Oil Production in a Changing : Climate An Investigation of Optimal Oil Extraction on the Norwegian Continental Shelf under Current and Potential Climate Policies

Abstract

This thesis addresses the challenges of being an oil nation in a time where the world needs to combat climate changes. Emissions from fossil fuels are the dominant cause of global warming, and the need for actions to reduce the global combustion is obvious. Despite decades of international climate negotiations, the flow of emissions to the atmosphere continues to grow, and the heat continues towards new heights. Leading environmental economists now suggest restraining the supply of petroleum resources to reach targets related to climate change. We aim to study the effect today’s and potential climate policies have on oil production on the Norwegian continental shelf the next decade. Our results show that the currently announced climate policy does affect the extraction path of oil, given an expected oil price of 552.5 NOK. This is in line with similar research. We also look at the implementation of a production fee on oil. We find that the production fee will reduce resource wealth, and might change the extraction path on existing fields. The latter depends on the size of the fee. The higher estimate of 452.55 NOK per barrel causes 10 out of 11 fields in our sample to stop production. The lower estimatec fee of 25.86 NOK per barrel implies no changes to the extraction paths.