Black Swan Theory: Applications to energy market histories and technologies

Abstract This article provides an overview of several key shifts in energy supply and demand within the analytical framework of Taleb's famed Black Swan Theory (BST). The BST illustrates the low probability and low predictability of highly impactful events. Through a detailed review of extant academic literature and government reports, our paper focuses on black swans in the form of historical disruptions in energy security and technological innovation (the latter of which has been a key contributor to the recent explosion in the rate of development of unconventional fossil fuel resources). The piece concludes by emphasizing the need to adopt a considerably more conservative approach to energy forecasts. Policy recommendations are provided and include the need for skepticism in long-term projections, avoiding picking specific technology winners, and the need for enhanced valuation systems for environmental externalities.

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