The End of Oil

Abstract Even as global oil demand has increased in recent years, it is plausible to envision scenarios in which clean energy technologies or climate policies drive demand to essentially zero by the century’s end. This paper asks what such a demand decline, when anticipated, might mean for global oil supply. One possibility is a “green paradox”: producers accelerate extraction. However, because extraction requires durable capital investments, the opposite may occur: producers reduce their investment rate, decreasing extraction. To evaluate the relative strengths of these opposing mechanisms, I develop a model of global oil supply that incorporates both, among other industry features. For model inputs with the strongest empirical support, both effects are modest, with disinvestment typically outweighing the green paradox. In order for the green paradox to substantially increase cumulative global oil extraction, investments must have short time horizons, and producers’ discount rates must be less than 4% real.