Ordering the Extraction of Polluting Nonrenewable Resources
Ujjayant Chakravorty, Michel Moreaux, Mabel Tidball
American Economic Review · 2008 · Volume 98 · Issue 3
Abstract
A well-known theorem by Herfindahl states that the low-cost nonrenewable resource must be exploited first. Consider resources that are differentiated only by their pollution content. For instance, both coal and natural gas are used to generate electricity, yet coal is more polluting. We show that the ordering of extraction need not be driven by whether a resource is clean or dirty. Coal may be used first, followed by natural gas, and again by coal. Such "vacillation" does not occur under cost heterogeneity. A perverse policy implication is that regulating pollution may accelerate use of the polluting resource.
Keywords
Nonrenewable Resources and Conservation: Government Policy, Air Pollution, Water Pollution, Noise, Hazardous Waste, Solid Waste, Recycling, Environmental Economics: Government Policy, Exhaustible Resources and Economic Development
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