'Bad' Oil, 'Worse' Oil and Carbon Misallocation

Renaud Coulomb (1) , Fanny Henriet (2, 3) , Léo Reitzmann (2)

1 University of Melbourne
2 PSE - Paris School of Economics
3 PJSE - Paris Jourdan Sciences Economiques

Not all barrels of oil are created equal: their extraction varies in both private cost and carbon intensity. Using a rich micro-dataset on World oil fields and estimates of their carbon intensities and private extraction costs, this paper quantifies the additional emissions and costs from having extracted the 'wrong' deposits. We do so by comparing historic deposit-level supplies to counterfactuals that factor in pollution costs, while keeping annual global consumption unchanged. Between 1992 and 2018, carbon misallocation amounted to at least 10.02 GtCO₂ with an environmental cost evaluated at 2 trillion US dollars (2018 US dollars). This translates into a significant supply-side ecological debt for major producers of dirty oil. Looking towards the future, we estimate the gains from making deposit-level extraction socially-optimal, and document the very unequal distribution of the subsequent stranded oil reserves across countries.

Mots clés: Climate change; Oil; Carbon mitigation; Misallocation; Stranded assets

Domaines: Economies et finances

Renaud Coulomb, Fanny Henriet, Léo Reitzmann. 'Bad' Oil, 'Worse' Oil and Carbon Misallocation. 2021. ⟨halshs-03244647⟩