December 18, 2014

Should we ban unconventional oil extraction to reduce global warming?

We all know that unconventional oil extraction is bad for the environment. It causes local environmental damage (check what is happening in North Dakota: here) and it generates a lot of extra carbon dioxide emissions compared to the extraction of conventional oil.

So, what about banning the extraction of non-conventional oil?

In a recent working paper  Samuel Carrara and I estimate the climate benefit of a global ban on unconventional oil using scenarios developed with the integrated assessment model WITCH.

Guess what? A global ban on the use of unconventional oil has non-negligible climate benefits but it is a very inefficient climate mitigation policy. Not using unconventional oil resources slows global warming by 0.3°C (from +4.1°C to +3.8°C in 2100 with respect to the pre-industrial level). Despite a rebound effect in conventional oil extraction, the global ban is effective because it substantially reduces oil demand, carbon dioxide emissions and the increase of temperature. However, the policy is terribly inefficient.

We find that an efficient, global uniform carbon pricing mechanism would achieve climate benefits almost four times larger, at the same cost. Analogously, an efficient pricing scheme would deliver the same climate benefit being fifteen times cheaper.

The EU has long considered a unilateral tax on oil coming from unconventional resources in Northern America.

Is this a good idea?

We check what would be the cost and the benefit (in terms of reduced carbon dioxide emissions) of a unilateral EU ban on unconventional oil. Unsurprisingly, we find that unilateral European ban of unconventional oil is both inefficient and ineffective. It will cost a lot and it will have no impact on global mean temperature. Oil would just flow to countries that do not ban its use.

The policy implications are intuitive. If the main goal is carbon mitigation, the European Union should avoid unilateral aggressive policies against unconventional oil. Diverting trade routes may be expensive for oil producers and a short-term victory is possible. However, in the long-run, with rising energy prices and technological progress in oil extraction and in oil transportation, it is likely that unconventional oil will flow where demand is and Europe alone will have a negligible impact on global patterns.

For example, starting a trade war with Canada to achieve virtually null climate benefits is not the best thing to do.