1 Fossil Endgame? Strategic interaction, pricing and taxation of dwindling oil stocks in a World of Climate change

This paper analyses the strategic game within finite time horizon between two blocks: the consumers and producers of oil. The oil producers (OPEC) try to max-imize rent and can decide on the prices both in their domestic markets and the international market. Depending on their discriminatory pricing strategy, OPEC will decide the depletion rate for the oil stock and not necessarily continue to supply both markets until depletion but might exit from the two markets at different moments in time. The consumers in the OECD want to buy the oil, worry about depleting stocks but also about climate effects due to carbon emissions. The OECD can tax fuel consumption and they might do this either for Pigouvian rea-sons (to reduce climate risks) or for strategic motives (to access some of the re-source rent). However the strategic behavior of the OECD and OPEC interact making each more complex. The results are analyzed and compared with a hypo-thetical global social planner to force both parties to cooperate