On Sun, Nov 11, 2001 at 09:28:15PM +0100, Hentrich, Steffen wrote: > Nearly all countries run support policies for renewable energies to reduce > worldwide carbon dioxid emissions. But from resource economics point of view > sellers of exhaustible ressources will change to a new, lower price path if > they know prices of renewable resources (back.stop-technology).
I'm with you so far. > Consequently > extraction and consumption of exhaustable resources accelerate. 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. Fred Foldvary wrote: > Generally, subsidies distort the allocation of resources. Pollution > imposes a social cost and if left uncompensated, is an implicit > subsidy. The optimal policy is therere to have polluters pay the > social cost (whether as a tax, negotiated fee, or tort restitution), > and leave the rest to the market, with no subsidies. 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.
