Does production cut make OPEC green?

The Greenwash Brigade

When I heard the news this morning that OPEC will cut its production by 1.5 million barrels per day next month, I thought they made a good decision. Such a cut should slow down the rapid decline in oil prices without making prices shoot back up to record territory. While they made the cut to maximize oligopolist profits, I was interested in the consequences of such an action. I felt that a $65+ oil price per barrel is crucial to keep consumers from flocking back to over-sized, inefficient vehicles and to keep renewable energy competitive with its fossil fuel counterparts. I then realized this logic begs the question: does the production cut make OPEC’s action green?

Let’s start by looking at the immediate effect of the action itself…

Withholding 1.5 million barrels of oil from the market daily prevents ~150 million tons of carbon dioxide in combustion emissions on an annual basis. In other words, OPEC seems to have in one fell swoop cut global emissions by .6% (equivalent to 3% of US emissions). Any environmental organization would dream of achieving such a significant and quick reduction in a one day meeting like OPEC’s Vienna rendezvous today. I think the action in itself gets four green stars.
But of course OPEC is not the only source of oil. So, if the cut keeps oil prices above $60 instead of falling to $50 during the recession then non-OPEC oil that can be profitably produced between $50 and $60 will be shipped to consumers, thus increasing greenhouse gas emissions. But non-OPEC fields are usually more expensive than OPEC ones (such as some Canadian tar sands reservoirs that can require $80+ to be profitable), so the increase in non-OPEC production will probably only offset a fraction of OPEC’s production, let’s say 1/4. That seems to warrant the reduction of one green star.
And oil is not the only source of greenhouse gas emissions. If oil costs more and is less available then there will be a mix of conservation, efficiency, and substitution to cope with that change. The conservation and efficiency is an unambiguously positive development for the environment. But the substitution can include energy from dirtier coal along with the cleaner burning natural gas and renewables. The oil used for heating can be directly replaced by natural gas and sometimes coal. The small amount of oil that generates electricity can switch to natural gas, coal or renewables. But for renewables like wind and solar to replace the bulk of oil that goes into transportation, the production and infrastructure for plug-in hybrid electric vehicles must ramp up and that will take at least two more years. Since most substitutes are cleaner than oil and efficiency/conservation are definitely climate-friendly, I’m gonna say this aspect of the change earns them one green star.
But OPEC is a major producer of oil, one of the leading causes of environmental destruction our Earth has faced over the last 150 years. Almost as big a global climate culprit as coal and a contributor of horrific local pollution from spills like the Exxon Valdez in Alaska to regular environmental degradation in the Niger Delta, oil has done serious damage to our ecosystems. To me, that means OPEC loses three green stars.

According to my arbitrary review, that makes OPEC’s move a tepid green move that earns them a green star. By keeping oil from getting too cheap in global economic downturns, I believe OPEC is helping the environment.

It will take a serious investment of hundreds of billions of petro-dollars into renewables and a shift of focus to those power sources for me to see OPEC earning more than one green star. But with the gigantic solar resources in Middle Eastern and North African deserts, that may just be a good move for key OPEC producers like Saudi Arabia, Iraq, Libya, and Algeria to consider.

Do you think OPEC’s production cut raises their green-cred?

October 24, 2008 by Dennis Markatos
2 comments

tags: green biz oil prices OPEC sustainable energy

Comments (2)

Allen | Respond
October 25, 2008 11:45 AM PT

If actual prices of oil and gasoline are lower, where's the incentive to switch? Pump prices in Colorado are now less than they were in April 2006. Since then we've been bombarded by the transit agencies' PR departments touting how many new riders they've added. How many people are going to revert to driving? What about all that density that was going to result from higher gas prices as people sold their homes in the exurbs to buy condos in the inner city?

As for OPEC, I think you give them too much credit. IIRC the OPEC countries have less than 1/3 of the oil production in the world. They have influence but it only goes so far. For example, on the day they announced major cuts the price point for a light crude contract on NYMEX (aka oil prices) fell 5%. Publicly they're saying they're cutting product to try to prop up prices but I suspect they're secretly revealed as this will take pressure off consumption and technological changes that could lead to another 1980s period of prices for them (that is, dirt cheap).

BTW - I wouldn't put too much into any publicly stated "$XX oil for XYZ project to be profitable" stuff. It's more complex than that since the lion share of costs for project come up front and it's a matter of accounting to spread those costs over 10-15 years. Once you've sunk $100 million into the project you're going to make use of it and keep the cash flowing in. You're not going to stop production because even though you're bringing in more cash than you're spending to produce it, the bean counters books show you're not making a profit.

Jim | Respond
October 27, 2008 5:51 AM PT

The unfortunate fact is that the global climate change impact of burning oil is not currently included in the price per barrel, whether it's $65 or $140. The price is driven by supply and demand, with the pollution costs externalized onto society as a whole. Hopefully the next administration will do something to address the carbon issue so the price of fossil fuels reflects their true cost.

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Our hand-picked environmental professionals, each part of the Public Insight Network, are on the hunt for "greenwash" as they examine eco-friendly claims by companies, governments and other groups. They ask tough questions about the mainstreaming of green, from the perspectives of people in the trenches who are focused on these issues 24/7.

Jim Nicolow is a nationally recognized expert on sustainable design and leads the sustainability initiative for Lord, Aeck & Sargent, overseeing the incorporation of sustainable design strategies and features into the firm’s design projects. He is a LEED® Accredited Professional with extensive knowledge of the U.S. Green Building Council’s (USGBC) LEED rating system.

Janne K. Flisrand has worked as an affordable housing and urban planning research consultant for five years, primarily supporting local non-profits. Her focus is on transit, transit-oriented design, affordable housing, and sustainability. Currently, she’s the program coordinator for Minnesota Green Communities, a program promoting affordable, healthy, sustainably built housing throughout Minnesota.

Dennis Markatos-Soriano recently completed a Master's in Public Affairs at Princeton's Woodrow Wilson School. He is now launching Sustainable Energy Transition (SET) to help individuals and institutions move from dependence on oil and gas to an efficient use of renewables. Previously, he co-founded SURGE (Students United for a Responsible Global Environment), which aims to bring young progressives together across issues of environmental and social justice throughout North Carolina and beyond. In the summer of 2006, he helped to start a small green company, Greenway Pedicabs, to provide a greenhouse gas-free transportation option for people in the Triangle of North Carolina.

Heidi Siegelbaum is a principal with Calyx Sustainable Tourism and works primarily on advancing sustainable tourism practices. She also specializes in science translation, cross-border indicators with Canada, cross-disciplinary planning and environmental technical assistance to businesses. Previously, she was in-house legal counsel for EPA for industrial chemicals and biotechnology and the senior performance measure analyst with the Washington State Department of Ecology. She is on the technical advisory committee of the Seattle Culinary Academy and a long standing member of the Chefs Collaborative.

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