x Abu Dhabi, UAESunday 23 July 2017

Oil producers join Saudi in carbon reduction compensation call

Insight The International Energy Agency (IEA) and some oil-producing nations are going head to head over climate change.

The International Energy Agency (IEA) and some oil-producing nations are going head to head over climate change, as Saudi Arabia and other exporters push to receive compensation for any fall in global oil consumption that could follow new limits on carbon emissions. The IEA executive director, Nobuo Tanaka, questioned the Saudi proposal at a press conference last week, noting OPEC revenues will still grow four-fold under a scenario in which the use of fossil fuels is strictly regulated.

"Do they really need to be compensated?" Mr Tanaka asked. Saudi Arabia has argued that just as low-lying nations such as Bangladesh are vulnerable to the effects of climate change, it is among the countries most likely to be hurt by an effort to cut the use of fossil fuels The Qatari minister of energy and industry, Abdullah al Attiyah, has added his support to the Saudi proposal. "If the world is asking us to put huge investment and they are asking to put in new capacity, we want to be sure that somebody will take this new capacity," he told Bloomberg.

The IEA, which was formed in 1974 to defend the interests of large oil-consuming nations, is usually focused on OPEC efforts to reduce output to increase prices. But current prices of about $75 a barrel have been described as an acceptable level for both sides. On climate change, the IEA argues that the cost of shifting to low carbon sources of energy is less than the costs of allowing a significant rise in global temperatures.

"IEA ministers acknowledged that the cost of inaction on climate change will be greater than the costs of action," the agency said in a communique from a ministerial meeting last week. But heavier costs will be borne by the highest emitters of carbon and suppliers of fossil fuels. The US Congressional Budget Office, a non-partisan body, said proposed legislation to curb carbon output in the US would cost the economy jobs as it reduced GDP by between 0.25 per cent and 0.75 per cent by 2020.

The US is the world's second-biggest emitter of greenhouse gases, after China. "Reducing the risk of climate change would come as some cost to the economy," the body's director, Douglas Elmendorf, told a congressional hearing. "Over the next decades the economic losses from policies to avert climate change would exceed the economic gains in terms of climate change." The costs to oil producers are disputed, as experts note that OPEC, with large, accessible reserves, is likely to still supply a significant quantity of crude to the market over the next several decades.

An IEA forecast released early this month showed that under a frequently cited scenario in which emissions are cut to hold global warming at2°C, world oil consumption in 2030 would be 15.3 million barrels per day less than in a business-as-usual scenario, leading to a 16 per cent fall in revenues. But due to the combined effect of higher oil prices and output, revenues would still be four times higher by 2030 than they were in the past 22 years, the IEA predicted.

* with Bloomberg @Email:cstanton@thenational.ae