Oil🔗

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.

Examples🔗

Discouraging oil:

• 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.

Big Messages🔗

• 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.

Key Dynamics🔗

• “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 and Industry 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 "% Existing Transport by Carrier" 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 “Total Final Consumption of Energy Sources” and “Average Price of Energy to Consumers”). 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.

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 oil refineries being located in marginalized communities and companies working to avoid or limit environmental regulations.

Videos🔗

Coal, Oil, and Natural Gas

Slider Settings🔗

The Oil slider is divided into 5 input levels: highly discouraged, more discouraged, status quo, encouraged, and highly encouraged. The slider combines the effects of taxes and subsidies into a single value, with positive numbers indicating a net tax and negative numbers indicating a net subsidy, relative to the price at the oil well. At 0%, oil is either not being taxed or subsidized, or the taxes and subsidies offset each other so that the net effect is zero. To adjust taxes and subsidies separately, enable “use detailed settings” in the Oil advanced view.

The following table displays the numerical ranges for each input level of the Oil slider. To see what the setting means in dollars per barrel, view the “Price of Oil” graph under Graphs > Financial.

The "status quo" setting for oil reflects the fact that oil is currently subject to both subsidies and taxes. Globally, fuel taxes—such as those on diesel and gasoline that often fund road infrastructure—outweigh subsidies on average, resulting in a net tax. To simulate the removal of current oil subsidies, enable “detailed settings” in the Oil advanced view and set the “Oil subsidy” slider to 0%. Read more in the explainer on energy supply subsidies and taxes in En-ROADS.

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)

FAQs🔗

• 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.

• Explainer: Energy subsidies and taxes in En-ROADS

• Why are the slider ranges (min and max) what they are? How did you decide the range of the sliders?

• What happens to the revenue from taxes or a carbon price in En-ROADS?

• What's the difference between a carbon price and a tax on a fuel (coal, oil, natural gas, or bioenergy)?

Please visit support.climateinteractive.org for additional inquiries and support.