Burning petroleum or coal is much more like burning diamonds than wood, economically and geologically. And if you look at the history of how we got here, especially the law and economics, the scientific basis for those assumptions was tremendously flawed.
https://dge.carnegiescience.edu/DGE/Dukes/Dukes_ClimChange1....
https://en.m.wikipedia.org/wiki/Rule_of_Capture
It's a complicated story, I'm working on putting it together.
Assigning gas a $20,000,000/gallon value based on crude extrapolations of what biomass it would take to replace gas, without doing hardcore economic modelling on the price elasticity of demand, the availability of substitutes, and explaining the assumptions you've made to determine what's the right discount rate to use on the future value of the stored resource – and, indeed, of the value of the environment and humanity's future in general?
That's little better than pulling the numbers out of your ass. The world isn't linear enough to just do things like that.
There's a reason I'm suggesting order-of-magnitude ranges for pricing errors rather than specific dollar amounts to any level of precision, and I'm willing to suggest a 3-8 OOM range (1,000 to 100,000,000) range based on available data.
A nonrenewable resource, economically, is one whose market price fails to account for the time costs of natural formation, such that rates of consumption exceed rates of restoration.
The relevant number from Dukes' paper, by the way, isn't strictly the biomass required, but the accumulation period of that biomass: roughly 5 million years of ancient accumulation per present year of usage (as of 1997). Another source, Reinventing Fire (Amory Lovins et al) gives the value of 17 million times higher a usage than accumulation rate.
Either way, this represents an off-books financing either in the form of debt (as many represent it) or a draw-down of capital stock or savings (as I prefer to view it), which present economic theory fails to account for.
It needn't do this, and I've been exploring how and why the present circumstance and economic mythology (to use economist Thorstein Veblen's term) emerged.
Adam Smith defines costs as the total factors of input, which would include natural factors and their factors, including formation time. David Ricardo presumed land rents (from which natural resource rents theory emerged) were based on "the original and indestructible qualities of the soil", two false premises. Boehm-Bawerk, Marshall, and Menger discussed theories of cost far more comprehensive than the minimalistic and incomplete marginal theories now dominant (and causing numerous problems throughout microeconomics). The formative papers on natural resource and exhaustive resource pricing (Gray, 1914, Hotelling, 1931) fail to cite any geological references.
At the same time that this theory (or mythology) was forming and extractive fossil-fuel industries were forming, the understanding of geological scales and processes was itself undergoing a phenomenal revolution. As of Smith's time, understanding of the age of the Earth ranged from Ussher's ~6,000 years to ... "unknowably long" (Hutton), with estimates developing over the course of the 19th century of from hundreds of thousands to hundreds of millions of years, though Lord Kelvin and other estimates ranging in the 20-40 million year range, based on understandings of thermodynamics ... and an ignorance of radioactivity. It was in this period that the legal models of property over mineral resources were established, largely Rule of Capture, with significant jurisprudence in 1804 (Post v. Priestly), the 1880s (oil & gas, W. Va. and Penn.), and 1904 (Texas). That law saw modifications in the 1930s due to advances in geological structural but not temporal understanding, and still remains largely in effect today in Texas and elsewhere (Daintith, several publications).
Chasing value manages to confound the fact that cost, price, and value are in fact three separate properties, though related. I call into question the environmental economic practice of trying to assign "use value" to various environmental factors without also taking into account the creation costs, net of environmental factors of production. I'm still thinking through full implications of this: entropy increases, so there's a net loss throughout the system, but there are more and less sustainable rates of such loss.
I stand by my point that the problem is not, as @marcgcombi's (now flagged) comment states, that renewable resources are too expensive, but that nonrenewable resources have been fantastically under-priced by market forces. The good news in my critique, though, is that this may be a problem which can be addressed through market mechanisms: a full accounting of the formation and replacement costs of fossil-fuel resources would make the extraction of them at present rates economically and financially unsustainable. A retroactive application of debits to account for the squandered resources would turn coal-, oil- and gas-extracting firms and nations into the biggest financial catastrophes ever (though nonsustainable ag processes might be another similar case).
