Opec’s Dilemma and the Future of Oil: Navigating the Path to Net Zero

The UN’s Net Zero goal is to limit the rise in mean global temperatures to 1.5 C by 2050. They suggested that it could be achieved by reducing global emissions by 45 percent by 2030, then to zero by 2050. This book is a new stress test in applied econometric analysis of oil producing countries. It includes positive economic analysis using a sample of 11 OPEC countries from 1970 to 2019; and presents 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 country, then uses counterfactual scenarios to show that OPEC ’s strategy to peg the price of oil by cutting oil production by more than 45 percent by 2030, results in a reduction of permanent income, which has negative macroeconomic consequences, such as on social welfare and deadweight losses. The book begins by defining the dilemma, describing the stylized facts of OPEC economies and oil production organizations, their political environments, the dominant features of these economies such as oil rent; productivity; oil-dependence; and the long-run and cyclical correlation between oil and output. It provides a microeconomic foundation for the macro analysis by testing the monopoly vs. competition price mechanism. Finally, there is a discussion of the policy options available to OPEC to deal with the UN’s Race to Zero. Students, scholars and researchers will benefit from the innovative ideas presented in the book and it will be a useful guide for policymakers and global governance experts.

Weshah Razzak is Honorary Research Fellow at the School of Economics and Finance, Massey University, Palmerston North, New Zealand.