Abstract:

It is globally acknowledged that the oil and gas sector investment plans are largely
incompatible with the Paris Agreement, yet the influence of climate policies on their
extraction behavior is largely undocumented. This contribution assesses the impact of
climate policies on the investments of oil and gas firms using a large international firm-
level panel. The identification strategy leverages an econometric model of corporate
investments in exploration and production activities (E&P), integrating internationally
harmonized data on the tightening of climate policy instruments and information on
the geographic distribution of companies’ upstream assets. The main findings reveal
a strongly heterogeneous firm-level response across policy instruments and firm type.
Due to incomplete carbon pricing mechanisms, domestic firms holding their oil and
gas upstream assets at home adjust to the tightening of policy instruments subsidizing
renewable energy by accelerating extractive investments in the long run. In contrast,
domestic European firms’ E&P investments have been durably and strongly negatively
impacted by the tightening of national commitments to phase out of fossil fuel heating
systems in buildings. European and North American international firms react to the
tightening of carbon pricing instruments by reducing E&P investments, consistent with
managers adjusting their internal price of carbon upwards. However, these effects are
only short-lived, indicating that the internal price of carbon of international oil and gas
firms is set far too low to durably shift them away from fossil fuel extraction. Further-
more, while many integrated oil and gas firms own renewable energy segments, there
is limited evidence that the tightening of policy instruments that subsidize renewable
energy shifts them away from fossil fuel extraction.

Location:

University Évry Paris-Saclay, salle Malinvaud (312), bâtiment Ile-de-France