Technology Treaties and Fossil-Fuels Extraction

Strand, Jon
October 2007
Energy Journal;2007, Vol. 28 Issue 4, p129
Academic Journal
We consider some unintended effects of a "technology treaty" to increase the (stochastic) possibility of developing an energy alternative to fossil fuels which, when available, makes fossil fuels redundant. One implication of such a treaty is to increase the incentives for fossil-fuels producers to extract fossil fuels existing in given quantity more rapidly, under competition when the equilibrium price path for fossil fuels follows Hotelling's rule. When the treaty may result in the new technology being immediately available, the expected resource extraction path is accelerated for an initial period, in simulations for 5-10 years, despite fossil fuels being phased out when the new technology appears. When there is a minimum (lO-year) lag from treaty signing to technology implementation, expected extraction is speeded up for a longer period, 12-15 years. We discuss the implications of such treaties for global carbon emissions, which are not necessarily positive.


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