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Strategic Fossil Expansion and the Timing of the Energy Transition

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  • Fabien Prieur

    (CEE-M)

Abstract

We develop a dynamic model of exhaustible resource exploitation, with exploration, in which a regulator determines the end date of the fossil regime by trading off industry profits against climate damages. The weight assigned to damages reflects the fossil industry's pre-existing political influence. We compare Nash and Stackelberg interactions between the industry and the regulator. Under Nash behavior, regulation shortens the fossil regime and reduces cumulative emissions relative to the unregulated benchmark. Under Stackelberg leadership, however, a monopoly may increase exploration relative to the Nash outcome in order to delay the transition. Calibrating the model to global oil market data, we obtain that strategic leadership increases reserves by approximately 7% relative to the Nash outcome and delays the transition by about 2-3 years. The analysis thus provides an explanation for sustained upstream fossil fuel investment despite announced net-zero commitments.

Suggested Citation

  • Fabien Prieur, 2025. "Strategic Fossil Expansion and the Timing of the Energy Transition," Working Papers 2025.06, FAERE - French Association of Environmental and Resource Economists.
    • Handle: RePEc:fae:wpaper:2026.05
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    References listed on IDEAS

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    1. Gerlagh, Reyer & Liski, Matti, 2011. "Strategic resource dependence," Journal of Economic Theory, Elsevier, vol. 146(2), pages 699-727, March.
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    5. Long, Ngo Van & Prieur, Fabien & Tidball, Mabel & Puzon, Klarizze, 2017. "Piecewise closed-loop equilibria in differential games with regime switching strategies," Journal of Economic Dynamics and Control, Elsevier, vol. 76(C), pages 264-284.
    6. Dan Welsby & James Price & Steve Pye & Paul Ekins, 2021. "Unextractable fossil fuels in a 1.5 °C world," Nature, Nature, vol. 597(7875), pages 230-234, September.
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    Keywords

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    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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