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Quantifying uncertainties influencing the long-term impacts of oil prices on energy markets and carbon emissions

Author

Listed:
  • David L. McCollum

    (International Institute for Applied Systems Analysis (IIASA)
    University of Tennessee)

  • Jessica Jewell

    (International Institute for Applied Systems Analysis (IIASA))

  • Volker Krey

    (International Institute for Applied Systems Analysis (IIASA))

  • Morgan Bazilian

    (The World Bank)

  • Marianne Fay

    (The World Bank)

  • Keywan Riahi

    (International Institute for Applied Systems Analysis (IIASA)
    Graz University of Technology)

Abstract

Oil prices have fluctuated remarkably in recent years. Previous studies have analysed the impacts of future oil prices on the energy system and greenhouse gas emissions, but none have quantitatively assessed how the broader, energy-system-wide impacts of diverging oil price futures depend on a suite of critical uncertainties. Here we use the MESSAGE integrated assessment model to study several factors potentially influencing this interaction, thereby shedding light on which future unknowns hold the most importance. We find that sustained low or high oil prices could have a major impact on the global energy system over the next several decades; and depending on how the fuel substitution dynamics play out, the carbon dioxide consequences could be significant (for example, between 5 and 20% of the budget for staying below the internationally agreed 2 ∘C target). Whether or not oil and gas prices decouple going forward is found to be the biggest uncertainty.

Suggested Citation

  • David L. McCollum & Jessica Jewell & Volker Krey & Morgan Bazilian & Marianne Fay & Keywan Riahi, 2016. "Quantifying uncertainties influencing the long-term impacts of oil prices on energy markets and carbon emissions," Nature Energy, Nature, vol. 1(7), pages 1-8, July.
    • Handle: RePEc:nat:natene:v:1:y:2016:i:7:d:10.1038_nenergy.2016.77
    DOI: 10.1038/nenergy.2016.77
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    Cited by:

    1. Mahdi Salehi & Seyed Hamed Fahimifard & Grzegorz Zimon & Andrzej Bujak & Adam Sadowski, 2022. "The Effect of CO 2 Gas Emissions on the Market Value, Price and Shares Returns," Energies, MDPI, vol. 15(23), pages 1-17, December.
    2. Katrakilidis Constantinos & Zafeiriou Eleni & Sariannidis Nikolaos & Dimitris Bantis, 2019. "Greenhouse gas emissions–crude oil prices: an empirical investigation in a nonlinear framework," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 21(6), pages 2835-2856, December.
    3. Bilgili, Faik & Mugaloglu, Erhan & Koçak, Emrah, 2018. "The impact of oil prices on CO2 emissions in China: A Wavelet coherence approach," MPRA Paper 90170, University Library of Munich, Germany.
    4. Middleton, Richard S. & Gupta, Rajan & Hyman, Jeffrey D. & Viswanathan, Hari S., 2017. "The shale gas revolution: Barriers, sustainability, and emerging opportunities," Applied Energy, Elsevier, vol. 199(C), pages 88-95.
    5. Shu Mo & Ting Wang, 2022. "Synergistic Effects of International Oil Price Fluctuations and Carbon Tax Policies on the Energy–Economy–Environment System in China," IJERPH, MDPI, vol. 19(21), pages 1-17, October.
    6. Millischer, Laurent & Evdokimova, Tatiana & Fernandez, Oscar, 2023. "The carrot and the stock: In search of stock-market incentives for decarbonization," Energy Economics, Elsevier, vol. 120(C).
    7. Hongtao Ren & Wenji Zhou & Hangzhou Wang & Bo Zhang & Tieju Ma, 2022. "An energy system optimization model accounting for the interrelations of multiple stochastic energy prices," Annals of Operations Research, Springer, vol. 316(1), pages 555-579, September.
    8. Yosuke Arino & Fuminori Sano & Keigo Akimoto, 2017. "Future Fossil Fuel Price Impacts on NDC Achievement; Estimation of GHG Emissions and Mitigation Costs," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 5(4), pages 16-35.
    9. Li, Wei & Sun, Wen & Li, Guomin & Jin, Baihui & Wu, Wen & Cui, Pengfei & Zhao, Guohao, 2018. "Transmission mechanism between energy prices and carbon emissions using geographically weighted regression," Energy Policy, Elsevier, vol. 115(C), pages 434-442.
    10. Chia-Lin Chang & Jukka Ilomäki & Hannu Laurila & Michael McAleer, 2020. "Causality between CO2 Emissions and Stock Markets," Energies, MDPI, vol. 13(11), pages 1-14, June.
    11. Panos, Evangelos & Kober, Tom & Wokaun, Alexander, 2019. "Long term evaluation of electric storage technologies vs alternative flexibility options for the Swiss energy system," Applied Energy, Elsevier, vol. 252(C), pages 1-1.
    12. Peter Lopion & Peter Markewitz & Detlef Stolten & Martin Robinius, 2019. "Cost Uncertainties in Energy System Optimization Models: A Quadratic Programming Approach for Avoiding Penny Switching Effects," Energies, MDPI, vol. 12(20), pages 1-12, October.
    13. Wang, Keying & Wu, Meng & Sun, Yongping & Shi, Xunpeng & Sun, Ao & Zhang, Ping, 2019. "Resource abundance, industrial structure, and regional carbon emissions efficiency in China," Resources Policy, Elsevier, vol. 60(C), pages 203-214.
    14. Taha Zaghdoudi, 2018. "Asymmetric responses of CO2 emissions to oil price shocks in China: a non-linear ARDL approach," Economics Bulletin, AccessEcon, vol. 38(3), pages 1485-1493.
    15. Li, Houjian & Huang, Xinya & Guo, Lili, 2023. "Extreme risk dependence and time-varying spillover between crude oil, commodity market and inflation in China," Energy Economics, Elsevier, vol. 127(PB).
    16. Ritchie, Justin & Dowlatabadi, Hadi, 2017. "Why do climate change scenarios return to coal?," Energy, Elsevier, vol. 140(P1), pages 1276-1291.

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