Climate theoretical models in turn do not concern

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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...
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