I like more the idea of reduce the attack for that element and apply the new attack elemental crit, it is really hard to apply?, I see it easy and realistic.
But there are 2 problems:
1) direct crits (as wall of fire): if we reduce the critical roll, then resistance is too powerfull, because you directly remove the deadly results, but as there is no RR then elemental resistance (ER) is useless. Reducing the critical every X resistance is a good option but the problem is the A critical (or B if reduce 2 severity, etc.). In the other hand, a GM can decide that those criticals can't kill directly if you have enough ER (for example an A crit), that it can be perfectly credible. So reducing the crit severity IMO is the best option.
2) area attacks: these attacks don't have skill bonus (they use simply skill rank as bonus), so applying the complete ER can make these attacks useless. A good option could be apply half ER bonus, so if you have +20 DB apply +10 DB against area/breath attacks.
- To finish, I should say that IMO magical defense should be more powerfull than natural defenses, so apply this type of limits only to race resistance, but for magical resistance apply them completely, for example, in the case of area spells, apply half bonus for racial resistance and full bonus to magical resistance.
If we look at the books, we se that defensive spells gives few resistance (powerfull spells give maximum of +20 DB/RR) whiloe we see races that have +30 or more for some elements (as dwarves against fire), or adquiring talents, additionally spells are temporal while natural (racial or talent) resistance is permanent.
If I remember well, this is the same case than armors (see DBs table), against area attacks armor DB is halved, but if magical armor you use full DB.