Last Friday, Stephen Holland from UNCG presented a paper in our departmental seminar on Modeling Peak Oil. Hotelling tells us that nonrenewable resource use will decline smoothly over time (don't have a cow, all else equal! all else equal!)
The idea with Stephen's paper is to try to determine causal economic factors of peak oil. Two factors that might lead to peak oil are increasing demand (e.g., China, India) and improving technology. Both of these lead to increases in current consumption relative to future consumption. Hence, we get a peak in consumption. Interesting.
The policy implications are interesting as well. Stephen proposes the policy goals as delaying the peak, delaying exhaustion and minimizing macro shocks. An energy tax that starts right away works best. What works worst is an anticipated energy tax that begins 5 to 10 years down the road. In this case, the incentive is to use oil sooner which brings the peak closer to now, brings exhaustion closer to now and generates a macro shock. An anticipated energy tax that is phased in over time splits the difference.
I’ve decided that I am in favor of any policy that delays the peak. That way all the “peak oilers” won’t be able to say “I told you so” until after a considerable delay.