Exhaustible resources,technology choice and industrialization of developing countries

How should the world economy adapt to the increased demand for exhaustible resources from countries like China and India? To address that issue, this paper presents a dynamic model of the world economy with two technologies for production; a resource technology, which uses an exhaustible resource as an input and an alternative technology, which does not. I find that both the time path of resource extraction and the adoption of the alternative technology depend on the optimal allocation of capital across the technologies, and on the size of the capital stock in relation to the resource stock. In particular, if the capital stock is low, only the resource technology is used initially and the alternative technology is adopted with a delay. Next, I use the model to analyze the effects of industrialization of developing countries on the extraction of oil and technology choice for energy production. As a result of industrialization, the alternative technology for energy production is adopted earlier.     

Nonconvexity,efficiency and equilibrium in exhaustible resource depletion

We consider the problem of efficiency and existence of a competitive equilibrium in exhaustible resource markets where extraction costs are nonconvex. Nonconvexity is shown to imply that (1) (efficient) extraction ceases to the left of the minimum efficient scale, i.e., where average costs exceed marginal costs; and (2) a competitive equilibrium does not exist. Introduction of a backstop technology (which induces a flat portion of the industry demand curve) restores both existence and efficiency, provided that the backstop price is sufficiently low. If firms face even a small amount of uncertainty regarding their rivals' stocks, a backstop technology is sufficient to restore existence of competitive equilibrium, even if the backstop price is very high. In this case, however, the competitive equilibrium is not efficient.     

Sustainability economics: Where do we stand?

Environmental economics, which is a branch of resource economics – the environment as a scarce resource – is essentially about market failures, the costs of pollution and pollution abatement, and the economics of regulation. Sustainability economics includes the problem of maintaining economic growth, while reducing pollution and/or its impacts, with special attention to the linked problems of energy supply (not to mention the supply other exhaustible resources), climate change and – most urgently – fossil fuel consumption. There is a need for integration of resource and environmental economics under a new rubric, sustainability economics.     

Climate Policy,Uncertainty, and the Role of Technological Innovation

We study how uncertainty about climate change severity affects the relative benefits of early abatement and a portfolio of research and development (R&D) in lowering future abatement costs. Optimal early abatement depends on the curvature of the marginal benefit and marginal abatement cost (MAC) functions and how the uncertain parameter affects marginal benefits. R&D in a particular technology depends on whether uncertainty increases early abatement; whether investment lowers marginal costs for that technology; whether R&D lowers the slope of that technology's MAC function; and the shape of that technology's MAC function. We illustrate, focusing on the role of backstop technologies.     

Competition in Markets for Depletable Resources with Setup Costs

This paper analyzes the impact on exhaustible resource markets of setup costs, a sparsely analyzed category of nonconvex production technologies. This paper proves that, even under idealized circumstances for competition, a competitive equilibrium will fail to exist in the presence of setup costs, for any utility and cost functions such that a planner would exploit exhaustible resource pools sequentially.JEL classifications: Q3, C62     

Policy choice for end-of-pipe abatement technology adoption under technological uncertainty

Regulators have increasingly become concerned about end-of-pipe abatement technologies because they not only play a crucial role in air pollution control but also ensure the achievement of the deep carbon emissions reduction target. This paper investigates the effect of emission taxes and standards on the adoption of end-of-pipe abatement technology when the arrival time and degree of improvement of the new emissions abatement technology are uncertain. We find that the ranking of emission taxes and standards in terms of motivating early adoption depends on the policy stringency. More specifically, for high levels of environmental stringency, standards induce an earlier technology adoption than taxes, while the opposite conclusion holds for low levels of environmental stringency. The sensitivity analysis shows that these findings are robust to various relevant crucial parameters. Finally, the implications for the choice of environmental policy have been provided.     

Optimal Extraction of a Polluting Nonrenewable Resource with R&D toward a Clean Backstop Technology

We study the optimal extraction of a polluting nonrenewable resource within the following framework: environmental regulation is imposed in the form of a ceiling on the stock of pollution and a clean unlimited backstop technology can be developed by research and development. More specifically, the time taken to develop a new technology depends on the amount spent on R&D. A surprising result is that the stringency of the ceiling and the size of the initial stock of the polluting nonrenewable resource have a bearing on whether environmental regulation speeds up the optimal arrival date of this new technology. Compared to a scenario with no environmental externalities, stringent environmental regulation drives up the optimal R&D investment and brings forward the optimal backstop arrival date only in the case of a large initial resource stock. Otherwise, if the initial resource stock is small, regulation reduces optimal R&D and postpones the optimal backstop arrival date. These results are explained by the two roles played by the backstop technology. First, the backstop serves to replace oil once it has been exhausted. As extraction is slowed down by regulation, the exhaustion of the nonrenewable resource is postponed and the long‐run gains of innovation are lowered. Second, environmental regulation raises the short‐run gains of innovation by increasing the cost of consuming just oil.     

