Conference Agenda

Oil production and use are responsible for nearly a quarter of global greenhouse gas emissions, making them central to climate policy. This paper explores how carbon mitigation policies shape the economic value of oil across deposits with varying carbon intensities and extraction costs, affecting firms’ profits and governments’ fiscal revenues. First, using a theoretical model of intertemporal oil extraction under carbon pricing, we show that carbon taxes can have counterintuitive effects: some high-carbon deposits increase in value, while some cleaner ones decline. We first develop a theoretical framework of intertemporal oil extraction under carbon taxation, demonstrating that such policies can generate counterintuitive effects: high-carbon deposits may appreciate in value, while cleaner ones may decline. We then calibrate a global simulation model using detailed deposit-level data, revealing that carbon taxation produces uneven distributional effects, with weak correlation between carbon intensity and deposit valuation changes as per our theoretical insights into the problem. By integrating detailed tax data, we decompose the changes in oil value into after-tax corporate profits and fiscal revenues, showing that while firms’ profits typically decline, moderate carbon taxes can compensate for lost government revenues in certain low-cost producer countries. Finally, we evaluate second-best policies, sub-optimal carbon taxes, uniform tax on barrel, extraction bans based on barrel’s carbon intensity, finding they impose large welfare losses—up to $14 trillion—compared to optimal carbon taxation and yield distinct distributional impacts.