Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2017-11-03
Number: 17-104/VIII
Author-Name: Hassan Benchekroun
Author-Email: hassan.benchekroun@mcgill.ca
Author-Workplace-Name: McGill University, CIREQ
Author-Name: Gerard (G.C.) van der Meijden
Author-Email: g.c.vander.meijden@vu.nl
Author-Workplace-Name: Vrije Universiteit Amsterdam; Tinbergen Institute, The Netherlands
Author-Name: Cees Withagen
Author-Email: c.a.a.m.withagen@vu.nl
Author-Workplace-Name: IPAG Business School (Paris), Vrije Universiteit Amsterdam, Tinbergen Institute
Title: OPEC, Shale Oil, and Global Warming - On the importance of the order of extraction
Abstract: We show that OPEC's market power contributes to global warming by enabling producers of relatively expensive and dirty oil to start producing before OPEC reserves are depleted. We fully characterize the equilibrium of a cartel-fringe model and use a calibration to examine the importance of this extraction sequence effect. While welfare under the cartel-fringe equilibrium can be significantly lower than under a first-best outcome, almost all of this welfare loss is due to the sequence effect. Moreover, the recent boom in shale oil reserves may reduce social welfare and renewables subsidies can increase the carbon content of current extraction.
Classification-JEL: Q31, Q42, Q54, Q58
Keywords: cartel-fringe, climate policy, non-renewable resource, Herfindahl rule, limit pricing
File-Url: https://papers.tinbergen.nl/17104.pdf
File-Format: application/pdf
File-Size: 1021949 bytes
Handle: RePEc:tin:wpaper:20170104