QUANTIFYING EXHAUSTIBLE RESOURCE THEORY - AN APPLICATION TO MINERAL TAXATION POLICY

This paper presents the results of a dynamic nonlinear programming mod el of a mineral resource market with several features: heterogenous qu ality in the mineral, links with related product markets, incorporatio n of institutional constraints, resource allocations for each year in the planning period, and analysis of outcomes under various severance tax rates. The model computes privately efficient competitive use path s to perform cost-benefit analysis of public mineral policies. Policy variables are evaluated for their impact on both private behavior and public benefits. The application is to New Mexico's linked coal and el ectric power markets. Findings reveal that scarcity rents are currentl y 4% of coal's price, and peak at 27% in 43 years. Increasing the pres ent $1/ton New Mexico severance tax to $11 reduces current annual coal output by 25%, prolongs the life of the state's coal industry by thre e years, and increases discounted severance tax revenues by 850% or $4 .2 billion.