Getting back to the price-elasticity question: if your market price fails to account for true costs of production, you are nowhere near an equilibrium point. Computations of elasticities are then the equivalent of premature optimisation in software: you've first got to get the correct outputs and functioning.
More generally: we're aware of what the long-term stable equilibrium point of human activity was prior to mass consumption of nonrenewable fossil fuel resources. Net energy throughput per capita was about 1/100th of the present value (~1/1000th for the US), and total supported population roughly 1/16th present values. We found ourselves on an over-capacity lifeboat but with an immense supplies cache. We've mistaken that supplies cache with the capacity to sustain ourselves indefinitely, a story which I suspect will end poorly.
I'm quite aware that this is not orthodox economic thinking. (It is well within the mainstream of ecology, biology, and physics, however.) I'm also aware that it's rather better supported in economics, finance, and geology, as well as legal miscarriage, than very nearly all of what is orthodoxy.
As long as we're pretending to talk economics of any sort, orthodox or otherwise, the only cost that matters is the opportunity cost. All those millions of years replacing the oil in the ground? There's no opportunity cost to that. No one gave up any second-best alternative. That was just the ecosystem doing it's thing. And, it's a sunk cost, to boot. It is fact now. There is nothing to do about it.
So the only questions that matter here are what is the best possible alternative that we could possibly imagine for the future which we give up by extracting this gallon of gasoline and how should we compare that to 2017 dollars (how to discount the future, or even whether to do so).
If you think we can achieve output with same value as humanity currently regards 10 million bushels of corn by leaving just 1 gallon of gasoline's worth of petroleum in the ground, I'd like to hear why and how, because that's an extraordinary claim, and if they were actually real we could pay for a lot of alternative energy sources with these fantastical savings.
1. You are in an office, with an office-supply cabinet. Your costs of accessing new supplies are the time it takes you to walk to the cabinet and obtain them. At some point, those supplies must be re-ordered. What is the property accounting mechanism for those supplies?
2. You've come into an inheritance. It represents the accumulated earnings of several lifetimes of your benefactors. You are limited to withdrawing a maximum amount of money in a given visit, and each visit requires cross-town travel and cab fare. How do you account for the depletion of this fund? Do you include your own time costs? The cab fare? An accounting for the depletion of the fund itself? An accounting of the costs of restoring withdrawn funds?
How does this change if your own present earning potential is only a very small fraction of the current fund? If the fund represents, say, the equivalent if 5 million ancestors' lifetime earnings?
3. You and 63 others are in a lifeboat, floating adrift, a year from the nearest opportunity for rescue. There is food and water aboard the lifeboat, but only sufficient to keep a maximum of 16 alive for that period. How do you account for the usage and decide on allocation of those supplies?
I'm well aware of opportunity costs, and of sunk costs.
For the former, I'm fairly convinced that the opportunities are not fully enumerated in current accounting, and that the economic, financial, and legal doctrines as I've described briefly above are based on world-models strongly at odds with the actual world-state.
Of sunk costs, I'm no longer convinced that the sunk-cost fallacy is entirely valid. Again, not an original idea -- spend some time looking up "sunk cost fallacy fallacy". Gwern's essay on the topic is among the more interesting: http://lesswrong.com/lw/9si/is_sunk_cost_fallacy_a_fallacy/ http://www.gwern.net/Sunk%20cost
There are a number of dimensions of this, and I'm not convinced I've explored all of them, but in the specific case of fossil fuels, a particular problem is that there is no accounting for the depletion of the resource itself. At a time when present rates of consumption accounted for a millionth or less the total resource (NB: not "proved reserves" or "economic reserves"), as was documented by several authors of coal in the 1880s, that might have been excusable. Funny thing is that exponential rates of increase have ... increased, and even in the case of the most abundant fossil resource (coal), that millionfold supply-to-present-consumption relationship has fallen to a factor of perhaps 100x. In other mineral resources we're looking at far smaller numbers (I've referenced a few such lists at https://reddit.com/r/dredmorbius).
The problem with economic accounting such as you suggest -- best possible alternatives, future value, current prices, real currency -- is that it seems to me the accounting fails on multiple premises. Hotelling, incidentally, proposes just this in his 1931 paper, and it's one of several places in which I feel his analysis fails.
