Extractive economies have a clear path to sustainability even under pessimistic assumptions—their alt induces collapse while there’s still time to act

(Andrei V., “Extraction path and sustainability,” Resources Policy 76, Science Direct)

As is known, the prescriptions of IAM, the main tool of climate economy modeling, highly depend on uncertain key parameters such as discount rate or damage functions. As Stern and Stiglitz (2021) put it, ‘‘In the presence of these extreme uncertainties .. .a full analysis is impossible’’. IPCC conclusions induce an additional approach for rough estimates of mitigating policies. The conclusions imply that the perceived quality of life34 for majority of Earth’s population, including the least advantageous, will decline with further growth of global temperature. Since the approach to justice evaluation depends on context (Konow, 2003), the climate context calls for the maximin to mitigate the worst damages while eliminating the most controversial parameter – discount rate – and, again, bringing closer the problem of climate change to the analysis of the current paper.

For a decreasing welfare indicator, the maximin, as illustrated in Sections 4.1 and 5.3, requires to start with the most aggressive ‘‘politically feasible’’ actions, which is consistent with climate mitigating investments that are less than 2% GDP annually (Stern and Stiglitz, 2021). This claim does not require full optimization since it follows from a simple logical exercise similar to the one in Solow (1974b).

Under uncertainties, the IAM prescriptions and the paths in the form of (4) can be used as first order approximations with further corrections after updates in knowledge (Section 5.2) possibly using feedback control: if emissions exceed the limits advised by IPCC or the extraction of a mineral exceeds an estimate given by (4), the correspondent taxes/subsidies should be incrementally increased.

7. Conclusions

Sustainability requires coordination of market activities with the ability of economy to satisfy the current and future consumption needs using limited stocks of nonrenewables. This ability depends on the consistency of intertemporal distribution of a stock with the possibility to gradually replace the resource with other factors. This paper assumes the weakest form of this possibility (unitary long-run elasticity of resource–capital substitution) that still gives a chance for sustainability. More pessimistic assumptions can lead to collapse-inducing policies such as complete decapitalization in finite time while sustainability may be possible.