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Optimal Extraction of a Polluting Nonrenewable Resource with R&D toward a Clean Backstop Technology

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  • FANNY HENRIET

Abstract

We study the optimal extraction of a polluting nonrenewable resource within the following framework: environmental regulation is imposed in the form of a ceiling on the stock of pollution and a clean unlimited backstop technology can be developed by research and development. More specifically, the time taken to develop a new technology depends on the amount spent on R&D. A surprising result is that the stringency of the ceiling and the size of the initial stock of the polluting nonrenewable resource have a bearing on whether environmental regulation speeds up the optimal arrival date of this new technology. Compared to a scenario with no environmental externalities, stringent environmental regulation drives up the optimal R&D investment and brings forward the optimal backstop arrival date only in the case of a large initial resource stock. Otherwise, if the initial resource stock is small, regulation reduces optimal R&D and postpones the optimal backstop arrival date. These results are explained by the two roles played by the backstop technology. First, the backstop serves to replace oil once it has been exhausted. As extraction is slowed down by regulation, the exhaustion of the nonrenewable resource is postponed and the long-run gains of innovation are lowered. Second, environmental regulation raises the short-run gains of innovation by increasing the cost of consuming just oil.
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  • Fanny Henriet, 2012. "Optimal Extraction of a Polluting Nonrenewable Resource with R&D toward a Clean Backstop Technology," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(2), pages 311-347, March.
    • Handle: RePEc:bla:jpbect:v:14:y:2012:i:2:p:311-347
    DOI: j.1467-9779.2011.01542.x
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    File URL: http://hdl.handle.net/10.1111/j.1467-9779.2011.01542.x
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    Cited by:

    1. Kollenbach, Gilbert, 2015. "Abatement, R&D and growth with a pollution ceiling," Journal of Economic Dynamics and Control, Elsevier, vol. 54(C), pages 1-16.
    2. Nachtigall, Daniel & Rübbelke, Dirk, 2016. "The green paradox and learning-by-doing in the renewable energy sector," Resource and Energy Economics, Elsevier, vol. 43(C), pages 74-92.
    3. Xiao-Bing Zhang, 2024. "A Dynamic Game of Strategic Carbon Taxation and Energy Pricing with Green Technology Innovation," Dynamic Games and Applications, Springer, vol. 14(4), pages 1027-1055, September.
    4. Fanny Henriet & Katheline Schubert, 2019. "Is Shale Gas a Good Bridge to Renewables? An Application to Europe," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 72(3), pages 721-762, March.
    5. Kollenbach, Gilbert, 2017. "Unilateral climate Policy and the Green Paradox: Extraction Costs matter," VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking 168245, Verein für Socialpolitik / German Economic Association.
    6. Partha Sen, 2018. "Unilateral Policies, Competitiveness and the ‘Green Paradox’ in a Dynamic North–South Model," Arthaniti: Journal of Economic Theory and Practice, , vol. 17(2), pages 113-139, December.
    7. Thomas Eichner & Gilbert Kollenbach & Mark Schopf, 2023. "Demand- Versus Supply-Side Climate Policies with a Carbon Dioxide Ceiling," The Economic Journal, Royal Economic Society, vol. 133(652), pages 1371-1406.
    8. Amigues, Jean-Pierre & Lafforgue, Gilles & Moreaux, Michel, 2014. "Triggering the Technological Revolution in Carbon Capture and Sequestration Costs," TSE Working Papers 14-479, Toulouse School of Economics (TSE).
    9. Zhang, Xiao-Bing, 2014. "Strategic Carbon Taxation and Energy Pricing: The Role of Innovation," Working Papers in Economics 589, University of Gothenburg, Department of Economics.
    10. Partha Sen, 2013. "Unilateral Emission Cuts And Carbon Leakages In A North-South Trade Model," Working papers 232, Centre for Development Economics, Delhi School of Economics.

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