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OPEC VERSUS KYOTO?

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International agreement on the reduction of anthropogenic emissions ... Burniaux and Martins: leakage rates strongly depend on the supply elasticity of coal. ... – PowerPoint PPT presentation

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Title: OPEC VERSUS KYOTO?


1
OPEC VERSUS KYOTO?
Henk Folmer
2
Outline
  • What is Kyoto?
  • EU emission trading
  • What is OPEC?
  • How likely is
  • Green Paradox
  • Carbon Leakage
  • Environmental Capital Flight
  • Is OPEC a threat to Kyoto?

3
Outline
  • What is Kyoto?
  • EU emission trading
  • What is OPEC?
  • How likely is
  • Green Paradox
  • Carbon Leakage
  • Environmental Capital Flight
  • Is OPEC a threat to Kyoto?

4
The Kyoto Protocol (KP)
  • International agreement on the reduction of
    anthropogenic emissions of greenhouse gases
    (GHGs)
  • Differentiated reductions to bring about equal
    burden sharing

5
Flexible Mechanisms
  • The Bubble allows groups of countries to jointly
    meet their obligations
  • Joint Implementation (JI) allows a country to
    meet its obligation via an abatement project in
    another Annex I country
  • Clean Development Mechanism (CDM) as JI but for
    a project in a Non-Annex I country
  • International Emmission Trading a transfer of
    GHG quotas among Annex I countries

6
Weaknesses and Pittfalls
  • The KP is not legally binding and the penalty for
    non-compliance is basically ineffective.
  • JI and CDM credits emanate from reductions
    relative to a hypothetical baseline of emissions
    that would have occurred absent the JI or CDM
    investment.
  • CDM can be substituted for development aid
  • For some countries the quotas are higher than
    their expected emissions (hot air)

7
Outline
  • What is Kyoto?
  • EU emission trading
  • What is OPEC?
  • How likely is
  • Green Paradox
  • Carbon Leakage
  • Environmental Capital Flight
  • Is OPEC a threat to Kyoto?

8
EU Emission Trading
  • Two-stage system
  • The domestic EU trading system has been
    restricted to electric power generation, iron and
    steel, pulp, paper and board and minerals
  • Total number of emittors subject to trading is
    approximately11,000 which account for about 40
    of the EU GHG emissions
  • 2008 proposal to extend emission trading to other
    sectors and to more GHGs

9
Trading Mechanism
  • At the national level, emitters obtain an initial
    endowment for free on the basis of expected
    emissions
  • A small proportion of the permits can be
    auctioned off by the national governments
  • At the end of each year regulated emitters must
    surrender allowances equivalent to their
    emissions
  • Shortfalls of actual emissions relative to their
    permits need to be matched through purchases

10
Weaknesses of the EU trading scheme
  • National Allocation Plans subject to EC oversight
    which creates inefficiencies, regulatory
    uncertainties and delays.
  • 2008 proposal EU-wide system based on harmonized
    rules under an EU authority
  • Over-allocation of permits, due to allocation on
    the basis of grandfathering and the use of
    emission projections instead of verified
    emissions data
  • 2008 proposal auctioning of at least 60 of the
    permits

11
Outline
  • What is Kyoto?
  • EU emission trading
  • What is OPEC?
  • How likely is
  • Green Paradox
  • Carbon Leakage
  • Environmental Capital Flight
  • Is OPEC a threat to Kyoto?

12
OPEC
  • Intergovernmental organization of 13 oil
    producing exporting countries
  • Mission To coordinate and unify the petroleum
    policies of its member states to ensure them a
    steady income but also to secure an efficient,
    economic and regular supply.

