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Should the global community welcome new oil discoveries?

Author

Listed:
  • Sylwia Bialek

    (New York University
    German Council of Economic Experts)

  • Alfons J. Weichenrieder

    (Goethe University Frankfurt
    Vienna University of Economics and Business
    CESifo)

Abstract

Oil discoveries affect global well-being through multiple channels. Focusing on the change in pollution, consumption and extraction cost paths, we build a multi-period model with (endogenous) oil phase out that allows us to assess whether oil windfalls may be welfare-enhancing. The assessment depends on the quality of the discovered resource, expressed as the extraction cost. Our findings suggest that even when faced with high environmental externalities and no internalization mechanism for them, new oil finds can be conducive to welfare. However, there may be no simple threshold below which the discovery is beneficial, but rather multiple intervals into which the extraction costs may fall.

Suggested Citation

  • Sylwia Bialek & Alfons J. Weichenrieder, 2022. "Should the global community welcome new oil discoveries?," Journal of Economics, Springer, vol. 137(3), pages 255-278, December.
    • Handle: RePEc:kap:jeczfn:v:137:y:2022:i:3:d:10.1007_s00712-022-00796-6
    DOI: 10.1007/s00712-022-00796-6
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    References listed on IDEAS

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    More about this item

    Keywords

    Oil discovery; Windfall profit; Environmental cost; Herfindahl rule; Extraction cost; Endogenous phase-out;
    All these keywords.

    JEL classification:

    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources

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