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 | Dauphine, A409 |
The Global Welfare Implications of Oil Exploration joint with Renaud Coulomb et France Pradier d'Agrain
Despite the fact that greenhouse gas emissions from proven oil reserves already exceed the industry’s carbon budgets consistent with limiting global warming to 1.5°C or even 2°C, oil exploration continues. This paper quantifies the global welfare and environ- mental impacts of further exploration, using a global dataset of 14,000 oil assets and a model that accounts for heterogeneity in private extraction costs, capacity constraints, life-cycle carbon intensities of oil barrels, along with exploration dynamics and basin- specific estimates of yet-to-find resources. Our findings support exploration restrictions as an effective second-best climate policy: (i) without carbon tax, exploration would reduce welfare by about $12.5 trillion through disproportionate social costs of oil pro- duction and use (assuming a social carbon cost of $200/tCO2eq), and (ii) even with a well-priced tax, the welfare gains of exploration would be modest, evaluated at $0.3 trillion.
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