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Green Accounting for Black Gold

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  • Robert D. Cairns

Abstract

In the petroleum industry, valid green economic accounting magnitudes are influenced by natural and other constraints on production, by non-convexity of technology and by non-optimality of output. The paper undertakes an economic analysis of oil extraction that explicitly represents the conditions and constraints that influence the decisions of a firm. This microeconomic analysis diverges from conventional, “Hotelling†macroeconomic models of nonrenewable-resource extraction and has substantially different findings. Optimality conditions such as Hotelling’s rule or first-order conditions are not utilized in defining accounting statistics. Contrary to the findings of many studies, it is found that traditional (non-green) accounting practice for commercial natural resources such as petroleum sensibly balances the aims of economic accounting. Instead, adjustments to practice are most needed for non-commercial values such as pollution or amenities.

Suggested Citation

  • Robert D. Cairns, 2009. "Green Accounting for Black Gold," The Energy Journal, , vol. 30(4), pages 113-140, October.
    • Handle: RePEc:sae:enejou:v:30:y:2009:i:4:p:113-140
    DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No4-4
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    References listed on IDEAS

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    1. Thompson, Andrew C., 2001. "The Hotelling Principle, backwardation of futures prices and the values of developed petroleum reserves -- the production constraint hypothesis," Resource and Energy Economics, Elsevier, vol. 23(2), pages 133-156, April.
    2. Graham A. Davis, 2007. "Strike When the Force Is with You: Optimal Stopping with Application to Resource Equilibria," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 461-472.
    3. Raphael Amit, 1986. "Petroleum Reservoir Exploitation: Switching from Primary to Secondary Recovery," Operations Research, INFORMS, vol. 34(4), pages 534-549, August.
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