January 2003 / No. 21

Environment

The Question Facing OPEC

"OPEC can no longer ignore these reforms, and its obstructionist activities will only prolong its inevitable downfall as its income will plummet to zero by 2100"

At the invitation of the Institute for International Energy Studies, Professor Mohsen Masserrat, delivered a lecture on “the impact of the European Union’s policy on climate change on Iran and other OPEC countries”. Masserrat, who has been living in Germany since 1964, completed his post-doctoral thesis on economics in 1978 and was dean of the Department of Social Sciences at the University of Osnabrück in 2002. At the outset of his address, he apologized for his possible stuttering and inarticulation, and nonetheless continued to deliver a vibrant, engaging and flawless presentation. Besides, a few stammers would be forgiven a man who has more than 270 titles (in Persian, German, French, Spanish, Japanese and Dutch) to his credit.

Early on in his speech, Masserrat alarmed the audience with a bombardment of worrisome statistics from the World Energy Council, International Atomic Energy Agency, Stockholm Environmental Institute, Wuppertal Institute for Climate and Environment Energy, all of which prophesized an imminent environmental disaster. Rising sea levels and 50% of the world living in coastal areas is not a good combination, not to mention the unprecedented turbulent weather which recently wrecked havoc in Europe.

There was a collective sigh of relief when he said strict global adherence to the Kyoto Protocol and reduction in fossil fuel consumption would postpone the environmental crisis. Today’s emissions must be reduced to a third, despite the projected tripling of energy consumption by 2050. This gap must be filled by environmentally-friendly renewable energies. To this end Europe, and to a lesser extent the United States, have conducted extensive research into alternate sources of energy and have implemented policies encouraging their use. In Germany, regulations compel companies to use the more expensive wind or solar energies where available. It is projected that by 2100 fossil fuels will be completely substituted by renewable energies. Nuclear energy, however, is not considered an option because even with a 300% increase in capabilities, it can only account for 7% of the need. The apolitical lecture strategically skirted around Iran’s controversial Bushehr power plant.

What it lacked in politics, it made up for in economics, as financing these strategies was next attended to. A comprehensive overview of factors affecting oil prices, complete with charts and diagrams, was presented. It was established that the scarcity price (read real price) of oil is at least $40 and probably as high as $70 per barrel. There are numerous forces working to keep oil prices down and Masserrat claims it is the consumers, rather than the producers, who determine prices. An example of such forces is the European state tax imposed on oil imports which occasionally exceeds OPEC’s oil income. It is no wonder that Europe will expand its taxing policy to include an ECO tax – with the increased in revenue to finance research into renewable energies. Iran and OPEC can no longer ignore these reforms and their obstructionist activities will only prolong their inevitable downfall as OPEC’s income will plummet to zero by 2100 as projected by the Stockholm Energy Institute's sustainable energy scenario. 

Masserrat concluded his remarks by calling attention to the fact that the global environment is a global problem that can only be solved with unanimous global effort and if Iran and OPEC do not want to be left behind, they must tag along the reform wagon. 

When the floor was opened to questions, a senior official of the National Iranian Oil Company (NIOC) grilled Masserrat on global warming, asking with our fossil fuels being exhaustible by nature and scientific data being arguable projections of the future, is it wise to abandon a system that works for us? 

To this Masserrat coolly answered we cannot sit around and do nothing because we cannot tell the future. It is true that the scientific data are merely arguable projections, but they are arguable both ways, and the disasters forecasted can occur in 20 rather than 200 years. What is certain is that providing for worst case scenarios is better than getting caught unaware, and that is even more certain than the exhaustibility of our fossil fuels. At the outset it was predicted that fossil fuels would last only 50 years, which was true for the time, but with the constant advancement in technology and exploration techniques and the rise in oil prices, more oil is being recovered from more reserves which have now become financially viable to exploit.  

We must increase our cooperation with Europe, the pioneer in renewable energy and facilitate investment and technology transfer between OPEC and Europe. Such a move would be welcomed by Europe as environmental issues are zealously pursued on government agendas. European governments currently spend billions of dollars enforcing their imposed oil consumption limits. This expenditure will be avoided if OPEC countries become active in the Kyoto reforms and agree to reduce their productions on condition that governments eliminate their interfering policies and let the market itself determine the price of oil (which will be the same as the scarcity price). This will be mutually beneficial, as OPEC will sell less oil with at least the same profit and Europe will have more money to spend on renewable energies in a cleaner environment. 

OPEC’s current policy is aligned with that of the United States who won’t bother with reforms at a time when oil is so cheap. This mindless alliance between consumers and producers to protect this system was put on display in Johannesburg summit where they prevented the enactment of any obligating environmental treaty – to the outrage of the world community. But with environmental disaster ever-more imminent, it seems certain that this system must be abandoned sooner or later. The question is whether there will be any environment left when it is.