OPEC, unconventional oil and climate change - On the importance of the order of extraction

Hassan Benchekroun, Gerard van der Meijden*, Cees Withagen

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review


We show that OPEC's market power contributes to climate change by enabling producers of relatively expensive and dirty oil to start producing before OPEC reserves are depleted. We examine the importance of this extraction sequence effect by calibrating and simulating a cartel-fringe model of the global oil market. While welfare net of climate damage under the cartel-fringe equilibrium can be significantly lower than under a first-best outcome, almost the entire welfare loss is due to the sequence effect of OPEC's market power. In our benchmark calibration, the cost of the sequence effect amounts to 15 trillion US$, which corresponds to 97 percent of the welfare loss. Moreover, we find that an increase in non-OPEC oil reserves decreases global welfare. In a counterfactual world without non-OPEC oil, global welfare would be 13 trillion US$ higher, 10 trillion US$ of which is due to lower climate damages.

Original languageEnglish
Article number102384
Pages (from-to)1-9
Number of pages19
JournalJournal of Environmental Economics and Management
Publication statusPublished - Nov 2020


This article supersedes an earlier draft that was circulated under the title: ?OPEC, Shale Oil and Global Warming - On the importance of the order of extraction?. The authors would like to thank Erik Ansink, Christian Bogmans, Margaret Insley, Andrew Leach, Florian Leblanc, John Livernois, Corrado Di Maria, Chuck Mason, Peter Mulder, Rick van der Ploeg, Steve Salant, Hubert Stahn, Yacov Tsur, Matthew Turner, two anonymous reviewers, and participants at the SURED conference (Ascona, June 2018), the WCERE (Gothenburg, June 2018), the IRMBAM-2018 (Nice, July 2018), the workshop on Cities and the Environment (Potsdam, July 2018), the WUR Economics Seminar (Wageningen, September 2018) and the FAERE Energy Transition Workshop (Paris, December 2019) for their valuable comments. Hassan Benchekroun thanks the Fonds de recherche du Qu?bec - Soci?t? et culture (FRQSC) and the Canadian Social Sciences and Humanities Research Council (SSHRC) for financial support. Cees Withagen and Gerard van der Meijden gratefully acknowledge financial support from FP7-IDEAS-ERC Grant No. 269788.

FundersFunder number
Canadian Social Sciences and Humanities Research Council
WUR Economics Seminar
Fonds de Recherche du Québec-Société et Culture
Seventh Framework Programme
FP7 Ideas: European Research Council269788
Social Sciences and Humanities Research Council of Canada
Fonds de Recherche du Québec - Santé


    • Cartel-fringe
    • Climate policy
    • Herfindahl rule
    • Non-renewable resource

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