ABSTRACT
Over 40 years ago, in the midst of an oil embargo and rapidly rising energy prices, Nordhaus wrote the seminal piece The Allocation of Energy Resources (Nordhaus, 1973). While there are many disparities between the times in which Nordhaus posed the questions ‘how do markets allocate scarce resources?’ and ‘how should resources be efficiently allocated?’ and the current global context, he presented a number of issues and solutions that are still integral to energy and climate policy modeling. Written in 1973, following years of rapid economic expansion, slow growth in proven energy reserves and in the midst of the oil embargo, it was a time of increasing energy security concerns and the beginning of the notion of peak oil. The decade leading up to 2015, however, has been characterized by a global recession, rapid expansion of proven reserves, the weakening monopoly power of the Organization of Petroleum Exporting Countries (OPEC) and a growing recognition of the impact of fossil fuels on climate change. Moreover, energy has experienced unforeseen changes in both the geographic distribution of supply and demand as well as in the types of energy sources used. Despite these massive shifts in both supply and demand of energy, Nordhaus’s analyses and discussions remain current in a time of apparent energy abundance. Here, I focus on the lessons that can be extracted for climate policy from The Allocation of Energy Resources. While Nordhaus acknowledges the potential impacts of environmental constraints on the optimal allocation of energy resources, his analysis could not foresee the extent to which we are moving towards a carbon-constrained world. Long-run issues, such as the inclusion of backstop technologies, technology forecasting in general and the need for reliable, base-load energy production, although written in the context of energy security, are critical to developing coherent climate policies. I will examine each within the current global context and discuss the amazing foresight exhibited in The Allocation of Energy Resources.
