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Economically exhaustible resources in an oligopoly-fringe model with renewables

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  • Benchekroun, Hassan
  • van der Meijden, Gerard
  • Withagen, Cees

Abstract

We consider a game between oligopolistic and fringe suppliers of fossil fuel from an exhaustible resource, and producers of a renewable perfect substitute. Extraction costs are stock-dependent and strictly convex in the rate of extraction. We characterize the open-loop Nash equilibrium analytically and perform numerical simulations with calibrated parameter values. The effects of our cost assumptions are (i) to have asymptotic economical instead of physical exhaustion of the non-renewable resource and (ii) the existence of a limit-pricing phase in which both fossil and renewables suppliers are active. We decompose the welfare loss of imperfect competition in a conservation and a sequence effect, and show that both can be substantial: 3.8 and 4.2 trillion US$ in the calibrated model, respectively. We also examine Green Paradox effects and find that initial carbon emissions depend non-monotonically on the renewables subsidy rate.

Suggested Citation

  • Benchekroun, Hassan & van der Meijden, Gerard & Withagen, Cees, 2023. "Economically exhaustible resources in an oligopoly-fringe model with renewables," Journal of Environmental Economics and Management, Elsevier, vol. 121(C).
    • Handle: RePEc:eee:jeeman:v:121:y:2023:i:c:s0095069623000712
    DOI: 10.1016/j.jeem.2023.102853
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    References listed on IDEAS

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    1. Richard J. Gilbert, 1978. "Dominant Firm Pricing Policy in a Market for an Exhaustible Resource," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 385-395, Autumn.
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    More about this item

    Keywords

    Oligopoly-fringe; Renewables; Stock-dependent extraction cost;
    All these keywords.

    JEL classification:

    • Q01 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - Sustainable Development
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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