World oil: Hotelling depletion or accelerating use? |
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| Authors: | Duane Chapman |
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| Institution: | (1) Cornell University, 14853 Ithaca, New York, USA |
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| Abstract: | In theoretical Hotelling-type models of resource depletion, oil use declines monotonically over time to depletion. However, world oil use has been increasing for several years. Can theory and reality be reconciled? The answer is affirmative, if theory is modified to accommodate outward-shifting demand functions that are rising in response to growth in world population and income. Under this assumption, a Hotelling depletion model projects a 50-year period of increasing world oil use before the decline to exhaustion. This holds for both competitive and monopolistic regimes. Hotelling theory has been criticized by Adelman and others, in part because of the unreality of the theoretical projections. By combining the modified Hotelling theory with U.S. Geological Survey resource estimates, the numerical projections seem congruent with Adelman's near-term expectations. Finally, a backstop technology, such as renewable biomass ethanol, introduces a new dimension. Assuming a $2-per-gallon cost for the ethanol, the modified Hotelling theory projects accelerating use of conventional oil until depletion or substitution. Consequently, it does not seem unreasonable to believe that a finite, limited resource of conventional oil is consistent with growing use for several decades. A projected exhaustion in 100 years is consisten with increasing use for 50 years. |
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| Keywords: | world petroleum Depletion Resources Reserves Economics |
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