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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

Abstract

In the UNFCCC process, energy exporting countries (primarily OPEC) claim compensationfor 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 OPEC’s dominant position in the world’s 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 OPEC’s 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.

Suggested Citation

  • Daniel J.A. Johansson & Christian Azar & Kristian Lindgren & Tobias A. Persson, 2009. "OPEC Strategies and Oil Rent in a Climate Conscious World," The Energy Journal, , vol. 30(3), pages 23-50, July.
    • Handle: RePEc:sae:enejou:v:30:y:2009:i:3:p:23-50
    DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No3-2
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    References listed on IDEAS

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    Keywords

    OPEC; climate change; CO2 emissions; carbon policy;
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