Organisational change and the productivity effects of green technology adoption

This study investigates induced productivity effects of firms introducing new environmental technologies. The literature on within-firm organisational change and productivity suggests that firms can achieve higher productivity gains from adopting new technologies if they adapt their organisational structures. Such complementarity effects may be of particular importance for the adoption of greenhouse gas (GHG) abatement technologies. The adoption of these technologies is often induced by public authorities to limit the social costs of climate change, whereas the private returns are much less obvious. This study finds empirical support for complementarity between green technology adoption (either CO₂-reducing or resources and energy efficiency-enhancing technologies) and organisational change. While the sole adoption of green technologies is associated with lower productivity, the simultaneous implementation of green technologies and organisational innovations is not.     

(Monopolistic) resource extraction and limit pricing: The market penetration of competitively produced synfuels

This paper analyzes the market penetration of a competitively produced synfuel, e.g., solar energy, in a market that is initially dominated by a resource extracting monopoly. The availability of the renewable substitute depends not only on the price/cost ratio but also on the installed capacities, which reflect historical investments. As a consequence, the resource monopoly faces a discontinuous residual demand schedule. The dynamic interactions between the resource cartel and the synfuel industry are modelled as a differential game; the (open loop) Nash equilibrium is applied to this game. It will be shown that the commodity price will exceed the production costs of the backstop and that the transition from the periods of resource dependence to the backstop technology will be gradual.     

Policy implications of potential conflicts between short-term and long-term efficiency in CO2 emissions abatement

This paper shows that, under certain conditions (including path dependence and lock-in), policies and measures leading to a cost-effective GHG emissions mitigation in the short term may not allow reaching long-term emissions targets at the lowest possible cost, that is, they might not be cost-effective in the long term. The reason is that, in a situation where currently expensive technologies have a large potential for cost reductions through learning effects and R&D investments, the implementation of incentive-based mitigation policies such as taxes or tradable permits will encourage the adoption and diffusion of currently low-cost abatement technologies, but might not be enough to make attractive the diffusion of expensive ones, which is a necessary condition for these technologies to realise their cost-reduction potential through the aforementioned effects. A simple model and a numerical simulation are provided to show this possible conflict between static and dynamic efficiency, which points out to the need to combine different instruments, some aiming at short-term cost-efficiency (such as incentive-based environmental policy) and others at encouraging dynamic cost reductions (such as technology/innovation policy).     

On the interaction between imperfect compliance and technology adoption: taxes versus tradable emissions permits

This paper analyzes the effects of the interaction between technology adoption and incomplete enforcement on the extent of violations and the rate of abatement technology adoption. We focus on price-based and quantity-based emission regulations. First, we show that in contrast to uniform taxes, under tradable emissions permits (TEPs), the fall in permit price produced by technology adoption reduces the benefits of violating the environmental regulation at the margin and leads firms to modify their compliance behavior. Moreover, when TEPs are used, the deterrent effect of the monitoring effort is reinforced by the effect that technology adoption has on the extent of violations. Second, we show that the regulator may speed up the diffusion of new technologies by increasing the stringency of the enforcement strategy in the case of TEPs while in the case of uniform taxes, the rate of adoption does not depend on the enforcement parameters.     

Determinants of agricultural water saving technology adoption: an empirical study of 10 provinces of China

In recent years, China has been faced by an increasingly severe water shortage due to the continual growth of demand on water resources. Although the Chinese government has been actively promoting the agricultural water-saving technology adoption, it is ill-informed of the adoption degree of the current agricultural watersaving technologies as well as the function of the governmental policies, Therefore, this paper＂ analyzes the aforesaid problems based on investigative data of 10 provinces in China. The results demonstrate that although there is a rapid increase of adopted agricultural water-saving technologies, the actual adoption area is rather limited. Moreover, the governmental policies and scarcity of water resources are the deierminants of agricultural water-saving technology adoption. Ultimately, the paper proposes some policy suggestions.     

我国矿产资源价格重构中的税收效应分析

现阶段我国矿产资源价格扭曲是导致资源配置效率低下和环境污染的重要诱因。本文在标准的动态霍特林模型分析框架下,对税收与资源价格之间的关系进行理论分析,重点对矿产资源征税应采取从量税还是从价税作出解释。最后针对我国矿产资源价格改革中存在的诸多税收问题,提出资源税收进一步深化改革的政策建议。     

Optimal Policy under Uncertainty and Learning about Climate Change: A Stochastic Dominance Approach

Global climate change presents a classic problem of decision making under uncertainty with learning. We provide stochastic dominance theorems that provide new insights into when abatement and investment into low carbon technology should increase in risk. We show that R&D into low-carbon technologies and near-term abatement are in some sense opposites in terms of risk. Abatement provides insurance against the possibility of major catastrophes; R&D provides insurance against the possibility that climate change is marginally worse than average. We extend our results to the comparative statics of learning.     

Managerial Skills Acquisition and the Theory of Economic Development

Why don't all countries converge rapidly to the use of most efficient or best practice technologies? Micro level studies suggest managerial skills play a key role in the adoption of modern technologies. In this paper we model the interactive process between on-the-job managerial skill acquisition and the adoption of modern technology. We use the model to illustrate why some countries develop managerial skills quickly and adopt best practice technologies, while others stay backwards. The model also explains why managers will not migrate from rich countries to poor countries, as would be needed to generate convergence. Finally we show why standard growth accounting exercises will incorrectly attribute a large proportion of managerial skills' contribution to total factor productivity and we quantify the importance of this bias.     

