The World's Resources Aren't Running Out

Matt Ridley in the WSJ: How many times have you heard that we humans are "using up" the world's resources, "running out" of oil, "reaching the limits" of the atmosphere's capacity to cope with pollution or "approaching the carrying capacity" of the land's ability to support a greater population? The assumption behind all such statements is that there is a fixed amount of stuff—metals, oil, clean air, land—and that we risk exhausting it through our consumption...

What East Africa Can Learn From Past Booms

Foreign Affairs: East Africa is the global oil and gas industry’s hottest frontier. Barely a month goes by, it seems, without a major discovery in Mozambique, Tanzania, Uganda, or the eastern Democratic Republic of the Congo... Whatever system for distributing oil profits is established by then will define these states -- and the prospects of their people -- for generations to come.

Climate policy targets revisited

Tol on VoxEU: The IPCC’s Fifth Assessment Report estimates lower costs of climate change and higher costs of abatement than the Stern Review. However, current UN negotiations focus on stabilising atmospheric concentrations of greenhouse gases at even lower levels than recommended by Stern. This column argues that, given realistic estimates of the rate at which people discount the future, the UN’s target is probably too stringent. Moreover, since real-world climate policy is far from the ideal of a uniform carbon price, the costs of emission reduction are likely to be much higher than the IPCC’s estimates.

What have we learned about the resource curse?

Michael Ross: Since 2001, hundreds of academic studies have examined the “resource curse,” meaning the claim that natural resource wealth tends to perversely affect a country’s governance. There is now robust evidence that one type of mineral wealth, petroleum, has at least three harmful effects: it tends to make authoritarian regimes more durable, to increase certain types of corruption, and to help trigger violent conflict in low and middle income countries. Scholars have also made progress toward understanding the mechanisms that lead to these outcomes, and the conditions that make them more likely. This essay reviews the evidence behind these claims, the debates over their validity, and some of the unresolved puzzles for future research.

Limit-Pricing and the (Un) Effectiveness of the Carbon Tax

WP: All existing studies on the design of the optimal carbon tax assume that such instrument can generally curb current carbon emissions. Yet this paper shows that the effectiveness of a carbon tax is limited when limit pricing arises on the market for carbon resources. Demand for energy, for fossil fuels in particular, is notoriously very price inelastic, even in the long run. Facing such demand, an extractive cartel may increase its profits with higher prices, as long as those prices do not warrant the profitability of competing substitutes.
Thus the demand for fossil fuels features kinks, each corresponding to the entry price of one substitute. When the entry of a competing substitute may sufficiently deteriorate its market share, the cartel maximizes its profits by inducing the “limit price” that deters the substitute’s production. Limit-pricing equilibria of non-renewable resource markets sharply differ from the conventional Hotelling outcome; for instance, most resource taxes become neutral irrespective of their dynamics. For policies to effectively curb extraction quantities, they must rely on instruments applied on substitutes to fossil fuels.

Colonial Institutions, Commodity Booms, and the Diffusion of Elementary Education in Brazil

NBER WP: We explain how the decentralization of fiscal responsibility among Brazilian states between 1889 and 1930 promoted a unequal expansion in public schooling. We document how the variation in state export tax revenues, product of commodity booms, explains increases in expenditures on education, literacy, and schools per children. Yet we also find that such improvements did not take place in states that either had more slaves before abolition or cultivated cotton during colonial times. Beyond path-dependence, ours story emphasizes the interaction between colonial institutions and subsequent fiscal changes to explain radical changes in the ranking of states which persists until today.

Inferring Fossil-Fuel Subsidies from Patterns in Emission Intensities

OxCarre WP: I develop a unique database of international fossil-fuel subsidies by examining country specific
patterns in carbon emission-to-GDP ratios, known as emission-intensities. For most but not all countries, intensities tend to be hump-shaped with income. I construct a model of structural-transformation that generates this hump-shaped intensity and then show that deviations from this pattern must be driven by distortions to sectoral-productivity and/or fossil-fuel prices. Finally, I use the calibrated model to measure these distortions for 170 countries for 1980-2010. This methodology reveals that fossil-fuel price-distortions are large, increasing and often hidden. Furthermore, they are major contributors to higher carbon emissions and lower GDP.