Edward Conard

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  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
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  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
Upside of Inequality Oxford Unintended Consequences

AI Summary. A paper modeling scenarios in which global crude oil demand falls to near zero by the century's end finds that anticipated demand decline reduces producers' investment in wells and infrastructure, lowering near-term output and carbon dioxide emissions. The author estimates this disinvestment effect outweighs the "green paradox" of accelerated extraction.

Ryan Kellogg National Bureau of Economic Research
Date Posted:

.@RyanMKellogg forecasts that “green” policies implying a drop in oil demand to 0 by 2099 will cause producers to reduce investment and near-term production, refuting the “green paradox” of accelerated near-term extraction and worsening climate change.

Does expected oil demand decline lower near-term production and emissions?

Core argument: The author models scenarios in which global crude oil demand falls to essentially zero by the end of this century, driven by improvements in clean energy technologies, stringent climate policies, or both.

This paper [considers] scenarios in which global demand for crude oil falls to essentially zero by the end of this century, driven by improvements in clean energy technologies, adoption ofstringent climate policies, or both. One possibility is the well-known “green paradox”: because oil is an exhaustible resource, producers may accelerate near-term extraction in order to beat the demand decline. This reaction would increase near-term CO2 emissions and could possibly even lead the total present value of climate damages to be greater than if demand had not declined at all. However, because oil extraction requires potentially long-lived investments in wells and other infrastructure, the opposite may occur: an anticipated demand decline reduces producers' investment rates, decreasing near-term oil production and CO2 emissions. I find that for model inputs with the strongest empirical support, the disinvestment effect outweighs the traditional green paradox.

Takeaways by Macro Roundup® AI

  1. The author models scenarios in which global crude oil demand falls to essentially zero by the end of this century, driven by improvements in clean energy technologies, stringent climate policies, or both.
  2. Under the "green paradox," oil producers accelerate near-term extraction to beat an anticipated demand decline, raising near-term CO2 emissions and possibly making the total present value of climate damages greater than with no demand decline.
  3. Because oil extraction requires potentially long-lived investments in wells and other infrastructure, an anticipated demand decline can instead reduce producers' investment rates, and the author finds this disinvestment effect outweighs the traditional green paradox for model inputs with the strongest empirical support.

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