Would hotelling kill the electric car

Abstract

Did oil companies collude to kill the electric car? If so, would this behaviour have been consistent with the optimal resource extraction model of Hotelling? In this paper, we show that the potential for endogenous technological change in alternative energy sources may greatly alter the behaviour of resource-owning firms. When technological progress in an alternative energy source can occur through learning-by-doing, resource owners face competing incentives to extract rents from the resource and to prevent expansion of the new technology. We show that in such a context, it is not the case that higher energy prices will induce alternative energy supply as resources are exhausted. Rather, we show that as we increase the learning potential in the substitute technology, lower equilibrium energy prices prevail and there may be increased emissions. We show that the effectiveness of emissions reduction policies may be altered by increased potential for technological change. Our results show that rather than harnessing the power of endogenous technological change to reduce emissions, carbon taxation may have less effect on emissions the greater is the potential for technological change. Hotelling may not have advocated killing the electric car specifically, but we show that optimal resource extraction does not imply behaviou