The effects of three categories of technological innovation on the use and price of nonrenewable resources

Abstract

This paper presents trends in nonrenewable resource use for the past 100 years and a simulation model to explain the effect of different types of technological innovation on those trends. The extraction and proven reserves for many nonrenewable resources have risen steadily throughout this period, while the long-term average price has been constant. Existing formal models of nonrenewable resource use do not explain this long stability. This paper demonstrates that three types of technological advance can explain the price trend, namely, innovation in exploration, in extraction, and in use efficiency. The model can also be used to explore optimal distribution of different types of innovation. Optimization shows there are important conflicts between public and private welfare concerning the direction of research funds. For public welfare, the concentration of research would be in greater use efficiency, whereas for the private welfare of the extraction industry it would be in extraction innovation.