Two Wrongs Can Sometimes Make a Right: The Environmental Benefits of Market Power in Oil

John Asker, Allan Collard-Wexler, Charlotte De Canniere, Jan De Loecker and Christopher Knittel

No 33115, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Market power reduces equilibrium quantities and distorts production, typically causing welfare losses. However, as Buchanan (1969) noted, market power may mitigate overproduction from negative externalities. This paper examines this in the global oil market, where OPEC’s market power affects oil production and carbon intensity. We estimate that from 1970 to 2021, OPEC’s market power reduced emissions by over 67 GtCO2, equating to $4,073 billion in climate damages and 17.8% of the carbon budget needed for the 1.5◦ C Paris Agreement target. This environmental benefit outweighs the welfare loss from distorted production allocation.

JEL-codes: L12 Q41 Q54 (search for similar items in EconPapers)
Date: 2024-11
New Economics Papers: this item is included in nep-com, nep-ene, nep-env and nep-reg
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