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Hotelling’s Fossil Fuel Economics

In: The Economics of Optimal Growth Pathways

Author

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  • S. Niggol Seo

    (Muaebak Institute of Global Warming Studies)

Abstract

Fossil fuels such as coal, crude oil, and natural gas are some of the most valuable exhaustible non-renewable resources of the planet. In an economically optimal extraction trajectory of a fossil fuel, the sum of the discounted net revenues from the extractions over time will be maximized. In such a trajectory, the resource rent will rise at the rate of the market interest rate. Eventually, fossil-based fuels will be replaced by an alternative energy source and then by a backstop energy technology. The reliance on fossil fuels by humanity will end at some point in the future, on which both critics and economists would largely agree. The critique regarding the harmful unintended environmental and health consequences of fossil fuel burning remains a formidable challenge to humanity. Notwithstanding, the seven novel advances in technology as well as the two economic mechanisms explained in this chapter have helped address this critical issue in rich countries.

Suggested Citation

  • S. Niggol Seo, 2023. "Hotelling’s Fossil Fuel Economics," Springer Books, in: The Economics of Optimal Growth Pathways, chapter 0, pages 113-139, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-20754-9_5
    DOI: 10.1007/978-3-031-20754-9_5
    as

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