Energy Reserves and Sustainability

The finiteness of fossil energy sources gives rise to the question of whether sustainable economic development is possible at all since these resources will increasingly become scarce and even cease to be available. Resource economics—the theory of dealing with the efficient use of exhaustible resources—has been addressing this problem. Grounded in the pertinent economic models, this chapter revolves around the following issues: How are energy reserves measured and how large are they? What is the optimal extraction strategy for the owners of an exhaustible resource? What is the optimal rate of extraction from a welfare point of view? Does market failure occur, i.e. are there systematic deviations from the optimal extraction path? What are the consequences of the increasing physical scarcity of energy sources for the price of energy? How far can these prices rise? However, the optimum from the point of resource economics, while resulting in an efficient use of exhaustible energy resources, need not be sustainable. The relationship between economic efficiency and (so-called weak) sustainability therefore needs to be clarified. This leads to additional questions: What are the conditions that make sustainable development possible in spite of continued use of non-renewable energy sources? For instance, does the global oil market satisfy these conditions? What interventions might be called for in order to satisfy the conditions for weak sustainability?