Fossil Fuel Production Under Liability for Climate Change

This article analyzes the consequences of imposing liability on fossil fuel producers for harm caused by their cumulative greenhouse gas emissions from production. Liability for greenhouse gas emissions from cumulative production will eventually cause a field’s net present value to become negative even though on a per period basis, the field’s value exceeds the harm caused by its greenhouse gas emissions. Relative to a system that simply imposes liability equal to actual harm caused by each period’s production, under cumulative liability, production is delayed too long. In a world oil market where price is set by a cartel such as OPEC+ at least some of whose members are not susceptible to legal liability, for any given price target set by the cartel, the imposition on fringe producers of market share based liability for cumulative emissions unambiguously increases the market share of the cartel with an ambiguous impact on total global production.