IPCC Fourth Assessment Report: Climate Change 2007
Climate Change 2007: Working Group III: Mitigation of Climate Change Effect of mitigation on oil prices and oil exporters’ revenues

The literature has hardly advanced since the TAR. GHG mitigation is expected to reduce oil prices, but the regional effects on GDP and welfare are mixed. Some studies point to gains by Annex I countries and losses to the developing countries, while others note losses in both of varying magnitudes, depending on different assumptions in the models. Studies that consider welfare gains/losses and international trade in Annex I countries also lead to mixed results, even if subsidies plus incentives and ancillary benefits are taken into account (Bernstein et al., 1999; Pershing, 2000; Barnett et al., 2004).

The highest modelling costs for implementing the Kyoto Protocol quoted by Barnett et al. (2004) for action in all Annex I countries are for OPEC: a 13% loss of oil revenues in the GCubed model (IPCC, 2001, p. 572). The scenarios underlying these costs assume Annex B action, including the USA and Australia, with a CO2 tax but no allowances for non-CO2 gases, sinks, targeted recycling of revenues or ancillary benefits. The outcome for OPEC is that its share of the world oil market falls compared to baseline projections. The authors argue that these costs will be lower following the Marrakech Accord; they are also lower because the US and Australia are not part of the Kyoto process, so the extent of mitigation action will be less than that modelled. All model estimates reviewed by Barnett et al. show that OPEC countries will see an increase in demand for oil but that this increase will be slowed by mitigation efforts following the Kyoto Protocol.

The use of OPEC market power could reduce negative effects, but this is uncertain (Barnett et al., 2004, p. 2085). OPEC’s World Energy Model assumes that OPEC production remains at baseline levels in the scenarios. This results in excess market supplies, since oil demand will be reduced. This leads to an estimate of OPEC losses of 63 billion US$ a year or about 10% of GDP, compared with 2% if supply is restricted in line with demand. Another scenario estimates the effect of an oil-price protection strategy, assuming that all major oil-producing countries in non-Annex B and in the former Soviet Union act together with OPEC. The conclusion is that OPEC losses would be substantially reduced. Another interesting feature of these results is that the losses as a percentage of 1999 GDP vary substantially across economies: from between 3.3% for Qatar to 0.07% for Indonesia by 2010.

Awerbuch and Sauter (2006) assess the effect of a 10% increase in the share of renewables in global electricity generation (which would reduce CO2 by about 3% by 2030, compared with 16% in the IEA scenario). They suggest that the global oil price reduction would be in the range of 3 to 10%, with world GDP gains of 0.2 to 0.6%. Once again, the substantial increase expected in oil exporters’ revenues would be reduced, although oil-importing countries would benefit.

Nearly all modelling studies that have been reviewed show more pronounced adverse effects on countries with high shares of oil output in GDP than on most of the Annex I countries taking the abatement measures.