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Green Accounting for Black Gold

Abstract:
In the petroleum industry, valid green economic accounting magnitudes are influenced by natural and other constraints on production, by non-convexity of technology and by non-optimality of output. The paper undertakes an economic analysis of oil extraction that explicitly represents the conditions and constraints that influence the decisions of a firm. This microeconomic analysis diverges from conventional, �Hotelling� macroeconomic models of nonrenewable-resource extraction and has substantially different findings. Optimality conditions such as Hotelling�s rule or first-order conditions are not utilized in defining accounting statistics. Contrary to the findings of many studies, it is found that traditional (non-green) accounting practice for commercial natural resources such as petroleum sensibly balances the aims of economic accounting. Instead, adjustments to practice are most needed for non-commercial values such as pollution or amenities.

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Energy Specializations: Petroleum – Exploration and Production; Petroleum – Markets and Prices for Crude Oil and Products; Petroleum – Policy and Regulation; Energy Modeling – Energy Data, Modeling, and Policy Analysis

JEL Codes:
D24 - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
L13 - Oligopoly and Other Imperfect Markets
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination

Keywords: Hotelling's rule, production constraints, non-convexity, non-optimality, oil exploration, green accounting

DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No4-4


Published in Volume 30, Number 4 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.