ENERGY PRICES AND CO2 EMISSIONS IN THE 1990S

The world oil market conditions in the 1990s are examined by means of an annual econometric model incorporating strategic behavior of OPEC. It is found that growing world consumption and the rising share of OPEC in production will put the OPEC in a position of being able to raise oil prices substantially sometime in the middle of this decade. Only slow growth in world output and/or intensive energy conservation efforts will make it possible to postpone the tightening of world oil market conditions to the next century. An energy consumption/CO2 emission model is then constructed to examine the possibility of stabilizing CO2 emissions at around the current level or of reducing it by 20 percent under this oil price scenario. Energy savings that will result from rising real energy prices and continuing improvements in energy-saving technologies will probably stabilize the emission levels in developed countries, but total world emissions will continue to grow. A 30 percent tax on fossil fuels, together with more intensive energy-saving efforts, can reduce the emission level by 20 percent by the year 2000 in developed countries, but again other parts of the world will be forced to cut their economic activities substantially to meet the target. This clearly indicates the need for a global approach rather than a country-by-country approach to effectively tackle the problem of excessive emission of CO2.