H.L. Gray, "Rent Under the Assumption of Exhaustibility" (1914) describes Ricardo's conclusions:
1. Price should increase over time.
2. Spot price is set by the highest cost-of-extraction mine.
3. Owners with lower costs earn a differential rent.
The 2nd and 3rd conclusions match observed experiences in oil especially -- a resource with exceptionally good pricing history, dating to 1859 (see, e.g., BP's annual statistical review), and a global market due to its exceptionally low worldwide transport costs of ~1% of product value.
The first does not.
What oil shows instead is a tremendous price volatility, up until roughly 1945, followed by a long-term declining trend, through 1973, followed by another period of exceedingly high volatility. Something appears wrong with the model.
For insights to this I strongly recommend chapter 13 of Daniel Yergin's The Prize, and the establishment of production quotas in the US (with global significance for the reasons above) under the Texas Railroad Commission and US Department of Interior, in 1931. There's both the tremendous price volatility and low prices (to $0.02/bbl nominal) prior to the arrangement, and stability since. Explaining the gap through 1945, I'll suggest the Great Depression and WWII, but once those hurdles were cleared, the period 1945 - 1973 was one of unparalleled economic stability and growth most especially within the United States.
I also see the cost, price, and value dynamics as in play, and in particular, failures under specific conditions of price to reflect costs (backwards-S supply curves being a principle component) as throwing a wrench into the works. The assumption that market prices for extractive goods are correctly obtained strikes me as false.
Which gets to the point that there are in fact several distinct conditions in which prices are assessed. I'm still thinking this through, so I'm not settled on a final list, though Smith offers a guide:
1. The price of commodities: goods produced anually on a renewable basis.
2. The price (wages) of labour
3. The price of stocks: an accumulation of goods, depleted over time
4. Rents: a price for time-based right-of-access which otherwise does not deplete a resource.
What Smith points out is that the long-term price must cover the long-term costs of a good or resource, and that whilst market prices may not reflect this, often for extended periods of time, that such is ultimately not a sustainable circumstance.
I've suggested that the proper relationship, in which costs are seen as "total factors of production", is C <= P < V
That is, your costs must be less than (and at equilibrium, equal to) the market price, which is strictly less than value. In the short term, this relation can fail, though that reflects a problematic circumstance. Again, 19th c. economists discussed such things, 20th and 21st c. not so much.
I'm not particularly convinced of the first inequality, as entropy increases, hence the cost would be less than the price, strictly. But within an open system, we're considering alternative flows, which may offer a better model.
Another analogue I like to refer to is that of whalefall, and the benthic communities which spring up around the episodic but bounded resource bounties which result. Over the course of about a century, a successive set of scavengers extract energy and nutrients from the whale's flesh, blubber, and ultimately bone. But the one thing those communities do not do is sustain themselves. When the bounty, the accumulated savings, is spent down, they expire, and it's but a few prospecting individuals who manage to found the next such community.
Well put. This is why I get excited about SpaceX news. It, and other commercial space ventures, seem like the very beginnings of a formation of a plan to shuttle people to the other lifeboats we see around us. It doesn't actually solve the problem, but often it's easier to make better decisions the second time around...
> I'm quite aware that this is not orthodox economic thinking.
I wouldn't say it's entirely unorthodox economic thinking, just unorthodox practice. I would hazard most economists understand this, and likely agree to a greater or lesser degree, but sit somewhere around "believe it will self correct", "don't know how to change it" and "don't think it's a problem" on what to do about it depending on ideology.
That said, I'll maintain that outer space is, net net, a sink, not a source, and that there is no Earth2 within reach. At best we've a handful of solid bodies, most of which are moons of Jupiter and Saturn, and possibly some interesting mineral resources.
The fundamental problem we've got to tackle is one of understanding the concept of, assessing the magnituded of, and living within, limits. I don't see much sign of that having happened.
As for the economics, there are a number of places at which I depart sharply with orthodoxy, and I'm trying to assess just what those are. There are a few economists from whom I find some agreement and inspiration, though that's only a few, and going through and assessing theory is time consuming.
Recklessly implausible.
The "market price" is off by roughly seven orders of magnitude, for petroleum.