imgOilIcon Oil

Discourage or encourage drilling, refining, and consuming oil for energy. Oil is a fossil fuel that is used widely in cars, ships, and planes; it is also used for industry, heating, and electricity. Access to oil has sparked major conflicts, and oil spills threaten ecosystems and water.

Examples

  • Governments imposing limits on oil drilling and exploration, removing subsidies, and taxing oil.
  • Universities, corporations, and individuals divesting from oil companies.
  • Financial services industry (e.g., banks) or global development institutions (e.g., World Bank) limiting access to capital for exploration, drilling, refining, and delivery.

Slider Settings

very highly taxed highly taxed taxed status quo subsidized
Change in price per barrel of oil equivalent (boi) +$100 to +$60 +$60 to +$30 +$30 to +$10 +$10 to -$10 -$10 to -$30
Cost increase or decrease +100% to +60% +60% to +30% +30% to +10% +10% to -10% -10% to -30%

Key Dynamics

  • When oil is discouraged, by taxing it, watch the red line go down in the “Sources of Primary Energy Graph.”
  • Modest oil taxes (the “Taxed” setting) bend the oil curve only slightly, because oil demand is more resistant to changes in price because it is hard to switch to alternative energy sources (a truck can’t just run on solar if the price of oil gets high). Oil can shift some to biofuels and with time electrification can enable other energy sources to compete.
  • Taxing oil also reduces energy demand (see graphs “Final Energy Consumption” and “Cost of Energy”). When energy prices are higher people tend to use energy more efficiently and conserve energy. However, tax policies must be implemented with considerations for poor and working-class communities who can be harmfully impacted by high energy prices.
  • When oil is taxed, notice what happens to coal and gas in response. Unless there are existing taxes, coal and gas demand will go up in response to expensive oil.

Big Message

  • Taxing oil modestly has a minor impact on temperature, but taxing it highly delivers a significant impact. It’s not a silver bullet, but can be an important part of a suite of actions

Model Structure

The cost of oil affects three significant decisions regarding energy infrastructure:

  1. investment in new capacity (whether or not to build new drilling operations and refineries);
  2. use of capacity (whether to run existing operations);
  3. retirement of capacity (whether to keep infrastructure longer or shorter than the average of ~30 years).

Potential Co-Benefits of Discouraging

  • Fewer oil spills help protect wildlife habitats, biodiversity, and ecosystem services at production sites and along transportation routes.
  • Reduced economic dependence on oil can improve national security and lower government military costs.

Equity Considerations

  • The oil industry provides many high-paying jobs for people with technical trade backgrounds. Providing pathways for these people to find new jobs will be essential.
  • Oil companies wield enormous economic and political power locally and globally. In order to discourage oil, certain industry protections must be eliminated.
  • There is a history of refineries being located in marginalized communities and attempting to avoid environmental regulations.