The Welfare Economics of Oil Exploration

Renaud Coulomb, France d’Agrain and Fanny Henriet ()
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Renaud Coulomb: Mines Paris–PSL University, CEDP, France
France d’Agrain: Mines Paris–PSL University, CEDP, France
Fanny Henriet: Aix-Marseille Univ., CNRS, AMSE, Marseille, France, https://www.amse-aixmarseille.fr/en/members/henrietf

No 2539, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: Despite growing calls to phase it out, oil exploration persists, often justified by the natural decline of existing fields and potential efficiency gains from discoveries. This paper quantifies the global welfare and environmental impacts of restricting oil exploration. We develop a global dynamic model calibrated to a granular dataset of 14,637 proven oilfields, accounting for heterogeneity in private extraction costs, capacity constraints, life-cycle carbon intensities of oil barrels, along with exploration dynamics and basin-specific estimates of yet-to-find resources. We find that exploration restrictions are an effective second-best climate policy: in the absence of a global carbon tax, a universal ban increases global welfare by$12.5 trillion due to lower social costs of oil production and use (assuming a social cost of carbon of$200/tCO2eq). A partial ban by OECD and BRICS countries alone captures 66% of these gains. Under optimal carbon pricing, however, a global ban yields a modest $0.3 trillion welfare loss, as it precludes access to lower-social-cost deposits and prevents the easing of short-run capacity constraints.

Keywords: Oil exploration; climate change; Carbon tax; Ban; Second-best; Stranded assets (search for similar items in EconPapers)
JEL-codes: H23 Q31 Q35 Q38 Q41 Q54 Q58 (search for similar items in EconPapers)
Pages: 98 pages
Date: 2025-12
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Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:2539

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