Research
Working papers
The Price of Delay: Infrastructure Lock-in and the Carbon Tax Lock-in Premium in the Oil Sector
Delays in climate policy implementation can permanently raise the cost of meeting climate objectives by encouraging fossil fuel investments that lock in future emissions. This paper examines the implications of a delayed implementation of a carbon tax on emissions reductions in the oil producing sector using detailed field-level data on global oil production. I show that delaying a constant carbon tax aligned with the 1.5°C objective from 2016 to 2030 results in a 33% overshoot of the oil carbon budget (19% for an increasing carbon tax). The overshoot is driven by both excess production during the delay and long-term infrastructure lock-in from new investments. I introduce the concept of the carbon tax lock-in premium: the additional tax required after the delay to offset committed emissions from investments that would not have occurred under timely policy but become virtually irreversible once production facilities are built. While this premium remains modest relative to the carbon tax level, ignoring it leads to a residual overshoot of 17 to 19 GtCO2eq (more than 10% of the remaining budget in 2030). The high concentration of lock-in effects in a small number of capital-intensive offshore projects highlights the potential of targeted supply-side policies (particularly bans on new deepwater developments) to substantially mitigate the long-term costs of delayed climate action.
Previously circulated as The long-term cost of delaying carbon taxation in the oil sector.
Voice Until the Last Exit: Ownership Structure and the Limits of Voluntary Environmental Commitments
The effectiveness of corporate climate initiatives depends not only on firms’ commitments but also on existing asset ownership structures. We study this question in the context of the World Bank’s Zero Routine Flaring by 2030 initiative, under which oil and gas companies pledge to eliminate routine flaring from their assets. Using asset-level ownership and satellite-based flaring measurements for nearly 20,000 oil and gas assets worldwide (2012–2024), we exploit staggered firm endorsements to study how committed firms navigate the tradeoff between voice, exercising governance influence to reduce emissions, and exit, divesting from assets that are costly to decarbonize. Committed ownership reduces flaring gradually but persistently, reaching approximately 45% below pre-commitment levels after nine years. The persistence of these gains hinges on continued committed presence: when the last committed owner divests, flaring rises by roughly 40% within two years and exceeds 90% within six years, a result we term the “last good owner effect.” Retaining at least one committed voice on the board is both necessary and sufficient to sustain emissions discipline.