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

Author

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  • Emanuele Massetti

    (Fondazione Eni Enrico Mattei, Euro-Mediterranean Center for Climate Change)

  • Fabio Sferra

    (Fondazione Eni Enrico Mattei)

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.

Suggested Citation

  • Emanuele Massetti & Fabio Sferra, 2010. "A Numerical Analysis of Optimal Extraction and Trade of Oil under Climate Policy," Working Papers 2010.113, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2010.113
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    Cited by:

    1. Massetti, Emanuele & Ricci, Elena Claire, 2013. "An assessment of the optimal timing and size of investments in concentrated solar power," Energy Economics, Elsevier, vol. 38(C), pages 186-203.
    2. Emanuele Massetti & Massimo Tavoni, 2011. "The Cost Of Climate Change Mitigation Policy In Eastern Europe And Former Soviet Union," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., vol. 2(04), pages 341-370.
    3. Sferra, Fabio & Tavoni, Massimo, 2013. "Endogenous Participation in a Partial Climate Agreement with Open Entry: A Numerical Assessment," Climate Change and Sustainable Development 156486, Fondazione Eni Enrico Mattei (FEEM).
    4. Carraro, Carlo & Favero, Alice & Massetti, Emanuele, 2012. "“Investments and public finance in a green, low carbon, economy”," Energy Economics, Elsevier, vol. 34(S1), pages 15-28.
    5. Alice Favero & Robert Mendelsohn, 2013. "Evaluating the Global Role of Woody Biomass as a Mitigation Strategy," Working Papers 2013.37, Fondazione Eni Enrico Mattei.
    6. Favero, Alice & Massetti, Emanuele, 2014. "Trade of woody biomass for electricity generation under climate mitigation policy," Resource and Energy Economics, Elsevier, vol. 36(1), pages 166-190.
    7. Sferra, Fabio & Krapp, Mario & Roming, Niklas & Schaeffer, Michiel & Malik, Aman & Hare, Bill & Brecha, Robert, 2019. "Towards optimal 1.5° and 2 °C emission pathways for individual countries: A Finland case study," Energy Policy, Elsevier, vol. 133(C).
    8. Emmerling, Johannes & Drouet, Laurent Drouet & Reis, Lara Aleluia & Bevione, Michela & Berger, Loic & Bosetti, Valentina & Carrara, Samuel & De Cian, Enrica & De Maere D'Aertrycke, Gauthier & Longden,, 2016. "The WITCH 2016 Model - Documentation and Implementation of the Shared Socioeconomic Pathways," MITP: Mitigation, Innovation and Transformation Pathways 240748, Fondazione Eni Enrico Mattei (FEEM).

    More about this item

    Keywords

    Climate Policy; Integrated Assessment; Oil Production; Oil Revenues; Oil Trade;
    All these keywords.

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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