Conference Agenda

Delays in climate policy implementation can permanently raise the cost of meeting climate objectives by encouraging fossil fuel investments that lock in future emissions. This paper examines the implications of a delayed implementation of a carbon tax on emissions reductions in the oil producing sector? using detailed field-level data on global oil production. I show that delaying a carbon tax consistent with the 1.5°C objective from 2016 to 2030 results in a 32\% overshoot of the oil carbon budget. The overshoot is driven by both excess production during the delay and long-term infrastructure lock-in from new investments. To quantify the cost of carbon lock-in, I identify committed emissions from investments that would not occur in the presence of the tax but become irreversible once production facilities are built. Responsible for 40\% of the overshoot at the extensive margin, lock-in effects are highly concentrated in a small number of capital-intensive deepwater offshore projects and generate emissions largely resilient to higher carbon prices. I show that failing to account for these investments dynamics leads to underestimating the optimal carbon tax required after the delay, and refers to the resulting wedge as the carbon tax lock-in premium. The findings highlight the effectiveness of targeted supply-side policies in mitigating the long-term costs of delayed climate action.