Solano-Rodríguez, Baltazar; Pye, Steve; Li, Pei-Hao; Ekins, Paul; Manzano, Osmel; Vogt-Schilb, Adrien; (2021) Implications of climate targets on oil production and fiscal revenues in Latin America and the Caribbean. Energy and Climate Change , 2 , Article 100037. 10.1016/j.egycc.2021.100037.

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Abstract

While many governments rely on oil production and exports for fiscal revenues, the global energy transition driven by climate policy and technological change makes future demand and prices uncertain. We propose a framework to explore prospects for oil production, public revenues from oil, and unexploited oil reserves under hundreds of future energy transitions scenarios, following robust decision making principles. We apply it to Latin American and the Caribbean, a developing region that exports half its oil production and faces fiscal constraints. We use the BUEGO (Bottom-Up Economic and Geological Oil field production) model to simulate field development and production decisions globally. We find that oil production in the region over the next 15 years is highly sensitive to the impact of global climate action on oil prices and to the strategies of large global producers, while choices around oil fiscal regimes have limited impact. Also, 66 to 81% of proved, probable and possible reserves will remain unused by 2035. Finally, cumulative fiscal and nonfiscal revenues from oil would be $1.3-2.6 trillion under strong global climate action, compared to $2.7-6.8 trillion if reserves were strongly exploited. Our findings confirm that governments need to diversify their fiscal revenues away from dependency on oil production.

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