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A well-known theorem by Herfindahl states that the low-cost nonrenewable resource must be exploited first. Consider resources that are differentiated only by their pollution content. For instance, both coal and natural gas are used to generate electricity, yet coal is more polluting. We show that the ordering of extraction need not be driven by whether a resource is clean or dirty. Coal may be used first, followed by natural gas, and again by coal. Such "vacillation" does not occur under cost heterogeneity. A perverse policy implication is that regulating pollution may accelerate use of the polluting resource.

This paper estimates the returns to household income due to improved access to electricity in rural India. We examine the effect of connecting a household to the grid and the quality of electricity, defined as hours of daily supply. The analysis is based on two rounds of a representative panel of more than 10,000 households. We use the district-level density of transmission cables as instrument for the electrification status of the household. We find that a grid connection increases non-agricultural incomes of rural households by about 9 percent during the study period (1994)(1995)(1996)(1997)(1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005). However, a grid connection and a higher quality of electricity (in terms of fewer outages and more hours per day) increases non-agricultural incomes by about 28.6 percent in the same period.JEL classification: O12, O18, Q48

Environmental agreements such as the Kyoto Protocol aim to stabilize the amount of carbon in the atmosphere, which is mainly caused by the burning of nonrenewable resources such as coal. We characterize the solution to the textbook Hotelling model when there is a ceiling on the stock of emissions. We consider both increasing and decreasing demand for energy. We show that when the ceiling is binding, both the low-cost nonrenewable resource and the high-cost renewable resource may be used jointly. A key implication is that if energy demand were to decline in the long run, we may supplement energy supply through 'clean' renewables to meet the environmental standard, but then revert back to using only 'dirty' fossil fuels in the future when the ceiling has become non-binding. That is, the much heralded societal 'transition' to clean energy resources may be short-lived. r

Environmental agreements such as the Kyoto Protocol aim to stabilize the amount of carbon in the atmosphere, which is mainly caused by the burning of nonrenewable resources such as coal.We characterize the solution to the textbook Hotelling model when there is a ceiling on the stock of emissions. We consider both increasing and decreasing demand for energy. We show that when the ceiling is binding, both the low-cost nonrenewable resource and the high-cost renewable resource may be used jointly. A key implication is that if energy demand were to decline in the long run, we may supplement energy supply through ''clean'' renewables to meet the environmental standard, but then revert back to using only ''dirty'' fossil fuels in the future when the ceiling has become non-binding. That is, the much heralded societal ''transition'' to clean energy resources may be somewhat short-lived.JEL classification : Q12, Q32, Q41