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Closing wells; fossil exploration and abandonment in the energy transition

Inge van den Bijgaart () and Mauricio Rodríguez ()

No 789, Working Papers in Economics from University of Gothenburg, Department of Economics

Abstract: Despite ambitious climate goals and already substantial stocks of developed fossil en- ergy reserves, development of new fossil energy reserves continues to be high. This raises concerns, as it reinforces the fossil industry’s opportunities and incentives to continue ex- traction, and may necessitate abandonment of developed fossil reserves to meet climate targets. In this paper, we analyze the energy transition, considering fossil exploration and development activities. We provide conditions for when the fossil industry will abandon reserves, and establish that continued exploration of fossil resources is not incompatible with abandoning developed reserves. The first-best implementation of a carbon budget al- ways involves reserve abandonment, and thus exploration that pushes developed reserves in excess of the remaining budget. A quantitative assessment reveals that a volume equal to 9-19% of current oil and gas reserves are optimally abandoned, and that, even under a 1.5◦C warming target, positive exploration of new reserves is justified for another decade.

Keywords: carbon budget; energy transition; fossil exploration; nonrenewable resources; renewable energy; stranded assets (search for similar items in EconPapers)
JEL-codes: Q21 Q31 Q35 Q54 Q58 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2020-08
New Economics Papers: this item is included in nep-ene and nep-env
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