

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Related research

Keywords: Green Paradox; Climate Change; Exhaustible Resources; Fossil Fuels;

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References

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  1. Jon Strand, 2007. "Technology Treaties and Fossil-Fuels Extraction," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 129-142.
  2. Ulph, Alistair & Ulph, David, 1994. "The Optimal Time Path of a Carbon Tax," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 857-68, Supplemen.
  3. Copeland, Brian R. & Taylor, M. Scott, 2005. "Free trade and global warming: a trade theory view of the Kyoto protocol," Journal of Environmental Economics and Management, Elsevier, vol. 49(2), pages 205-234, March.
  4. Corrado Maria & Edwin Werf, 2008. "Carbon leakage revisited: unilateral climate policy with directed technical change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(2), pages 55-74, February.
  5. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer, vol. 15(4), pages 360-394, August.
  6. Michael Hoel, 2008. "Bush Meets Hotelling: Effects of Improved Renewable Energy Technology on Greenhouse Gas Emissions," CESifo Working Paper Series 2492, CESifo Group Munich.
  7. Reyer Gerlagh & Onno Kuik, 2007. "Carbon Leakage with International Technology Spillovers," Working Papers 2007.33, Fondazione Eni Enrico Mattei.
  8. Sinclair, Peter J N, 1992. "High Does Nothing and Rising Is Worse: Carbon Taxes Should Keep Declining to Cut Harmful Emissions," The Manchester School of Economic & Social Studies, University of Manchester, vol. 60(1), pages 41-52, March.
  9. Persson, Tobias A. & Azar, C. & Johansson, D. & Lindgren, K., 2007. "Major oil exporters may profit rather than lose, in a carbon-constrained world," Energy Policy, Elsevier, vol. 35(12), pages 6346-6353, December.
  10. Hoel, Michael & Kverndokk, Snorre, 1996. "Depletion of fossil fuels and the impacts of global warming," Resource and Energy Economics, Elsevier, vol. 18(2), pages 115-136, June.
  11. Daniel J.A. Johansson & Christian Azar & Kristian Lindgren & Tobias A. Persson , 2009. "OPEC Strategies and Oil Rent in a Climate Conscious World," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 23-50.
  12. Corrado Di Maria & Sjak Smulders & Edwin van der Werf, 2008. "Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions," Working Papers 2008.92, Fondazione Eni Enrico Mattei.
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  1. The green paradox
    by Economic Logician in Economic Logic on 2010-03-30 14:18:00
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