August 10, 2009. When the demand for oil falls, so does OPECs price. From 1980 through 1985, demand fell enough that the Saudi's had to cut their own production 75% to keep prices up. Even so, prices slid down roughly 30% and then dropped by half again in 1985 when the Saudi's gave up on their cartel and decided to punish the cheaters.
Despite best efforts to re-group, with all that excess capacity prices stayed low through 2001. A far more modest demand reduction tanked oil prices in 2008. That's because the Saudis have learned not to cut their production to support prices, except to the extent they can get their Cartel to help out. The Cartel has done a bit better than in the 1980s, but demand still plays an overwhelming roll.
Demand cuts are just what's needed for cooperation between climate and energy policy. The goal of climate policy is to reduce fossil-fuel use and, by definition, that means reducing the demand for oil. In fact every climate-policy study that looks at the question, starting with DOE's study of Kyoto in 1998, shows that climate policy will reduce the world price of oil.
In fact when Kissinger put together his anti-OPEC consumers' cartel he ended up recommending what amounted to national carbon taxes on oil. Later, in 1986, this was advocated by William Buckley, who said "It is the perfect moment to strike. Many purposes would be served by slapping a $10 duty on the price of a barrel of oil." At the time, he was rather upset with Vice President Bush for "arriving in Saudi Arabia to plead with the sheiks to restrict the production of oil so as to regularize the price, which for one dazzling day had sunk to less than $10."
You can read more about how to align climate policy and energy security in
Carbonomics, which I offer at a
discount here. Or you can read Chapter 13, "Charge It to OPEC," on
Google Books
.
