ABSTRACT
Nordhaus’ (1973) prescient analysis is seminal – and has been cited hundreds of times – in part because of the insights it provides about the energy system and also because it serves as a model model. The approach, modeling a complex system over several decades, identified issues that remain contentious even today, including time preferences, assumptions about future technology, and interpreting the reliability of the results. The historical context is itself important to understanding the approach. Nordhaus wrote it in the wake of a set of studies warning of impending collapse due to population growth (Ehrlich & Holdren, 1971) and resource depletion (Meadows, Meadows, Randers, & Behrens, 1972). Concerns about the environment had been building for several years and the US Congress passed the National Environmental Policy Act in 1969 and the Clean Air Extension Act in 1970. US oil production peaked that same year and just before publication of Nordhaus’ article, a group of Arab and North African countries shocked the world by halting oil sales to the US – although clearly Nordhaus performed much of his analysis prior to that event. President Nixon was about to make energy a focus of his 1974 State of the Union speech. A sense of crisis was pervasive. However, ‘Allocation’ is a precursor of Nordhaus’ approach in later work in that the analysis includes both a long-term and a near-term perspective. It encourages looking beyond the crisis toward the longer term, while acknowledging that optimal decisions will value near impacts substantially more than long-term ones.
