Oil producers approach caps emissions

Elephant in the room: How OPEC sets oil prices and limits carbon emissions

From The Bulletin of the Atomic Scientists 

The Organization of the Petroleum Exporting Countries (OPEC) has succeeded where two decades of climate change policies have largely failed in limiting carbon dioxide emissions around the globe. But in this special issue, one author and energy consultant Alfred Cavallo argues that the OPEC price-setting regime is an inefficient way to regulate carbon emissions. In this paper he advocates that governments in both developed and developing countries could reduce emissions more efficiently and fairly by putting in place a zero-net-revenue surcharge regime, with all collected funds returned directly to consumers.


Despite a North American oil boom, non-OPEC crude oil production is not increasing. New production roughly balances existing oil field decline, a situation that allows OPEC, which has spare production capacity, to control the total global oil supply and therefore oil pricing. OPEC has raised crude oil prices by a factor of about four since 2002, reducing world demand. Thus, world crude oil production has been flat since 2005, and a major source of carbon emissions has been capped. In this article the author explains how OPEC sets prices due to geopolitical as well as economic considerations. Carefully managing oil prices may be used to limit demand, and add stability during economic crisis.

Abstract

Despite a North American oil boom, non-OPEC crude oil production is not increasing, because new production roughly balances existing oil field decline. This situation allows OPEC, which has spare production capacity, to control the total global oil supply and therefore oil pricing. OPEC has raised crude oil prices by a factor of about four since 2002, reducing world demand. Thus, world crude oil production has been flat since 2005, and a major source of carbon emissions has been capped. This production plateau has been maintained in spite of significantly increased demand from China, India, and other developing countries. But governments in both developed and developing countries could reduce emissions more efficiently and fairly by putting in place, for example, a zero-net-revenue surcharge regime for fossil fuels, with all collected funds returned directly to consumers.

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Article details
Alfred Cavallo (2013). Elephant in the room: How OPEC sets oil prices and limits carbon emissions Bulletin of the Atomic Scientists, 69 (4) : 10.1177/0096340213493583

     
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