How did you arrive at this conclusion? It seems to me that if you lower
the cost of renewable resources, that will result in less exhaustable
resources being extracted, since some of the exhaustable resources that
could previously be extracted profitably would now remain in the ground.
I think that this could only be if subsidies payed up to the exquilibrium
price of all exhaustable ressources. But this is not the case. Only a small
part of renewable energies gets subsidies and this not in all countries.
This implicates only a slow progress of back-stop-technologies and a
reduction of exquilibrium prices for exhaustible ressources. The theory of
exhaustible ressources predicts a lowering of marginal user costs and a
extraction path that cause a complete exploitation if marginal costs of
renewable will reached.
Clearly that's the ideal policy, but if it's not possible to have
polluters pay the social cost (which is sometimes the case), is it a good
idea to subsidize less-polluting alternatives? Since that can reduce
the total amount of pollution, I think the answer is yes, as long as the
cost of the subsidies is lower than the benefit of reduced pollution.
Indeed subsidies can be equivalent solution to the polluter pay principle.
This depends on what is the cheapest way to prevent pollution (Coase). But I
think, that this is not the point here. If you want to prevent pollution the
best way is to tax or subsidies pollution, not oil or clean technologies.
Steffen
