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Leave it in the ground? Oil sands development under carbon pricing
Author(s) -
Bošković Branko,
Leach Andrew
Publication year - 2020
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12436
Subject(s) - oil sands , externality , natural resource economics , carbon fibers , climate change , carbon sequestration , fossil fuel , carbon cycle , resource (disambiguation) , environmental science , social cost , investment (military) , greenhouse gas , carbon price , economics , carbon dioxide , ecology , waste management , microeconomics , engineering , ecosystem , materials science , law , computer network , computer science , biology , political science , politics , geography , composite number , composite material , asphalt , cartography
We evaluate the impact of internalizing the carbon emissions externality on new oil sands projects. Using data from recent oil sands projects and estimates of both the social costs of carbon and carbon prices consistent with meeting global climate change targets, we estimate the potential impact of action on climate change on the economic viability of oil sands investments. Our results indicate that oil sands are a marginal resource before they incur any carbon costs. Incorporating carbon costs, we find that the viability of oil sands depends on the coverage of carbon pricing across the life cycle emissions from oil sands and on the equilibrium incidence of carbon prices on producers. We show an important interaction between resource royalties and carbon charges that implies that the impact carbon pricing depends on not only the stringency and coverage of the carbon price but also its point of application of a carbon price. Finally, we explore the potential for technological change to mitigate the impacts of carbon pricing on oil sands investment viability.