With the Copenhagen negotiations, just round the corner, a fierce debate is raging between the producers and the consumers. The two sides are head to head over climate change. Saudi Arabia and other exporters are pushing their case for compensation for any fall in global oil consumption that could follow new limits on carbon emissions. Many in the consuming world seem perplexed. Interesting indeed — from more than one angle.
“Assisting us as oil-exporting countries in achieving economic diversification is very crucial for us through foreign investments, technology transfer, insurance and funding,” Mohammad Al-Sabban, the chief Saudi negotiator was quoted as saying by The New York Times. Saudi Arabia has been emphasizing oil exporters should be compensated for loss of earnings if an agreement at Copenhagen results in lower oil sales, so as to get them away from heavy dependence on the export revenues from oil.
Sabban described the position as a “make or break” for them.
Riyadh has passionately argued, for years now, that just as low-lying nations such as Bangladesh are vulnerable to the effects of climate change; it is among the countries most likely to be hurt by an effort to cut the use of fossil fuels.
Al-Sabban acknowledged that the 1992 Climate Change Agreement stated that developing countries that are highly dependent on oil exports “should be given full consideration with regard to transfer of technology, funding and insurance.” The original treaty meant to combat global warming, the 1992 United Nations Framework Convention on Climate Change, contains provisions that in Saudi Arabia’s view require such compensation, especially since due to selective and biased climate policies, producers will be faced with the fact that oil will gradually lose its market share.
Producers instead are emphasizing on other measures to handle the environment issue. “To show the Kingdom’s seriousness in addressing the problem, it is requesting that carbon capture and storing technologies (CCS) be widely used internationally as a way to achieve what is known to be a ‘win-win’ solution,” Sabban emphasized. The emphasis seems on technology to provide for the continued use of oil that is free of greenhouse gases.
Saudi Arabia, like other oil producers, has reasons for demanding compensation. Riyadh is highly dependent on oil exports. Last year, when prices peaked, the Kingdom’s oil revenue swelled by 37 percent to $281 billion, Jadwa Investment said. However, the revenues from crude exports were expected to drop to $115 billion this year, after oil prices fell.
A recent study by the International Energy Agency, found that the cumulative revenue of the Organization of the Petroleum Exporting Countries would drop by 16 percent from 2008 to 2030 if the world agreed to slash emissions. The OPEC could lose $4 trillion in revenue between now and 2030 if a UN conference in Copenhagen strikes a deal on global warming curbs. The International Energy Agency projected that with the current policies in place, OPEC revenue will be about $28 trillion between 2008 and 2030 if there is no climate change deal. If there is a deal, OPEC revenues will be only $24 trillion. With no change in current energy policies, worldwide demand for oil would come to 105.2 million barrels a day between now and 2030. However, with the limitations envisaged by the IEA, demand would come to only 89 million barrels a day by 2030.
However, an earlier study by the consulting firm Charles River said that in case of an agreement in Copenhagen on greenhouse emission on the envisaged lines, the losses in revenue for Saudi Arabia alone would be $19 billion a year starting in 2012. This is colossal.
And Saudi Arabia is not alone in this battle. Other producers seem to be joining in too. The Qatari minister of energy and industry, Abdullah Al-Attiyah, has also added his support to the proposal. “If the world is asking us to put huge investment and they are asking to put in new capacity, we want to be sure that somebody will take this new capacity,” he told Bloomberg. Abdalla Salem el-Badri, secretary-general of OPEC, said in an interview with The Times that he would support Saudi’s claims for compensation if talks at next month’s United Nations Climate Change Conference in Copenhagen end with commitments to reduce oil consumption in developed countries.
Ecuador, OPEC’s newest member, said last year that it was willing to freeze oil exploration in the Amazon forest if it got some financial rewards for doing so.
Algerian Energy Minister Chakib Khelil also emphasized that the 13 members of OPEC were concerned about the impact on their economies of any new taxes on the oil and gas industries approved in Copenhagen.
Khelil said OPEC producers, including Algeria, would work together to strike a common position ahead of the December conference “in order to protect their interests.”
Jose Maria Botelho de Vasconcelos, Angola’s oil minister and current OPEC president, vowed last month that the world’s major oil producers would resist any move that would punish their industries. “Oil producers must ensure that their interests are properly represented in the post-Kyoto agreement,” he said in Vienna.
Yet there are skeptics of the demand too.
“It is like the tobacco industry asking for compensation for lost revenues as a part of a settlement to address the health risks of smoking,” said Jake Schmidt, the international climate policy director at the Natural Resources Defense Council.
David G. Victor, an energy expert at the University of California, San Diego, while dismissing the Saudi stance says that the real threat for petroleum exporters came from improvements in fuel economy and rising mandates for alternative fuels in the transportation sector, both of which would reduce the need for petroleum products.
Mohammed Aly Raouf, program manager of environmental research at the Gulf Research Center in Dubai said such a claim would set a problematic precedent. “Sooner or later the world will switch to another source of energy and if they say they want to be compensated then the coal producing countries can also say they want to be compensated,” Raouf said.
The entire debate smells politics. To the world not only climate issues are important, fossil fuel is also absolutely required. A balance is needed. Eyes remain focused on the world leaders for the next move on the energy chess board.
