IDEAS home Printed from https://ideas.repec.org/p/tin/wpaper/20260030.html

When OPEC Leads and the Fringe Follows: A Climate Story

Author

Listed:
  • Hassan Benchekroun

    (McGill University)

  • Simon Elgersma

    (Rijksuniversiteit Groningen)

  • Gerard van der Meijden

    (Vrije Universiteit Amsterdam)

  • Cees Withagen

    (Vrije Universiteit Amsterdam)

Abstract

We study how market power, leadership, and commitment affect oil extraction and climate outcomes in a cartel-fringe model with renewables and a backstop technology. Comparing competitive, Nash-Cournot, open-loop, and feedback von Stackelberg equilibria, we show that market power and leadership can either increase or reduce climate damages, depending on commitment, cost and emission factor heterogeneity, and relative resource stocks. In a benchmark with a social cost of carbon of 250 USD/tC, market power without leadership lowers climate damages by 3.9 trillion USD relative to perfect competition. With leadership, these gains fall to 3.1 trillion USD when the leader can commit and to 2.6 trillion USD without commitment. Small changes in resource stocks, cost parameters, or climate policy can trigger regime shifts with discontinuous welfare and climate effects. Carbon taxes and backstop subsidies can remove sequencing distortions but may weaken the conservation effect of market power. When the cartel cannot commit, the second-best carbon tax lies well below the Pigouvian level yet often delivers near-first-best welfare. Finally, we show that market power and leadership may reduce cartel profits.

Suggested Citation

  • Hassan Benchekroun & Simon Elgersma & Gerard van der Meijden & Cees Withagen, 2026. "When OPEC Leads and the Fringe Follows: A Climate Story," Tinbergen Institute Discussion Papers 26-030/VIII, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20260030
    as

    Download full text from publisher

    File URL: https://papers.tinbergen.nl/26030.pdf
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tin:wpaper:20260030. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tinbergen Office +31 (0)10-4088900 (email available below). General contact details of provider: https://edirc.repec.org/data/tinbenl.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.