Complexities due to sluggish expansion of backstop technologies

This paper considers an economy using a technology that adds to a stock of pollution. Examples that come to mind are SO₂-emissions from burning coal accumulating in the soil and CO₂-emissions from fossil-energy use which are retained in the atmosphere. The stock of pollutants is subject to natural decay, albeit not necessarily of the simple often assumed linear type. In addition, a clean or so-called backstop technology is available that requires costly investments but is characterized by low variable costs (e.g., solar energy or wind power). The costly investments imply a slow build-up of the capacity of the backstop. On the modelling side, this is an essential extension of most of the literature that considers the unrealistic case where a backstop is instantaneously available. The second extension the present paper makes is to consider not only the planning problem but also the competitive outcomes. One of the interesting results is that stable limit cycles may characterize the socially optimal long-run outcome as well as the competitive equilibrium. In a competitive equilibrium pollution-control policy is not necessarily optimal in the sense of corresponding with the social optimum. Although cycling can occur in a competitive equilibrium, just as in the social optimum, relaxation of the control increases the set of parameter values for which complex and unstable behavior arises.     

Modelling future uptake of solar photo-voltaics and water heaters under different government incentives

To accelerate the adoption of technologies to reduce energy consumption and greenhouse gas (GHG) emissions in the residential sector, government policy makers offer a range of fiscal instruments and incentives. Despite the high costs of these schemes, methods are lagging to systematically evaluate their likely effectiveness amongst a geographical landscape of heterogeneous consumers. To address this need, a model was developed for spatial adoption of technologies such as water heaters and solar photo-voltaic panels (PVs), across housing stock, given government policy incentives. By combining features of choice modelling, Multi-Criteria Analysis (MCA) and diffusion models, it provides a capability to analyse future adoption patterns of the competing technology options under a range of features for purchase timing and choice. The model was implemented across 2.7 million residential dwellings in the State of New South Wales (NSW) of Australia to estimate future stock of PV and water heater options at geographical units of 250 households. Validation against actual numbers of PV installations at each postcode showed the model was effective at identifying high versus low adoption locations. Application to a wide range of policy scenarios, ranging from feed-in tariffs to upfront rebates, showed substantial differences in their effectiveness to accelerate uptake, and the government expenditure required.     

The determinants of EST adoption by manufacturing plants in developing countries

This article reports on the findings of a survey undertaken in late 2001-early 2002 on the determinants of environmentally sound technology (EST) adoption by 98 plants in eight developing countries. We review the literature on technology diffusion and technology capabilities as well as empirical studies with an exclusive focus on developing countries that explicitly addressed environmental performance or EST adoption to formulate our heuristic model that guided our investigation. We examine in some detail the determinants of both prevention and abatement technologies, which has seldom been investigated, in developing countries.In full recognition of literature that cites a host of reasons that cause plants to adopt EST we take into account both contextual and plant-specific factors. We use an ordered choice model that revealed that plant-specific factors assume a pre-dominant role in explaining the adoption of higher order of complexity EST. Plant-specific factors, specifically environmental commitment, technological capabilities, and ownership, and market factors, specifically foreign involvement and water and energy price perception, matter in determining the type of technological response and thus in explaining the adoption of higher-order complexity EST. Two governmental factors, regulatory implementation strategy and international donor assistance, also play a role in the adoption of EST. However, civil society, in particular community pressure that has been identified as an important determinant of environmental performance, does not play a role because of the way the dependent variable is constructed to capture higher orders of technological complexity.     

International trade, exhaustible-resource abundance and economic growth

Countries with oil and other natural resources have grown less rapidly than those countries without. This phenomenon is known as the “natural resource curse”. We develop an infinite-horizon, two-country model of trade in which countries are identical, except that one country is endowed with deposits of an exhaustible resource and the other is not. Within the context of the model, we show that this phenomenon can be explained in part by an inelastic demand for the exhaustible resource that increases growth in trade revenues and induces the resource-abundant country to invest relatively less than the country lacking in exhaustible resources. These results are derived analytically and illustrated by an empirical analysis based on plausible parameters obtained from data.     

Livestock emissions regulation with unknown damages and strategic technology adoption

Livestock emissions have been identified as a contributor to greenhouse gas build-up yet have remained unregulated in the US. A game-theoretic model in the style of Tarui and Polasky (2005) was analysed where the dairy industry strategically chooses to abate air emissions with technology adoption and herd size decisions while a regulator chooses a tax rate on emissions to satisfy the desires of competing interest groups. This model allows the effects of potential air emission regulation on the dairy industry to be evaluated. Results demonstrate that dairy farms react to the increased cost of air regulation by decreasing herd size rather than investing in air emission abatement technology in the short run. This suggests that incentives may need to be put in place to induce adoption in emissions abatement technology at the livestock level in the long run.