The Shadow of Uncertainty: Climate Policy and the Value of Petroleum Resources

Ingrid Emilie Flessum Ringstad (), Giacomo Benini (), Valerio Dotti and Kyriaki Tselika ()
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Ingrid Emilie Flessum Ringstad: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, https://www.nhh.no/en/employees/faculty/ingrid-emilie-flessum-ringstad/
Giacomo Benini: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, https://www.nhh.no/en/employees/faculty/giacomo-benini/
Kyriaki Tselika: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway, https://www.nhh.no/en/employees/faculty/kyriaki-tselika/

No 2025/22, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: We study how uncertainty about future climate policy affects the valuation of oil resources. Using a structural model of extraction and exploration applied to field-level data from the Norwegian Continental Shelf, we estimate the impact of climate policy uncertainty (CPU) on the shadow prices of both discovered and undiscovered oil. We find that higher CPU lowers these marginal values, especially after the 2015 Paris Agreement, reducing incentives to extract and explore. This decline translates into an implicit carbon cost of $15–$38 per tonne of carbon dioxide emitted. Unlike a Pigouvian tax, this shadow cost does not scale with emissions intensity or generate fiscal revenue. As a result, it reduces production and emissions in a diffuse and economically inefficient manner, without rewarding low emitters or financing green transition policies.

Keywords: Oil Industry; Climate Policy; Decision-Making under Risk and Uncertainty (search for similar items in EconPapers)
JEL-codes: C51 D81 Q35 Q58 (search for similar items in EconPapers)
Pages: 72 pages
Date: 2025-07-10
New Economics Papers: this item is included in nep-res
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:nhhfms:2025_022

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