Abstract
In this paper, a “general equilibrium” (GE) model was developed for the allocation of exhaustible natural resources to examine the impact of different extraction scenarios on intergenerational economic welfare. A stylized GE model was applied to Israel’s natural gas (NG) market to evaluate economic indicators resulting from NG-extraction scenarios: a baseline scenario based on current policy in the NG sector, a conservative scenario based on a lower extraction rate, and an intensive scenario based on a faster extraction rate. The impact of various resource income-allocation strategies on intergenerational economic welfare was examined through the mechanism of a “sovereign wealth fund” (SWF). The results indicate that a higher NG-extraction rate combined with an appropriate investment strategy for NG profits is preferable from an economic perspective compared to a conservative rate. Investment of the government take from the NG market in research and development (R&D) of renewable electricity production can sustainably increase economic welfare.
Highlights
Since the discovery of 900 billion cubic meters (BCM) of natural gas (NG) offshore in Israel, the country has been working to develop its natural resources and to establish a policy for its sector
The excess amount of NG is destined for export and is distributed across the period 2020 to 2040
The model was extended by assuming that the government transfers a share of the tax income from NG directly to individuals, while the rest is invested in research and development (R&D) aimed at increasing renewable energy production
Summary
Since the discovery of 900 billion cubic meters (BCM) of natural gas (NG) offshore in Israel, the country has been working to develop its natural resources and to establish a policy for its sector. Israel is encouraging the transition to NG as a primary energy source, with its many advantages for the consumer, the economy, and the environment [1,2,3]. Gas exports are expected to enrich the government’s take and serve as a catalyst for improving Israel’s relations with its neighbors. On the other hand, maintaining a large reserve of the gas for domestic use may serve as a stimulus for the transition [5]
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