Energy vs. the Environment

Abstract

Optimal development programs that explicitly account for the environmental impacts of extracting and consuming energy resources are analyzed. Following Lee and Orr (1975), we allow for the possibility of storing the resource above ground once it has been extracted. When environmental disruption results from resource extraction (as in the case of strip mining) or there are environmental costs associated with resource consumption (for example, the social costs of air pollution from fuel consumption), then the socially optimal rates of resource consumption and extraction depend on the severity of the environmental impact and on the prospects of storing the resource above ground.