Scandinavian Working Papers in Business Administration
Discussion Papers,
Norwegian School of Economics, Department of Business and Management Science
No 2025/22: The Shadow of Uncertainty: Climate Policy and the Value of Petroleum Resources
Ingrid Emilie Flessum Ringstad (), Giacomo Benini (), Valerio Dotti () and Kyriaki Tselika ()
Additional contact information
Ingrid Emilie Flessum Ringstad: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Giacomo Benini: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Valerio Dotti: Dept. of Economics, Ca’ Foscari University of Venice, Postal: Ca’ Foscari University of Venice , Department of Economics, Dorsoduro 3246, 30123 Venice, Italy
Kyriaki Tselika: Dept. of Business and Management Science, Norwegian School of Economics, Postal: NHH , Department of Business and Management Science, Helleveien 30, N-5045 Bergen, Norway
Abstract: We study how perceived uncertainty associated with future decarbonization policy affects the valuation and management of oil resources. We develop a novel Climate Policy Uncertainty (CPU) index for Norway and embed it within a structural model of extraction and exploration, estimated using field-level data from the Norwegian Continental Shelf. Our findings indicate that elevated policy risk reduces the shadow prices of both discovered and undiscovered oil reserves, especially in the period following the 2015 Paris Agreement, thereby weakening incentives to extract and explore. This decline corresponds to an implicit average carbon cost of approximately $6 per tonne of carbon dioxide, reaching up $24 per tonne of carbon dioxide. Unlike a Pigouvian tax, this implicit cost does not scale with emissions intensity or generate fiscal revenue, resulting in a diffuse and economically inefficient reduction in fossil fuel production and emissions and a net welfare loss.
Keywords: Oil Industry; Climate Policy; Decision-Making under Risk and Uncertainty
Language: English
72 pages, First version: July 10, 2025. Revised: September 1, 2025.
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