OPEC, Shale Oil, and Global Warming
Cees Withagen  1, *@  , Gerard Van Der Meijden  2@  , Hassan Benchekroun  3@  
1 : IPAG  (IPAG)
IPAG Busness School
2 : Vrije Universiteit Amsterdam  (VU)  -  Site web
De Boelelaan 1105, 1081 HV Amsterdam -  Pays-Bas
3 : McGill University  -  Site web
845, rue Sherbrooke O. Montréal (Québec) Canada H3A 0G4 -  Canada
* : Auteur correspondant

We show that OPEC's market power contributes to global warming by enabling producers of relatively expensive and dirty oil to start producing before OPEC reserves are depleted. We fully characterize the equilibrium of a cartel-fringe model and use a calibration to examine the importance of this extraction sequence effect. While welfare under the cartel-fringe equilibrium can be significantly lower than under a first-best outcome, almost all of this welfare loss is due to the sequence effect. Moreover, the recent boom in shale oil reserves may reduce social welfare.


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