Green Technologies and the Protracted End to the Age of Oil: A strategic analysis
AbstractThis paper considers competition between an oil exporter depleting and selling an exhaustible resource, and an oil importer able to gradually lower the cost of substitutes. R&D into clean fuels begins before the substitutes are competitive, in order to reduce overall development costs. The substitute constrains the oil exporter's market power: after an initial Hotelling-type stage, oil pricing becomes constrained by the ever-cheaper substitute technology. Suppy is thus non-monotonic, initially falling, then forced up by competition from substitute. Climate change slows down substitute development: rapid R&D forces the exporter to extract oil faster, aggravating near-term environmental impacts. If oil extraction becomes more expensive as supplies are depleted, the importer switches into clean fuels once these price oil out of the market; technological development will eventually be hastened to leave more of the oil locked underground. Novel numerical methods for solving PDEs are introduced into a differential game context.
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Bibliographic InfoPaper provided by Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford in its series OxCarre Working Papers with number 099.
Date of creation: 2013
Date of revision:
exhaustible resources; oil; alternative fuels; limit pricing; climate change;
Find related papers by JEL classification:
- D42 - Microeconomics - - Market Structure and Pricing - - - Monopoly
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
- Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
- Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-23 (All new papers)
- NEP-COM-2013-03-23 (Industrial Competition)
- NEP-ENE-2013-03-23 (Energy Economics)
- NEP-ENV-2013-03-23 (Environmental Economics)
- NEP-RES-2013-03-23 (Resource Economics)
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