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Pareto Optimality in the Extraction of Fossil Fuels and the Greenhouse Effect: A Note

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  • Hans-Werner Sinn

Abstract

This note generalizes the Solow-Stiglitz efficiency condition for natural resources to the problem of fossil fuel extraction with a greenhouse effect. The generalized optimality condition suggests that the greenhouse effect implies overextraction in the sense of leaving future generations a wrongly composed wealth portfolio with too few natural resources relative to man-made capital. This judgment is independent of society's ethical preferences concerning the well-being of future generations.

Suggested Citation

  • Hans-Werner Sinn, 2007. "Pareto Optimality in the Extraction of Fossil Fuels and the Greenhouse Effect: A Note," NBER Working Papers 13453, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:13453
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    1. Cees Withagen, 1995. "Pollution, abatement and balanced growth," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 5(1), pages 1-8, January.
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    3. Quiggin, John C. & Horowitz, John K., 2003. "Costs of adjustment to climate change," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 47(4), pages 1-18.
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    6. R. M. Solow, 1974. "Intergenerational Equity and Exhaustible Resources," Review of Economic Studies, Oxford University Press, vol. 41(5), pages 29-45.
    7. Konrad Kai A. & Olsen Trond E. & Schob Ronnie, 1994. "Resource Extraction and the Threat of Possible Expropriation: The Role of Swiss Bank Accounts," Journal of Environmental Economics and Management, Elsevier, vol. 26(2), pages 149-162, March.
    8. Long, Ngo Van, 1975. "Resource extraction under the uncertainty about possible nationalization," Journal of Economic Theory, Elsevier, vol. 10(1), pages 42-53, February.
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    Cited by:

    1. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(4), pages 360-394, August.
    2. Hans‐Werner Sinn, 2008. "Das grüne Paradoxon: Warum man das Angebot bei der Klimapolitik nicht vergessen darf," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 9(s1), pages 109-142, May.
    3. Kögel, Tomas, 2011. "The social cost of carbon on an optimal balanced growth path," Economics Discussion Papers 2011-35, Kiel Institute for the World Economy (IfW).
    4. Laurence J. Kotlikoff & Andrey V. ZUBAREV & Andrey POLBIN, 2021. "Will the Paris accord accelerate climate change [Ускоряет Ли Парижское Соглашение Изменение Климата?]," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 1, pages 8-37, February.
    5. Foley, Duncan K. & Rezai, Armon & Taylor, Lance, 2013. "The social cost of carbon emissions: Seven propositions," Economics Letters, Elsevier, vol. 121(1), pages 90-97.
    6. Hans-Werner Sinn, 2007. "Public Policies against Global Warming," CESifo Working Paper Series 2087, CESifo.
    7. Strand, Jon, 2010. "Optimal fossil-fuel taxation with backstop technologies and tenure risk," Energy Economics, Elsevier, vol. 32(2), pages 418-422, March.
    8. Adolfo Maza & José Villaverde & María Hierro, 2015. "Non- $$\hbox {CO}_2$$ CO 2 Generating Energy Shares in the World: Cross-Country Differences and Polarization," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 61(3), pages 319-343, July.
    9. Christian Beermann, 2015. "Climate Policy and the Intertemporal Supply of Fossil Resources," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 62.
    10. Hans-Werner Sinn, 2015. "The Green Paradox: A Supply-side View of the Climate Problem," CESifo Working Paper Series 5385, CESifo.
    11. Duncan Foley & Lance Taylor, 2013. "The Social Cost of Carbon Emissions," SCEPA policy note series. 2013-2, Schwartz Center for Economic Policy Analysis (SCEPA), The New School.
    12. Alfred Endres, 2008. "Ein Unmöglichkeitstheorem für die Klimapolitik?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 9(3), pages 350-382, August.
    13. Armon Rezai, 2011. "The Opportunity Cost of Climate Policy: A Question of Reference," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(4), pages 885-903, December.

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    More about this item

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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