This preview shows page 1. Sign up to view the full content.
Unformatted text preview: e
importer switches to the backstop technology. Unlike most other models of resource extraction and substitute development, the present
model explains why R&D is undertaken even when the substitutes are far from being competitive against the resource. When use of
the exhaustible resource results in a stock pollution externality— as climate change follows from consumption of a fossil fuel such as
oil—limitpricing behaviour implies that, in the absence of carbon prices, it will be optimal to slow down research. The importer
effectively controls oil supply; aggressive R&D programs will just result in the oil stock being depleted faster, leading to greater
emissions. With oil extraction costs increasing as supplies dwindle, there is a third effect: R&D can make oil obsolete, actively
bringing the oil age to a close with a part of the resource remaining unused. I have shown that this effect will always eventually
dominate. As exhaustion looms close, the importer will race to drive the polluting resource out of the market. These findings are
important, as they inform the public debate over whether technological programs would prove to be a workable climate policy
instrument, 28 if carbon pricing remains politically difficult. Aggressive R&D subsidies can be used to wean economies off oil,
provided that the moment of (economic) exhaustion is relatively close. However, if oil can be expected to remain competitive with the
substitutes for a long time, more aggressive R&D may only result in greater near-term emissions, possibly aggravating climate change.
Hence, the optimal response may still be to initially slow down R&D efforts. These results are necessarily indicative only, due to the
simplicity of the model (Hart and Spiro (2011)). Nevertheless, they give partial intuition to a particular outcome of climate policy
which has not been considered previously. 312 Oil DDW 2012 1 Yes Leakage – Green Paradox 313
Last printed 9/4/2009 7:00:00 PM Oil DDW 2012 1 Unilateral cuts in fossil fuel consumption causes producers to lower oil prices,
net raising consumption
Sinn, Professor of Economics and Public Finance, University of Munich; President of the Ifo Institute for Economic Research, 09
Hans-Werner Sinn, Professor of Economics and Public Finance, University of Munich; President of the Ifo Institute for Economic
Research, 09, [“THE GREEN PARADOX,” CESifo Forum, http://www.ifo.de/DocDL/forum3-09-gesamt.pdf#page=12] E. Liu
Those convinced that with the brave new technologies proudly displayed in many newspapers’ special sections we can avert climate
change should specify how they would move resource owners to extract less fossil fuel . And that is precisely the sticking point.
Politics so far exhibits not the slightest glimmer of thinking in this direction. From the Environmental Agency through the Greens to
the relevant European Commission there is not a thing on the matter. Even science itself overlooks the issue. Energy models depicting
the long-term extraction path...
View Full Document
- Spring '13
- The American