ENDOGENOUS SUBSTITUTION AMONG ENERGY-RESOURCES AND GLOBAL WARMING

The theory of resource extraction has focused primarily on extraction when there is a single, homogeneous demand for the resource. In realit y, however, we observe the simultaneous extraction of different resour ces such as oil, coal, and natural gas and multiple demands such as tr ansportation, residential and commercial heating, and electricity gene ration. This paper develops a model with multiple resources and grades and multiple demands. The model is simulated with extraction cost, es timated reserves, and energy demand data for the world economy. It is shown that if historical rates of cost reduction in the production of solar energy are maintained, more than 90 percent of the world's coal will never be used. The world will move from oil and natural gas use t o solar energy. Global temperatures will rise by only about 1.5-2 degr ees centigrade by the middle of the next century and then decline stea dily to preindustrial levels, even without carbon taxes. These results are significantly lower than those predicted by the Intergovernmental Panel on Climate Change and suggest that the case for global warming may be seriously overstated.