Too much oil

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Fear for oil exhaustion and its consequences for economic growth has been a driver of a rich literature on exhaustible resources. But our view on oil has remarkably changed. We now also worry about too much oil because of climate change damages associated with oil and other fossil fuel use. In this climate change debate, economists have pointed to a green paradox: when policy makers stimulate the development of low carbon energy sources to (partly) replace fossil fuels in the future, oil markets may anticipate a future reduction in demand and increase current supply. The availability of ‘green’ technologies may increase damages. The insight comes from the basic exhaustible resource model. We reproduce the green paradox, and to facilitate discussion, differentiate between a weak and a strong version, related to short-term and long-term effects, respectively. Then we analyze the green paradox in two standard modifications of the exhaustible resource model. We find that increasing fossil fuel extraction costs counteracts the strong green paradox, while imperfect energy substitutes may make both the weak and strong green paradox vanish.
Original languageEnglish
Pages (from-to)79-102
Number of pages24
JournalCESifo Economic Studies
Volume57
Issue number1
DOIs
Publication statusPublished - 2011

Fingerprint

oil
fossil fuel
resource
damages
climate change
damage
resources
energy source
economic growth
economist
Paradox
Oil
driver
market
supply
anxiety
carbon
energy
cost
demand

Cite this

Gerlagh, R. / Too much oil. In: CESifo Economic Studies. 2011 ; Vol. 57, No. 1. pp. 79-102.
@article{c5bfcc9868394122adaefe905b8559f5,
title = "Too much oil",
abstract = "Fear for oil exhaustion and its consequences for economic growth has been a driver of a rich literature on exhaustible resources. But our view on oil has remarkably changed. We now also worry about too much oil because of climate change damages associated with oil and other fossil fuel use. In this climate change debate, economists have pointed to a green paradox: when policy makers stimulate the development of low carbon energy sources to (partly) replace fossil fuels in the future, oil markets may anticipate a future reduction in demand and increase current supply. The availability of ‘green’ technologies may increase damages. The insight comes from the basic exhaustible resource model. We reproduce the green paradox, and to facilitate discussion, differentiate between a weak and a strong version, related to short-term and long-term effects, respectively. Then we analyze the green paradox in two standard modifications of the exhaustible resource model. We find that increasing fossil fuel extraction costs counteracts the strong green paradox, while imperfect energy substitutes may make both the weak and strong green paradox vanish.",
author = "R. Gerlagh",
note = "Appeared earlier as FEEM Working Paper 2010.014 Pagination: 24",
year = "2011",
doi = "10.1093/cesifo/ifq004",
language = "English",
volume = "57",
pages = "79--102",
journal = "CESifo Economic Studies",
issn = "1610-241X",
publisher = "Oxford University Press",
number = "1",

}

Too much oil. / Gerlagh, R.

In: CESifo Economic Studies, Vol. 57, No. 1, 2011, p. 79-102.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Too much oil

AU - Gerlagh, R.

N1 - Appeared earlier as FEEM Working Paper 2010.014 Pagination: 24

PY - 2011

Y1 - 2011

N2 - Fear for oil exhaustion and its consequences for economic growth has been a driver of a rich literature on exhaustible resources. But our view on oil has remarkably changed. We now also worry about too much oil because of climate change damages associated with oil and other fossil fuel use. In this climate change debate, economists have pointed to a green paradox: when policy makers stimulate the development of low carbon energy sources to (partly) replace fossil fuels in the future, oil markets may anticipate a future reduction in demand and increase current supply. The availability of ‘green’ technologies may increase damages. The insight comes from the basic exhaustible resource model. We reproduce the green paradox, and to facilitate discussion, differentiate between a weak and a strong version, related to short-term and long-term effects, respectively. Then we analyze the green paradox in two standard modifications of the exhaustible resource model. We find that increasing fossil fuel extraction costs counteracts the strong green paradox, while imperfect energy substitutes may make both the weak and strong green paradox vanish.

AB - Fear for oil exhaustion and its consequences for economic growth has been a driver of a rich literature on exhaustible resources. But our view on oil has remarkably changed. We now also worry about too much oil because of climate change damages associated with oil and other fossil fuel use. In this climate change debate, economists have pointed to a green paradox: when policy makers stimulate the development of low carbon energy sources to (partly) replace fossil fuels in the future, oil markets may anticipate a future reduction in demand and increase current supply. The availability of ‘green’ technologies may increase damages. The insight comes from the basic exhaustible resource model. We reproduce the green paradox, and to facilitate discussion, differentiate between a weak and a strong version, related to short-term and long-term effects, respectively. Then we analyze the green paradox in two standard modifications of the exhaustible resource model. We find that increasing fossil fuel extraction costs counteracts the strong green paradox, while imperfect energy substitutes may make both the weak and strong green paradox vanish.

U2 - 10.1093/cesifo/ifq004

DO - 10.1093/cesifo/ifq004

M3 - Article

VL - 57

SP - 79

EP - 102

JO - CESifo Economic Studies

JF - CESifo Economic Studies

SN - 1610-241X

IS - 1

ER -