Implications for the floor price of oil of aggressive climate policies

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.