Fossil Fuels, Stock Externalities, and Backstop Technology

  • Tahvonen O
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Abstract

The Hotelling exhaustible resource model is extended to include stock pollution and non-polluting backstop technology. It is shown that an optimal energy consumption strategy typically includes a regime in which the two energy sources are consumed simul- taneously. Along this regime, fossil fuel consumption decreases and backstop consumption increases. Together, fossil fuel and backstop consumption may form eleven optimal regime combinations. A decrease in the backstop price decreases the initial level of optimal emission tax.

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Authors

  • Olli Tahvonen

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