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Implications for the floor price of oil of aggressive climate policies

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  • Danny Harvey, L.D.

Abstract

This paper identifies combinations of technical and behavioral measures that lead to progressively lower global demand for oil, culminating with a scenario that eliminates global oil demand by 2060 – in line with the broader requirement that anthropogenic CO2 emissions reach net zero by this date in order to have a 60% chance of staying below a global mean warming of 2°C above the pre-industrial level. The cumulative oil consumption from 2010 to the point when zero oil demand is achieved is compared with a recent oil supply-marginal cost curve. Assuming that oil is consumed in order of increasing extraction cost, the price of oil need not rise significantly above $25–35/bbl. Even substantially less-aggressive efforts to reduce CO2 emissions need not see oil rise substantially above $50/bbl. Under aggressive climate policies, the peak in oil demand occurs before the supply-constrained peak in oil production would occur. This would render expensive oil (>$50/bbl) permanently uneconomic. This includes oil from the Canadian tar sands (currently costing $65–95/bbl for new greenfield developments) and most shale oil (with current average oil-play costs of $48–65/bbl). This in turn implies that governments should not be promoting or permitting development of high cost oil, and also provides a clear warning to private and institutional investors.

Suggested Citation

  • Danny Harvey, L.D., 2017. "Implications for the floor price of oil of aggressive climate policies," Energy Policy, Elsevier, vol. 108(C), pages 143-153.
    • Handle: RePEc:eee:enepol:v:108:y:2017:i:c:p:143-153
    DOI: 10.1016/j.enpol.2017.05.045
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    References listed on IDEAS

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