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Abstract:
This paper applies an economic model of climate change that is based on endogenous substitution of energy resources to determine the effect of advances in renewable technology on aggregate and sectoral fossil fuel use and energy prices. It uses a Nordhaus type partial equilibrium model of the energy sector with four demand sectors - electricity, transportation, residential and industrial energy and three of the commercially most important exhaustible resources - oil, coal and natural gas. The findings suggest that among the major commercial fuels, oil and natural gas use are not very sensitive to changes in the cost of solar energy, while coal use is expected to reduce drastically as solar becomes more economical. These results suggest that research and development in renewable energy may play only a limited role in the short run, while creating the basis for a transition to a sustainable energy economy over the longer time horizon.

Abstract:
The theory of resource extraction has focused primarily on extraction when there is a single, homogeneous demand for the resource. In reality, however, we observe the simultaneous extraction of different resources such as oil, coal, and natural gas and multiple demands such as transportation, residential and commercial heating, and electricity generation. This paper develops a model with multiple resources and grades and multiple demands. The model is simulated with extraction cost, estimated 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 to solar energy. Global temperatures will rise by only about 1.5 2 degrees centigrade by the middle of the next century and then decline steadily 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.