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OPEC Strategies and Oil Rent in a Climate Conscious World

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  • Daniel J.A. Johansson
  • Christian Azar
  • Kristian Lindgren
  • Tobias A. Persson
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    Abstract

    In the UNFCCC process, energy exporting countries (primarily OPEC) claim compensation for losses in expected oil rent due to CO2 mitigation measures. However, there are mechanisms that may raise rather than lower the oil rent. If a carbon price is implemented universally, the cost of using oil substitutes such as unconventional oil or synthetic diesel from coal or natural gas will increase even more than the cost of using conventional oil. Here, a dynamic model that takes into account OPECÕs dominant position in the worldÕs liquid fuel market is developed in order to analyze these mechanisms. In this model, OPEC is assumed to act as strategic leader while all other liquid fuel producers act as price-takers. We find that the net present value of OPECÕs conventional oil rent increases by about 5% due to the carbon prices needed to reach stringent CO2 emission targets. For less ambitious targets, the increase in oil rent could be even higher. An extensive sensitivity analysis is also performed, which corroborates the main result.

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    Bibliographic Info

    Article provided by International Association for Energy Economics in its journal The Energy Journal.

    Volume (Year): Volume 30 (2009)
    Issue (Month): Number 3 ()
    Pages: 23-50

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    Handle: RePEc:aen:journl:2009v30-03-a02

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    Cited by:
    1. Reyer Gerlagh, 2011. "Too Much Oil," CESifo Economic Studies, CESifo, vol. 57(1), pages 79-102, March.
    2. Chakravorty, Ujjayant & Leach, Andrew & Moreaux, Michel, 2010. "Would Hotelling Kill the Electric Car?," TSE Working Papers 09-149, Toulouse School of Economics (TSE).
    3. Wie, Jiegen & Wennlock, Magnus & Johansson, Daniel J.A. & Sterner, Thomas, 2011. "The Fossil Endgame: Strategic Oil Price Discrimination and Carbon Taxation," Discussion Papers dp-11-26, Resources For the Future.

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