OPEC, Shale Oil, and Global Warming - On the Importance of the Order of Extraction

Arbeitspapier

We show that OPEC’s market power contributes to global warming by enabling producers of relatively expensive and dirty oil to start producing before OPEC reserves are depleted. We fully characterize the equilibrium of a cartel-fringe model and use a calibration to examine the importance of this extraction sequence effect. While welfare under the cartel-fringe equilibrium can be significantly lower than under a first-best outcome, almost all of this welfare loss is due to the sequence effect. Moreover, the recent boom in shale oil reserves may reduce social welfare and renewables subsidies can increase the carbon content of current extraction.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 6746

Classification and Topics

• Classification: Wirtschaft ; Nonrenewable Resources and Conservation: Demand and Supply; Prices ; Alternative Energy Sources ; Climate; Natural Disasters and Their Management; Global Warming ; Environmental Economics: Government Policy
• Subject: cartel-fringe ; climate policy ; non-renewable resource ; Herfindahl rule ; limit pricing

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Benchekroun, Hassan ; van der Meijden, Gerard C. ; Withagen, Cees A.
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/173022
• Last update: 10.03.2025, 11:42 AM CET