Fossil fuel reserves

An article in this week’s The Economist talks about reserves of fossil fuels and points out existing reserves exceed what can be burned if governments stick to plans for controlling climate change.  It seems many people in the business don’t expect governments to hold the line.

regelatwork_Oil_rigAnother factor which may limit the value of these deposits is the marginal cost of extracting them. As we extract the most easily accessible of resources the cost of extracting the remaining resources increases.  Perhaps we should calculate the costs in terms of energy.  How many units of energy does it take to extract 100 units of energy?  As this figure goes up it is going to reduce the energy available for other economic activity and is certain the have a negative influence on economic growth.

Those who have a religious-like faith in economics will say innovation and technology will save the day and we are bound to return to economic growth.  They could be right, or partially right, but it might be wise be a little skeptical.

The costs of extracting fossil fuel reserves should be considered in determining their value and evaluating their potential contribution to the economy

There are still lots of energy resources in the crust of this planet and the energy companies will probably identify more of them.  What isn’t so clear is that these resources will be available either because of government policy on climate change or the economics of extracting them.

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