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No hope for Hotelling’s Rule
21/5/2025
8 min read
Feature
The longest-standing economic assumption about the value of fossil fuels faces imminent demise because of the steady and inexorable rise of renewables. Selwyn Parker explains why time is running out for the historic explanation of the high price of oil.
Named Hotelling’s Rule (or Law) after American professor Harold Hotelling, the theory essentially argues that the market price of non-renewable materials such as oil, gas and coal must rise over time in real terms mainly because of their scarcity. For students of the long-term hegemony of fossil fuel-based energy, it’s all in the mathematician’s 1931 book The Economics of Exhaustible Resources that has long been compulsory reading for the oil and gas industry.
Indeed, the Rule is still debated in universities. With all its acknowledged flaws mainly concerning how applicable the theory is in real life, it has dominated the thinking of the boardrooms of Big Oil for nearly a century. Until now, that is.
As a thought-provoking analysis by the Oxford Institute of Energy Studies (OIES) argues, the near-zero cost of energy derived from sun and wind is rapidly rewriting the entire economic basis of the fossil fuel industry, with highly disruptive implications.