Research

Abstract. Despite growing calls to phase it out, oil exploration persists, often justified by the natural decline of existing fields and potential efficiency gains from discoveries. 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 oil fields, 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. 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 per tonne of CO₂ equivalent. A partial ban by OECD and BRICS countries alone captures 66 percent 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.

Abstract. Unilateral environmental policy on a tradable commodity raises the classic concern that emissions are displaced rather than eliminated. From 2030, EU Regulation 2024/1787 will exclude crude oil imports above a maximum methane-intensity threshold, a binary, partial-coverage standard imposed on a globally fungible commodity. Using an asset-level model of global oil trade calibrated to over 14,000 deposits, with endogenous abatement and route-specific transport, I find that the standard cleans the EU import basket but has little effect on the atmosphere, because the methane it could remove leaks back almost entirely, at a rate near 0.98. A Shapley decomposition splits this leakage into two channels of similar size: crude rerouted to unregulated buyers, and high-methane crude refined abroad and returned to the EU as product. The abatement the policy could induce is cheap and welfare-improving on its own, but the reshuffling it sets off turns the net effect negative. The import standard is equivalent to a methane price of barely a dollar a tonne. At that same level of abatement, an explicit content price raises EU welfare where the standard lowers it. The near-complete leakage is robust to oil-market power: it persists when the market equilibrium is re-solved with a strategic cartel of Gulf OPEC producers facing a competitive fringe.