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

Author

Listed:
  • 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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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Johannes Emmerling & Laurent Drouet & Lara Aleluia Reis & Michela Bevione & Loic Berger & Valentina Bosetti & Samuel Carrara & Enrica De Cian & Gauthier De Maere D'Aertrycke & Tom Longden & Maurizio M, 2016. "The WITCH 2016 Model - Documentation and Implementation of the Shared Socioeconomic Pathways," Working Papers 2016.42, Fondazione Eni Enrico Mattei.
    2. 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.
    3. 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.

    More about this item

    Keywords

    Climate Policy; Integrated Assessment; Oil Production; Oil Revenues; Oil Trade;

    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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