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Energy Economics pp 111–141Cite as

Energy Reserves and Sustainability

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Part of the book series: Springer Texts in Business and Economics ((STBE))

Abstract

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?

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Notes

  1. 1.

    Some experts doubt the credibility of data published by several OPEC countries, who have been stating constant reserves of crude oil for many years.

  2. 2.

    In many countries exhaustible resources are considered public property, which hampers trade in deposits and causes pertinent markets to deviate from economic efficiency.

  3. 3.

    This is the typical approach for solving dynamic optimization problems: Calculation of the current optimal price is based on the optimal intertemporal price trajectory defined by the so-called transversality condition (6.14) which is a dynamic equation with at first unknown parameters. Based on the conditions for the final state, the optimal price given the parameter values can be determined, resulting from backward induction from future T to present t.

  4. 4.

    If the reserve is renewable as e.g. wood, a different formulation is appropriate: The decrease of reserve depends on extractions from and additions to the reserve through regeneration processes, which often are a function of the remaining stock.

  5. 5.

    The term ‘shadow price’ is sometimes used instead of ‘opportunity cost’.

  6. 6.

    Withagen and Asheim (1998) have shown that the Hartwick rule is also a necessary condition for weak sustainability.

  7. 7.

    Given a constant rate of social time preference r, this (flat) consumption path is not optimal in the sense of the objective function (6.17) of Sect. 6.3. However, it can be shown that if r decreases over time according to r t = (1+a⋅t)-b with a, b > 0, then the sustainable level of consumption according to Eq. (6.52) is also optimal.

  8. 8.

    Substitution could be based on charging electric vehicles using wind power or on electrolysis which uses wind power to produce hydrogen (known as power-to-gas technology).

  9. 9.

    Macroeconomic savings divided by the Gross Domestic Product.

  10. 10.

    This phenomenon was first observed in The Netherlands at the beginning of an export boom at the beginning of the 1970s, hence its name ‘Dutch disease’.

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Authors and Affiliations

  1. Bad Bleiberg, Austria

    Peter Zweifel

  2. E.ON Energy Research Center, RWTH Aachen University, Aachen, Germany

    Aaron Praktiknjo

  3. Department of Energy Systems, Berlin University of Technology, Berlin, Germany

    Georg Erdmann

Authors
  1. Peter Zweifel
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  2. Aaron Praktiknjo
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  3. Georg Erdmann
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Zweifel, P., Praktiknjo, A., Erdmann, G. (2017). Energy Reserves and Sustainability. In: Energy Economics. Springer Texts in Business and Economics. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-53022-1_6

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  • DOI: https://doi.org/10.1007/978-3-662-53022-1_6

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