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The Green Paradox and learning by doing

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Production of a renewable substitute to fossil fuels is modeled as causing the cost of this backstop technology to fall over time in proportion to the scale of the substitute production and how long it has been in use. The unit cost of resource extraction is assumed to rise as the stock is depleted, so learning by doing will increase the reserves permanently left in the ground. The green paradox can nevertheless be present, in the sense that the resource extraction path can initially lie above what it would be in the absence of a parallel production of renewable energy. In a monopolistic market, the resource monopolist’s optimal price path is two-phased, even with inelastic demand. In the limit-pricing phase, the price is falling, due to the progressive learning by doing effect, and the extraction path is rising.

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  • Hannesson, Rögnvaldur, 2018. "The Green Paradox and learning by doing," Discussion Papers 2018/17, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2018_017
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    More about this item

    Keywords

    Green Paradox; carbon dioxide emission; fossil fuels;
    All these keywords.

    JEL classification:

    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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