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Cycles in nonrenewable resource prices with pollution and learning-by-doing

  • Chakravorty, Ujjayant
  • Leach, Andrew
  • Moreaux, Michel

We study how environmental regulation in the form of a cap on aggregate emissions from a fossil fuel (e.g., coal) interacts with the arrival of a clean substitute (e.g., solar energy). The cost of the substitute is assumed to decrease with cumulative use because of learning-by-doing. We show that optimal energy prices may initially increase because of pollution regulation, but fall due to learning, and rise again because of scarcity of the resource, finally falling after transition to the clean substitute. Thus nonrenewable resource prices may exhibit cyclical behavior even in a purely deterministic setting.

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Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 36 (2012)
Issue (Month): 10 ()
Pages: 1448-1461

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Handle: RePEc:eee:dyncon:v:36:y:2012:i:10:p:1448-1461
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  1. Bramoulle, Yann & Olson, Lars J., 2005. "Allocation of pollution abatement under learning by doing," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1935-1960, September.
  2. Sjak Smulders & Edwin van der Werf, 2008. "Climate policy and the optimal extraction of high- and low-carbon fossil fuels," Canadian Journal of Economics, Canadian Economics Association, vol. 41(4), pages 1421-1444, November.
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  4. Goulder, Lawrence H. & Mathai, Koshy, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 1-38, January.
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  7. Tsur, Yacov & Zemel, Amos, 2005. "Scarcity, growth and R&D," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 484-499, May.
  8. McDonald, Alan & Schrattenholzer, Leo, 2001. "Learning rates for energy technologies," Energy Policy, Elsevier, vol. 29(4), pages 255-261, March.
  9. Ujjayant Chakravorty & Bertrand Magne & Michel Moreaux, 2003. "A Hotelling Model with a Ceiling on the Stock of Pollution," Emory Economics 0321, Department of Economics, Emory University (Atlanta).
  10. Popp, David, 2006. "ENTICE-BR: The effects of backstop technology R&D on climate policy models," Energy Economics, Elsevier, vol. 28(2), pages 188-222, March.
  11. Gerlagh, Reyer & van der Zwaan, Bob, 2003. "Gross world product and consumption in a global warming model with endogenous technological change," Resource and Energy Economics, Elsevier, vol. 25(1), pages 35-57, February.
  12. 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.
  13. Salant, Stephen & Eswaran, Mukesh & Lewis, Tracy, 1983. "The length of optimal extraction programs when depletion affects extraction costs," Journal of Economic Theory, Elsevier, vol. 31(2), pages 364-374, December.
  14. Kverndokk, Snorre & Rosendahl, Knut Einar, 2007. "Climate policies and learning by doing: Impacts and timing of technology subsidies," Resource and Energy Economics, Elsevier, vol. 29(1), pages 58-82, January.
  15. Rubio, Santiago J. & Escriche, Luisa, 2001. "Strategic pigouvian taxation, stock externalities and polluting non-renewable resources," Journal of Public Economics, Elsevier, vol. 79(2), pages 297-313, February.
  16. Slade, Margaret E., 1982. "Trends in natural-resource commodity prices: An analysis of the time domain," Journal of Environmental Economics and Management, Elsevier, vol. 9(2), pages 122-137, June.
  17. repec:inr:wpaper:25547 is not listed on IDEAS
  18. Partha Dasgupta & Richard J. Gilbert & Joseph E. Stiglitz, 1982. "Invention and Innovation Under Alternative Market Structures: The Case of Natural Resources," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 567-582.
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