A Numerical Analysis of Optimal Extraction and Trade of Oil Under Climate Policy

52 Pages Posted: 9 Oct 2010

See all articles by Emanuele Massetti

Emanuele Massetti

Georgia Institute of Technology; CESifo (Center for Economic Studies and Ifo Institute); CMCC - Euro Mediterranean Centre for Climate Change

Fabio Sferra

Fondazione Eni Enrico Mattei (FEEM)

Date Written: October 7, 2010

Abstract

We introduce endogenous investments for increasing conventional and non-conventional oil extraction capacity in the integrated assessment model WITCH. The international price of oil emerges as the Nash equilibrium of a non-cooperative game. When carbon emissions are not constrained, oil is used throughout the century, with unconventional oil taking over conventional oil from mid-century onward. When carbon emissions are constrained, oil consumption drops dramatically and the oil price is lower than in the BaU. Unconventional oil is not extracted. Regional imbalances in the distribution of stabilisation costs are magnified and the oil-exporting countries bear, on average, costs three times larger than in previous estimates.

Keywords: Climate Policy, Integrated Assessment, Oil Production, Oil Revenues, Oil Trade

JEL Classification: E17, F17, Q32, Q43, Q54

Suggested Citation

Massetti, Emanuele and Sferra, Fabio, A Numerical Analysis of Optimal Extraction and Trade of Oil Under Climate Policy (October 7, 2010). FEEM Working Paper No. 113.2010. Available at SSRN: https://ssrn.com/abstract=1688840 or http://dx.doi.org/10.2139/ssrn.1688840

Emanuele Massetti (Contact Author)

Georgia Institute of Technology ( email )

685 Cherry St.
Atlanta, GA 30332-0345
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

CMCC - Euro Mediterranean Centre for Climate Change

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Fabio Sferra

Fondazione Eni Enrico Mattei (FEEM) ( email )

Corso Magenta 63
20123 Milan
Italy

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