Role of royalties in sustainable geothermal energy development

Experience with geothermal development for electricity production has shown that use is not sustainable if heat from the reservoir is extracted too rapidly. Examples of unsustainable development are given. Policy aimed at achieving sustainable development at the very least should encompass conditions governing access to reservoirs, the rate at which thermal energy is extracted, monitoring, and re-injection of fluids. An economic model illustrates the application of fiscal instruments to geothermal development for electricity generation. Ad valorem royalties are shown to encourage utilisation of the resource in a more sustainable manner. A variable ad valorem royalty, based on the ratio of the current and original temperature shows a significant change in investment planning, with slower depletion, compared to the application of a non-variable ad valorem royalty. (C) 2015 Elsevier Ltd. All rights reserved.