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ifo Institut – Leibniz-Institut für Wirtschaftsforschung an der Universität München >
CESifo Working Papers, CESifo Group Munich >
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http://hdl.handle.net/10419/66869
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| Title: | | Breakthrough renewables and the green paradox  |
| Authors: | | van der Ploeg, Rick |
| Issue Date: | | 2012 |
| Series/Report no.: | | CESifo Working Paper: Resources and Environment Economics 3986 |
| Abstract: | | We show how a monopolistic owner of oil reserves responds to a carbon-free substitute becoming available at some uncertain point in the future if demand is isoelastic and variable extraction costs are zero but upfront exploration investment costs have to be made. Not the arrival of this substitute matters for efficiency, but the uncertainty about the timing of this substitute coming on stream. Before the carbon-free substitute comes on stream, oil reserves are depleted too rapidly; as soon as the substitute has arrived, the oil depletion rate drops and the oil price jumps up by a discrete amount. Subsidizing green R&D to speed up the introduction of breakthrough renewables leads to more rapid oil extraction before the breakthrough, but more oil is left in situ as exploration investment will be lower. The latter offsets the Green Paradox. |
| Subjects: | | hotelling principle exhaustible resources carbon-free substitute regime switch oil stock uncertainty hold-up problem green R&D Green Paradox |
| JEL: | | D81 H20 Q31 Q38 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CESifo Working Papers, CESifo Group Munich
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