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Closing wells; fossil exploration and abandonment in the energy transition

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  • van den Bijgaart, Inge

    (Department of Economics, School of Business, Economics and Law, Göteborg University)

  • Rodriguez, Mauricio

    (Dept of Economics, Universidad del Rosario)

Abstract

Despite ambitious climate goals and already substantial stocks of developed fossil en- ergy reserves, development of new fossil energy reserves continues to be high. This raises concerns, as it reinforces the fossil industry’s opportunities and incentives to continue ex- traction, and may necessitate abandonment of developed fossil reserves to meet climate targets. In this paper, we analyze the energy transition, considering fossil exploration and development activities. We provide conditions for when the fossil industry will abandon reserves, and establish that continued exploration of fossil resources is not incompatible with abandoning developed reserves. The first-best implementation of a carbon budget al- ways involves reserve abandonment, and thus exploration that pushes developed reserves in excess of the remaining budget. A quantitative assessment reveals that a volume equal to 9-19% of current oil and gas reserves are optimally abandoned, and that, even under a 1.5◦C warming target, positive exploration of new reserves is justified for another decade.

Suggested Citation

  • van den Bijgaart, Inge & Rodriguez, Mauricio, 2020. "Closing wells; fossil exploration and abandonment in the energy transition," Working Papers in Economics 789, University of Gothenburg, Department of Economics.
    • Handle: RePEc:hhs:gunwpe:0789
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    More about this item

    Keywords

    carbon budget; energy transition; fossil exploration; nonrenewable resources; renewable energy; stranded assets;
    All these keywords.

    JEL classification:

    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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