Ordering the Extraction of Polluting Nonrenewable Resources

Abstract

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.

Optimal Transition from Coal to Gas and Renewable Power under Capacity Constraints and Adjustment Costs

“…On the one hand, a strand of the literature studies the optimal usage of different fossil fuels through the lens of nonrenewable resources theory (Hotelling, 1931;Herfindahl, 1967), with little attention to the dynamics of capital accumulation (Chakravorty et al, 2008;Smulders and van der Werf, 2008;van der Ploeg and Withagen, 2012). For instance, Chakravorty et al (2008) find that a carbon price may accelerate the burning of the most polluting resource: coal would be used first, followed only later by natural gas.…”

Optimal emission-extraction policy in a world of scarcity and irreversibility

“…Coulomb and Henriet (2010)'s study only considers conventional reserves of fossil fuels, whereas Dietz and Asheim (2012) also include unconventional reserves and (un)conventional resources. 7 Let us now assess the impact of x 0 on the nature of the optimal policy. It is clear that as long as x 0 is small enough ( 2200 GtC), there exists a unique reversible solution that yields the optimum.…”

“…That is why we choose not to draw this frontier. 7 Kalkuhl and Edenhofer (2011) report the following estimates, summing the stock of oil, coal and gas:…”

“…Examples of this approach are Chakravorty et al (2006Chakravorty et al ( , 2008. This is usually motivated in the following ways.…”

Limit pricing and the (in)effectiveness of the carbon tax

“…Much research efforts currently revolve around the design of the optimal carbon tax: see the influential works by Chakravorty, Moreaux and Tidball (2008), Metcalf (2008), Sinn (2008), Golosov, Hassler, Krusell and Tsyvinski (2014), van der Ploeg and Withagen (2014), among many others. It is hoped that both the taxation of carbon resources like oil and the support to non-carbon substitutes are effective instruments to curb carbon emissions that are responsible for global warming.…”