Discourage or encourage drilling, refining, and consuming oil for energy. Oil is a fossil fuel fossil fuels: Coal, oil, and natural gas. Fuel derived from the remains of ancient plants and animals. 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 quality.
- 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.
Oil is more difficult to replace than coal and natural gas because of its portability and high energy density, so oil demand is more resistant to changes in price. Replacing oil with less carbon-intensive sources of energy often requires electrification, like switching to electric cars.
When a steep oil tax is the only action implemented, you will not see a dramatic change in temperature, as coal and natural gas demand increases in response, offsetting the reduction in emissions from oil.
“Squeezing the Balloon.” When oil is taxed, notice what happens to coal and gas in response. Unless there are restrictions on coal and gas, their demand will go up in response to expensive oil. We call this the “squeezing the balloon” problem—reducing fossil fuel emissions in one area causes them to pop up in another. You can see this dynamic in the “CO2 Emissions from Energy by Source” graph. Solutions to the "squeezing the balloon" problem include taxing oil and natural gas as well, or adding a carbon price, which addresses all fossil fuels together.
Fuel switching. Notice that taxing oil results in an increase in electrification of the vehicle fleet as electric-powered modes of transport become more affordable in the face of higher oil prices. See this demonstrated in the "Electric Share of Final Energy-Transport" graph. Energy sources used for electricity, such as coal, natural gas, and renewables, also increase due to this shift. To increase the impact of taxing oil, consider incentivizing transport electrification further.
Price-Demand Feedback. 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 negatively impacted by high energy prices. Learn more.
Potential Co-Benefits of Discouraging Oil🔗
- A reduction in oil drilling could lead to fewer oil spills, helping 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 military costs.
- 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 oil refineries being located in marginalized communities and companies working to avoid or limit environmental regulations.
The Oil slider is divided into 5 input levels: very highly taxed, highly taxed, taxed, status quo, and subsidized. Each of the energy supply sliders (Coal, Oil, Natural Gas, Bioenergy, Nuclear, and Renewables) is set to reflect a similar percentage cost increase or decrease for each input level. The following table displays the numerical ranges for each input level of the Oil slider:
|very highly taxed||highly taxed||taxed||status quo||subsidized|
|Change in price per barrel of oil equivalent (boe)||+$85 to +$25||+$25 to +$12||+$12 to +$5||+$5 to -5||-$5 to -$15|
|Cost increase or decrease||+200% to +60%||+60% to +30%||+30% to +10%||+10% to -10%||-10% to -30%|
The oil industry is currently heavily subsidized. These subsidies are included in the “status quo” setting for the price of oil in En-ROADS. If you want to simulate the removal of these subsidies, move the slider to “taxed.” For more information, see this FAQ: How do I simulate reducing coal, oil, and natural gas subsidies?
The cost of oil affects three significant decisions regarding energy infrastructure:
- Investment in new capacity (whether or not to build new drilling operations and refineries)
- Use of capacity (whether to run existing operations)
- Retirement of capacity (whether to keep infrastructure longer or shorter than the average of ~30 years)
How can I directly force deeper reductions in oil use? Consider changing the “Reduce new oil infrastructure” and the “% Reduction in oil utilization” sliders in the advanced view.
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