Lili Fuhr and Johnny West write:  Most oil contracts are structured so that the investor recovers costs first, with the remaining profits then divided between the producer and the government that granted it the concession. This means that, if carbon pricing reduces oil’s profitability, as intended, the loss in government revenue could be larger than the drop in overall profits.
Making matters worse, the details of these agreements are largely hidden, thereby preventing citizens from holding their governments accountable, which in turn undermines democracy and facilitates corruption.
To remedy the situation, ongoing efforts to increase transparency should go beyond revenue flows – which are set to face new transparency requirements in the United States and the European Union – to include contracts. Once a contract is public, future carbon-pricing scenarios can be modeled to demonstrate that most governments will earn less than they expect and, more important, that many potential projects and new discoveries could become stranded assets.