Closing Wells; Fossil Exploration and Abandonment in the Energy Transition

45 Pages Posted: 13 Aug 2020

Date Written: 2020

Abstract

Despite ambitious climate goals and already substantial stocks of developed fossil energy reserves, development of new fossil energy reserves continues to be high. This raises concerns, as it reinforces the fossil industry's opportunities and incentives to continue extraction, and may necessitate abandonment of developed fossil reserves to meet climate targets. In this paper, we analyze the energy transition, considering fossil exploration and development activities. We provide conditions for when the fossil industry will abandon reserves, and establish that continued exploration of fossil resources is not incompatible with abandoning developed reserves. The first-best implementation of a carbon budget always involves reserve abandonment, and thus exploration that pushes developed reserves in excess of the remaining budget. A quantitative assessment reveals that a volume equal to 9-19% of current oil and gas reserves are optimally abandoned, and that, even under a 1.5oC warming target, positive exploration of new reserves is justified for another decade.

Keywords: carbon budget, energy transition, fossil exploration, non-renewable resources, renewable energy, stranded assets

JEL Classification: Q210, Q310, Q350, Q540, Q580

Suggested Citation

den Bijgaart, Inge van and Rodriguez, Mauricio, Closing Wells; Fossil Exploration and Abandonment in the Energy Transition (2020). CESifo Working Paper No. 8453, Available at SSRN: https://ssrn.com/abstract=3671237 or http://dx.doi.org/10.2139/ssrn.3671237

Inge van Den Bijgaart (Contact Author)

University of Gothenburg ( email )

Viktoriagatan 30
Göteborg, 405 30
Sweden

Mauricio Rodriguez

Universidad del Rosario ( email )

Calle 12 No. 6-25
Bogota, DC
Colombia

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