Endogenous Substitution Among Energy Resources and Global Warming

Journal of Political Economy, Vol. 105, No. 6 (December 1997)

Posted: 24 Jan 1998

See all articles by Ujjayant Chakravorty

Ujjayant Chakravorty

Tufts University

James A. Roumasset

University of Hawaii at Manoa

Kinping Tse

University of Hawaii

Abstract

The theory of resource extraction has focused primarily on extraction when there is a single, homogeneous demand for the resource. In reality, however, we observe the simultaneous extraction of different resources such as oil, coal, and natural gas and multiple demands such as transportation, residential and commercial heating, and electricity generation. This paper develops a model with multiple resources and grades and multiple demands. The model is simulated with extraction cost, estimated reserves, and energy demand data for the world economy. It is shown that if historical rates of cost reduction in the production of solar energy are maintained, more than 90 percent of the world's coal will never be used. The world will move from oil and natural gas use to solar energy. Global temperatures will rise by only about 1.5 2 degrees centigrade by the middle of the next century and then decline steadily to preindustrial levels, even without carbon taxes. These results are significantly lower than those predicted by the Intergovernmental Panel on Climate Change and suggest that the case for global warming may be seriously overstated.

JEL Classification: Q25, Q31

Suggested Citation

Chakravorty, Ujjayant and Roumasset, James A. and Tse, Kinping, Endogenous Substitution Among Energy Resources and Global Warming. Journal of Political Economy, Vol. 105, No. 6 (December 1997), Available at SSRN: https://ssrn.com/abstract=46947

Ujjayant Chakravorty (Contact Author)

Tufts University ( email )

Medford, MA 02155
United States

James A. Roumasset

University of Hawaii at Manoa ( email )

Honolulu, HI 96822
United States
808-956-7496 (Phone)
808-956-4347 (Fax)

Kinping Tse

University of Hawaii

Honolulu, HI 96822
United States

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