OPEC’s Dilemma and the Future of Oil. Navigating the Path to Net Zero

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By Weshah Razzak

Publisher: Routledge
Pages: 172, 99 B/W Illustrations
Year: 2024
ISBN: 9781032784854

The UN's Net Zero goal is to limit the rise in mean global temperatures to 1.5°C by 2050, suggesting global emissions be reduced by 45 percent by 2030 and to zero by 2050. This book is a new stress test in applied econometric analysis of oil-producing countries, using a sample of 11 OPEC nations from 1970 to 2019 to present an empirical analysis of OPEC's operating model — the state-owned oil monopoly, hence its dilemma.

The book estimates a production function for every OPEC nation and uses counterfactual scenarios to show that OPEC's strategy to peg the price of oil by cutting production by more than 45 percent by 2030 results in a reduction of permanent income, with negative macroeconomic consequences such as social welfare losses. It provides a microeconomic foundation for the macro analysis by testing the monopoly vs. competition price mechanism, finishing with a discussion of the policy options available to OPEC to deal with the UN's Race to Zero.

Contents: The Dilemma, the Stylized Facts, and the Objectives; The Stress Test Strategy; Time Series Properties of OPEC Data; Estimating Baseline Permanent Income for OPEC; Counterfactual Design and Empirical Stress Tests; OPEC's Options are Limited and Challenging.

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Q&A

Who is this book for?
Students, scholars, researchers, policymakers and global governance experts working on energy economics and climate policy.

What does the empirical analysis show?
That OPEC's strategy of cutting production to peg oil prices toward Net Zero results in permanent income losses and negative macroeconomic consequences.

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