1 The Fossil Endgame: Strategic Oil Price Discrimination and Carbon Taxation Jiegen Wei, Magnus Hennlock, Daniel JA Johansson and Thomas Sterner Department of Economics, University of Gothenburg. Sweden Abstract This paper analyses how fossil fuel producing countries can counteract climate policy. We analyze the exhaustion of oil resources and transition to a backstop technology as a strategic game between the consumers and producers of oil which we simply refer to as “OECD” and “OPEC”. The consumers “OECD” derive benefits from oil but worry about climate effects due to carbon dioxide emissions. The OECD has two instruments: it can tax fuel consumption and decide when to switch to a carbon neutral backstop technology. The tax reduces climate damage and also appropriates some of the resource rent. OPEC retaliates by choosing a strat- egy of price discrimination, subsidizing oil on domestic markets. The results show that price discrimination enables OPEC to avoid some of the adverse consequences from the tax and backstop technology in OECD by consuming a larger share of the oil in their domestic market. Our results suggest that persuading fossil exporters to stop subsidizing domestic consumption will be difficult. Keywords: Dynamic games; Stock externalities; Carbon tax; Nonrenewable resources; Ener- gy subsidies JEL: D62; H23; Q34; Q54