13
World Oil Production
  • 2007 73.3 million barrels per day of which
  • 45 by OPEC
  • 25 by OECD countries
  • 10 by the Russian Federation
  • More than 75 of the world oil reserves are in
    the OPEC countries
  • Saudi Arabia
  • Largest producer in the world
  • Posses approximately 20 of the worlds proven
    reserves
  • Swing producer

14
OPEC and the Market
  • OPEC has some market power because
  • The price of oil has been above the marginal
    production costs since a long time
  • Statements of OPEC officials have impacts on
    daily oil prices
  • However OPEC countries often produce more than
    agreed upon

15
OPECs Position Relative to the KP
  • OPEC countries are signatories (except Irak)
  • The KP implies partial expropriation for OPEC
    countries because the taxes due to the KP raise
    the consumer price above the OPEC supply price
  • Therefore
  • OPECs opposition to plans to reduce oil
    consumption
  • OPECs criticism of the subsidies that industrial
    countries offer to stimulate the development of
    renewable energy resources
  • There is empircal evidence that OPEC will incur
    losses from the KP

16
Outline
  • What is Kyoto?
  • EU emission trading
  • What is OPEC?
  • How likely is
  • The Green Paradox
  • Carbon Leakage
  • Environmental Capital Flight
  • Is OPEC a threat to Kyoto?

17
Green Paradox
Decline of future prices
Producers feel threatened
Expand production
Acceleration global warming
18
Carbon Leakage
Advantage firms non-abating countries
Reduction policy home country
Increase emissions
Raise domestic energy prices
  • Eichner and Pethig carbon leakage does not
    necessarily occur
  • Burniaux and Martins leakage rates strongly
    depend on the supply elasticity of coal.

19
Environmental Capital Flight
  • Firms in the abating home country migrate to
    non-abating countries
  • Jeppesen and Folmer (CO2 emissions) abatement
    policy only one location factor among a large set
    of location factors.
  • Van der Veen No support for environmental
    capital flight for the Netherlands

20
Outline
  • What is Kyoto?
  • EU emission trading
  • What is OPEC?
  • How likely is
  • The Green Paradox
  • Carbon Leakage
  • Environmental Capital Flight
  • Is OPEC a threat to Kyoto?

21
Do Oil Producing Countries Fear a Decline of
Future Prices ?
  • Support Decreasing oil intensity of production.
  • In OECD steadily decline in oil intensity by
    slightly less than 50 between 1970 and 2003 due
    to more efficient use of oil, increasing
    utilisation of alternative energy resources and a
    shift in the composition of output towards less
    oil intensive sectors
  • In developing countries an increase in oil
    intensity of slightly less than 30 until 2000
    when it started marginally declining
  • However, decrease in intensity has been nullified
    by an increase in the volume of output

22
The Price of Oil
  • The SP Crude Oil Spot Price index increased by
    approximately 257 between 2000 and 2007
  • Contribution of oil to the worlds energy supply
    decreased from 46.2 in 1973 to 35 in 2005
  • The increased demand in developing countries
    compensates or exceeds the possible gradual
    reduction of oil consumption in abating countries

23
Impacts of Higher Oil Prices
  • Substitution away from oil
  • Stimulation of RD on
  • Fuel efficiency
  • Utilisation of more ecologically friendly
    alternatives

24
Impacts of The Substitution Away from Oil
  • ...need not necessarilly be beneficial to the
    environment climate, nor lead to net social
    benefits since
  • Oil is being substituted for coal and nuclear
  • Full LCA of alternatives needs to be made
    positive CO2 vs other environmental aspects
  • Eco friendly alternatives still in development
    Unable to fully substitute for fossil fuels in
    the short and medium term

25
Alternative Fuels and the Environment / Climate
  • Full LCA of biofuels
  • reductions in soil fertility
  • competition with food crops
  • loss of plant and animal habitats
  • monocrops can foster disease epidemics
  • Crutzen Increased use of N fertilizer which can
    contribute more to global warming than the
    reduction achieved via fossil fuel saving

26
Kyoto and the recession
  • Recession has reduced the consumption of fossil
    fuels

27
Conclusions
  • Both Kyoto and EU global warming policy need
    basic revision
  • OPEC not a serious threat to Copenhagen
  • Little support for the Green Paradox, Carbon
    Leakage and Environmental Capital Flight
  • Price incentives insufficient for the development
    and introduction of alternative, environmentally
    friendly energy sources
  • Climate policy
  • RD policy
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