How Big Oil Can Internalize Climate Change Externalities

Abstract

Climate change presents global externalities, leading private markets to underinvest in climate change solutions. The key insight of this paper is that some private market participants, namely large oil and gas (O&G) firms, are in a position to internalize important climate change externalities because they have substantial assets whose value critically depends on how climate change is addressed; in particular technologies that lower the marginal cost of carbon consumption will raise the value of O&G assets. We show that a more concentrated O&G industry can help private markets internalize the externalities of climate change and generate more green investment.