Not All Energy Transitions Are Alike: Disentangling the Effects of Demand and Supply-Side Policies on Future Oil Prices

Lukas Boer, Andrea Pescatori and Martin Stuermer

No 2023/160, IMF Working Papers from International Monetary Fund

Abstract: We use structural scenario analysis to show that the climate policy mix—supply-side versus demand-side policies—can lead to different oil price paths with diverging distributional consequences in a netzero emissions scenario. When emission reduction is driven by demand-side policies, prices would decline to around 25 USD per barrel in 2030, benefiting consuming countries. Vice versa, supply-side climate policies aimed at curbing oil production would push up prices to above 130 USD per barrel, benefiting those producing countries that take the political decision to keep on producing. Consequently, it is wrong to assume that oil prices will necessarily decline due to the clean energy transition. As policies are mostly formulated at the country level and hard to predict at the global level, the transition will raise uncertainty about the price outlook.

Keywords: Conditional forecasts; structural vector autoregression; structural scenario analysis; energy transition; oil prices; climate change.; climate policy mix; supply-side climate policy; scenario price path; aggregate demand demand shock; Oil production; Oil consumption; Oil; Global (search for similar items in EconPapers)
Pages: 69
Date: 2023-08-04
New Economics Papers: this item is included in nep-ene and nep-env
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