OPEC’s Greatest Fear [Carbonomics, Ch. 13]
December 20th, 2006 by Steven Stoft, BerkeleyIf you want to know what strategy would work against OPEC, listen to OPEC.
[...] OPEC, the well-known cartel of major oil exporters, pays close attention to what would damage its profits. Of course, when this thirteen member-organization finds a threat, it doesn’t tell us directly what it is. Instead, OPEC looks for some reason to criticize the threatening strategy.
As Daniel Yergin explains in his book ‘The Prize: the Epic Quest for Oil, Money and Power’ (1991)
‘Few things could more quickly arouse the exporters to outrage than the prospect of a tariff in the oil-importing countries, for such a levy would transfer revenues from their own treasuries back to the treasuries of the consumers’
A tax—actually, an untax—on imported oil is exactly what I recommend, because it would transfer revenues from OPEC to consumers. OPEC’s displeasure with this idea is a reliable sign that it’s a good idea. Selling oil is a zero-sum game: What they gain, we lose.
But since 1991, another reason for such a tax has worried OPEC more than the simple idea of cutting our oil costs. In 2007, OPEC stated that it was
‘concerned that many of the so-called ‘green’ taxes that are currently levied on oil do not specifically help the environment. Instead, they simply go into government budgets to be spent on other things.’ —OPEC, September, 2007.
Is this plausible? Might OPEC be concerned that the green taxes “do not specifically help the environment”? OPEC uses the word specifically because its members know that these taxes do help the environment by reducing the use of oil. It’s just that the tax revenues may not be used to help the environment. But what concerns OPEC is exactly the beneficial reduction in oil use—the part that does help the environment. As to the tax simply going “into government budgets,” well that would be our government’s budgets instead of their governments’ budgets. Again, it is easy to understand their “concern.”
But if OPEC doesn’t like green taxes, why did it sign the Kyoto Protocol? Well, besides the fact that the treaty requires its members to do absolutely nothing, they want to remain part of the international climate-change process. In another 2007 statement, OPEC stated that it
‘participates in many international meetings in order to remind governments and others who are debating environmental policies that they must consider the needs of developing countries, especially those that rely on their income from oil’. September, 2007.
“Those that rely on their income from oil”—would they, by any chance, be the OPEC countries? So OPEC participates in climate-change conferences to protect its “income from oil.” How thoughtful. But, although OPEC does remind us of the needs of developing countries, it might be a bit more accurate to characterize what it does as trying to stir up trouble.
‘It is unfair and unrealistic to ask for more stringent commitments for developing countries over and above those already embraced by them in the Kyoto Protocol’. —OPEC, December, 2007
“More stringent commitments”—I suppose that would mean “any commitments at all,” since developing countries currently have no commitments under Kyoto. I can think of one excellent commitment they should make: Developing countries should commit to stopping their subsidies for fossil fuels—in other words to stop wasting money and subsidizing global warming at the same time. Of course the developing countries that top the list of oil subsidizers are the OPEC countries. But this is getting off the point.
My point is that OPEC members fear effective climate-change policy, and most of all they fear “green taxes” or untaxes on oil. OPEC members fear these because they know the taxes work—they reduce the use of oil. Even more, OPEC members fear such taxes because when oil use falls, the price of oil falls. And that’s what really hurts OPEC’s members.
‘We also need to be sure that there will be enough demand for that oil and that we will get a reasonable price.’—OPEC, September, 2007.
Now, what price would OPEC consider “reasonable”? Might that be the highest possible sustainable price? That’s certainly what I would mean, were I in OPEC’s shoes. OPEC is always talking about “security of demand.” But its members are not concerned with a sudden demand disruption due to a terrorist attack on the United States. They are concerned that we might reduce our oil addiction over the long run. Pushers are always concerned about how to keep their users hooked. According to OPEC,
‘Oil demand is also greatly affected by consuming countries’ policies. Taxation of energy products is often seen not only as a means of raising revenue, but also as a means of controlling demand in addressing environment and energy security issues.’
So there you have it straight from the horse’s mouth. “Oil demand is also greatly affected by consuming countries’ policies.” And what policy tops the list? “Taxation of energy products.” Might these “energy products” be oil? Can’t OPEC ever say what it means? Well, if I were them, I wouldn’t either ’[...]
Steve Stoft
These are excerpts from chapter 13 of my forthcoming book Carbonomics.