On the Optimal Intertemporal Allocation of Energy with a View to Achieve Long-term Economic and Environmental Sustainability

Energy and environmental issues are crucially interrelated. There are two concurrent problems which may determine the future of the human society; depletion of the resources such as oil, and environmental damages associated with the resource use. Resources once utilized are ultimately transformed to differerent forms of wastes whereas some of them are accumulated in air and water, causing persistent damages to the global environment. A typical example is the possible climatic change due mainly to CO2 from fossil fuels. This raises a fundamental question about the long-term management of exhaustible resources and the wastes generated by their use. From a planner's standpoint, this is an intertemporal optimization excersize that takes into account both the resource and environmental constraints. This paper presents a general model suitable for this arguement. The utilitarian optimum theory developed by Dasgupta and Heal is generalized by introducing the damage function of the waste accumulated in the environment. Numerical analysis is made to examine the typical solution for the Cobb-Douglas production function. Policy implication of the optimal development paths is discussed based on this model calculation. KEY WORDS; optimal development, global environment, environmental economics, non-renewable resources, environmental risks