Non-renewable resources energy - Welcome to UC Santa …不可再生资源amp；能量-欢迎来到加州大学圣塔….pptVIP

UCSB Bren School ESM 204 Non-renewable resources energy Economics, management, and policy Motivating Group Project California Renewable Energy Requirement for Electricity: Legislation requires that 20% of generation be from renewables by 2020. How can this best be achieved? 2003-4 Bren Group Project Key Characterisics of Nonrenewables Fixed endowment of given quality Stock declines over time For minerals Costly process of discovery Costly process of extraction Technical change decreases costs of exploration and extraction over time Key Results Physical Stocks Decline over time Price eventually increases with time Technical change may cause prices to decrease initially Time paths Scarcity value of non-renewables Since limited supply, non-renewable resource command a “scarcity value” Problem: You own a barrel of oil. Can sell today for $30. Should you sell today, or wait for next year? (r=.05) Hotelling “rent” Real Prices should rise at rate of interest. If think they won’t, firms would deplete reserves today. What about extraction costs? Rt = Pt – MCt implies Rt+1 = Rt(1+r) Also called “user cost”, “royalty”, “rent” Hotelling: It is actually rent which rises at rate of interest Present value of rents equal through time. Indifferent between selling barrel today or any point in future. What about quantity extracted? Recall demand curve: Prices and quantities over time Switching to a “backstop” Backstop technology: a perfect substitute for non-renewable resource that can be produced in any amount at constant (usually high) price. When price of non-renewable = price of backstop, we’ll switch. The effect of a backstop technology Other factors that affect price path: with a backstop technology Decreasing extraction cost: Lower price initially, then rises more quickly Sudden increase in demand: Price jumps suddenly, decreases current consumption. Monopoly: Price higher but rises more slowly, but extraction is slower so extends life of the resource. The monopoly c