Not All Energy Transitions Are Alike: Disentangling the Effects of Demand and Supply-Side Policies on Future Oil Prices

By Lukas Boer, Andrea Pescatori, Martin Stuermer

August 4, 2023

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Format: Chicago

Lukas Boer, Andrea Pescatori, and Martin Stuermer. Not All Energy Transitions Are Alike: Disentangling the Effects of Demand and Supply-Side Policies on Future Oil Prices, (USA: International Monetary Fund, 2023) accessed November 23, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We use structural scenario analysis to show that the climate policy mix—supply-side versus demand-side policies—can lead to different oil price paths with diverging distributional consequences in a netzero emissions scenario. When emission reduction is driven by demand-side policies, prices would decline to around 25 USD per barrel in 2030, benefiting consuming countries. Vice versa, supply-side climate policies aimed at curbing oil production would push up prices to above 130 USD per barrel, benefiting those producing countries that take the political decision to keep on producing. Consequently, it is wrong to assume that oil prices will necessarily decline due to the clean energy transition. As policies are mostly formulated at the country level and hard to predict at the global level, the transition will raise uncertainty about the price outlook.

Subject: Commodities, National accounts, Oil, Oil consumption, Oil prices, Oil production, Prices, Production

Keywords: Aggregate demand demand shock, Climate change., Climate policy mix, Conditional forecasts, Energy transition, Global, Oil, Oil consumption, Oil prices, Oil production, Scenario price path, Structural scenario analysis, Structural vector autoregression, Supply-side climate policy

Publication Details

Pages:

69
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/160
Stock No:

WPIEA2023160
ISBN:

9798400249242
ISSN:

1018-5941

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