1 July 2013

Elephant in the room: How OPEC sets oil prices and limits carbon emissions

Alfred Cavallo

Cavallo is an energy consultant based in Princeton, New Jersey, and formerly was a physicist with the US Department of Homeland Security. He worked on nuclear fusion experiments at the Princeton...


Despite a North American oil boom, non-OPEC crude oil production is not increasing, because new production roughly balances existing oil field decline. This situation allows OPEC, which has spare production capacity, to control the total global oil supply and therefore oil pricing. OPEC has raised crude oil prices by a factor of about four since 2002, reducing world demand. Thus, world crude oil production has been flat since 2005, and a major source of carbon emissions has been capped. This production plateau has been maintained in spite of significantly increased demand from China, India, and other developing countries. But governments in both developed and developing countries could reduce emissions more efficiently and fairly by putting in place, for example, a zero-net-revenue surcharge regime for fossil fuels, with all collected funds returned directly to consumers.

Region: Middle East