Abstract

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.

Co-authors : Renaud Coulomb, France d’Agrain et Fanny Henriet

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