The economics of exploiting gas hydrates

Energy Economics, 42 / 2014 / 355-364

Weinvestigate the optimal exploitation ofmethane hydrates, a recent discovery ofmethane resources under the sea floor, mainly located along the continental margins. Combustion of methane (releasing CO2) and leakage through blow-outs (releasing CH4) contribute to the accumulation of greenhouse gases. A second externality arises since removing solid gas hydrates from the sea bottom destabilizes continental margins and thus increases the risk of marine earthquakes.Weshowthat in such amodel three regimes can occur: i) resource exploitationwill be stopped in finite time, and some of the resourcewill stay in situ, ii) the resource will be used up completely in finite time, and iii) the resource will be exhausted in infinite time. We also show how to internalize the externalities by policy instruments.

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Publication Date
JEL Classification
Q32, Q54
DOI
10.1016/j.eneco.2013.11.001