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Commonwealth Secretariat Discussion Paper

The Discussion Paper series raises awareness of topics that are of importance to Commonwealth work programmes. Discussion Papers explore an issue relating to research or programme activities and provoke debate on it. The intended readership is researchers and policy advisers.

English

Can a Global Oil Royalty Help to Limit Climate Change?

This paper discusses whether a global oil royalty could help to limit climate change. It starts by summarising the Paris Agreement and by discussing whether the world is currently on course to achieve its goal of limiting the increase in global average temperature to well below 2 degrees Celsius above pre-industrial levels. The relationship between prices and the demand and supply of oil is then discussed, and it is argued that a global oil royalty could reduce the production and consumption of oil. This paper concludes by modelling the global oil royalty rate that would cause oil production to fall to a level consistent with achieving the Paris Agreement’s temperature goal.

English

Keywords: fossil fuel, oil, emissions, Climate change, royalty rate, Paris agreement
JEL: H23: Public Economics / Taxation, Subsidies, and Revenue / Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
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