Ordering the Extraction of Polluting Nonrenewable Resources

摘要

Energy markets are often characterized by the use of multiple nonrenewable resources, such as coal and natural gas, with different pollution characteristics. The same resource may have different qualities, as when high- and low-sulfur coal is used to generate electricity. Multiple resources are used in providing transportation services, such as cars running on gasoline or plug-in hybrids that may be fueled by electricity produced from coal.rnWhen these nonrenewable resources contribute differentially to pollution, what is the optimal sequence of extraction over time? Harold Hotelling (1931) developed the classical theory of extraction of a nonrenewable resource. Orris C. Herfindahl (1967) extended the Hotelling model by considering many resources with different unit costs of extraction and proposed the "least cost first" principle: extraction must be ordered by cost, with the cheapest resource used first. Others have examined whether Herfindahl's model remains valid in a variety of situations: in a general equilibrium setting (see Murray Kemp and Ngo V. Long 1980; Tracy R. Lewis 1982), in the presence of setup costs (Gerard Gaudet, Moreaux, and Stephen W. Salant 2001), under heterogeneous demands (Chakravorty and Darrell L. Krulce 1994), and when the extraction rate is constrained (Jean-Pierre Amigues et al. 1998; Stephen P. Holland 2003).