EE Seminar : The Welfare Economics of Oil Exploration

Fri, 04 Sep 2026 11:00:00 +0200

Speaker: Fanny Henriet
Address: UMR CEE-M Institut Agro de Montpellier / INRAE - Bat. 26 - Centre de documentation Pierre Bartoli 2 Place Viala 34000 Montpellier

Despite growing calls to phase it out, oil exploration persists. 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. Across various market structures (perfect competition, cartel-fringe with OPEC as dominant firm, perfect collusion of oil producers), 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.

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EE Seminar : The Welfare Economics of Oil Exploration