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  5. Oil, the Energy Transition, and Geoeconomics
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Oil, the Energy Transition, and Geoeconomics

Paper Session

Tuesday, Jan. 5, 2027 10:15 AM - 12:15 PM (EST)

Marriott Marquis Washington DC
This session will be streamed live.
Hosted By: American Economic Association
  • Chair: James Stock, Harvard University

Coase, Hotelling and Pigou: The Incidence of a Carbon Tax and CO2 Emissions

Geoffrey Heal
,
Columbia University
Wolfram Schlenker
,
Harvard University

Abstract

We use field-level cost estimates of all oil and natural gas fields to highlight dynamic aspects of a global carbon tax. Some of the initial reduction in consumption will be offset through higher consumption later on. Only high-cost reserves will be priced out of the market, e.g., at 200 dollars per ton of CO2 cumulative emissions decrease by 4%. The tax incidence initially falls on consumers under a constant tax but eventually becomes negative as the lifetime of the resources is extended. An increasing tax over time reduces the initial incidence on consumers.

The Evolving Effects of Geopolitical Shocks in Oil Markets

Lutz Kilian
,
Federal Reserve Bank of Dallas

Abstract

We discuss structural changes in the oil market and in the economy and examine how the effects of geopolitical shocks in oil markets have evolved since the 1970s and 1980s drawing on recent and ongoing research.

Missing (In) Action: A New Era in Climate Policy

Mar Reguant
,
Northwestern University and Institut d’Anàlisis Econòmica, UAB
Catherine Wolfram
,
Massachusetts Institute of Technology

Abstract

The rapid expansion of fossil-fuel production in the United States has renewed questions about the relationship between resource interests and climate policymaking. While the United States is rarely classified as a petrostate, its role as a major producer raises important questions about the political feasibility of ambitious climate action and international cooperation. We develop a framework for characterizing the influence of fossil-fuel interests on climate policy and explores its implications for coalition formation in a decarbonizing world. We propose empirical metrics based on political representation, lobbying, policy exemptions, and the divergence between observed climate policy and welfare-based benchmarks. Understanding these constraints helps explain why some climate coalitions emerge more readily than others and sheds light on the changing geography of climate leadership and geopolitical fragmentation.

Oil and Gas Exports and U.S. Energy Policy

Jesús Fernández-Villaverde
,
University of Pennsylvania
James Stock
,
Harvard University

Abstract

This paper examines how energy has become an instrument of U.S. power (“energy dominance”). From 1958 to 2018, the U.S. imported more energy than it produced. During this period, domestic climate and energy policy aligned with reducing fossil fuel consumption, and foreign policy aligned with ensuring stable and reliable import supplies (energy security). The shale revolution broke that pattern, and by 2019 the U.S. was a net exporter of oil and gas, resulting in a shift in policy incentives. We formalize this shift in a simple geoeconomic model in which the government, unlike private agents, internalizes the global energy price. An importing hegemon restrains its consumption and provides stability, while an exporting hegemon benefits from high oil prices and promotes international consumption of oil and gas. We use this model to interpret the historical evolution of U.S. and EU climate and energy policy.

Discussant(s)
Christopher Costello
,
Environmental Defense Fund
Daan Struyven
,
Goldman Sachs
Chris Clayton
,
Yale University
JEL Classifications
  • Q4 - Energy
  • E3 - Prices, Business Fluctuations, and Cycles