Venezuela’s Opec Stand is a Win for Climate Change Campaigners

Environmentalists seem to realize that they have some stake in a fight such as the Ecuador-Chevron lawsuit...But what about fights between multinational oil giants and the governments of oil-producing states over control of resources?

Environmentalists seem to realize that they have some stake in a fight such as the EcuadorChevron lawsuit. That case, which Chevron has recently moved to an international arbitration panel in an attempt to avoid a multibillion penalty handed down by Ecuadorian courts, is about whether a multinational oil corporation will have to pay damages for pollution for which it is responsible. Most environmentalists figure that would be a good thing.

But what about fights between multinational oil giants and the governments of oil-producing states over control of resources? Do people who care about the environment and climate change have a stake in these battles? It appears that they do, but most have not yet noticed it.

In December of last year, Exxon Mobil won a judgment against the government of Venezuela for assets the government had nationalized in 2007. The award was actually a victory for the government of Venezuela: Exxon had sued for $12bn, but won only $908m. After subtracting $160m the court said was owed to Venezuela, Exxon ended up with a $748m judgment. The ruling was made by an arbitration panel of the International Chamber of Commerce (ICC). On 15 February, Venezuela paid Exxon $250m and announced that the case was settled.

Some background: the dispute arose out of the Venezuelan government’s decision to take a majority stake in oil extraction, in accordance with its law. In 2005, it entered into negotiations with foreign oil companies to purchase enough of their assets in order to achieve a majority stake. Almost all the negotiations, with dozens of companies, were successful – with only Exxon and ConocoPhillips going to arbitration (Conoco is still negotiating).

Exxon adopted a strategy of trying to make an example of Venezuela, so that no other government would try to mess with it. Exxon went to European courts to freeze $12bn of Venezuelan assets, but this was reversed within a matter of weeks. They also went to arbitration at the ICC, and at the World Bank’s arbitration panel, ICSID (the latter case still pending). But the ICC gave Exxon much less than the Venezuelan government had reportedly offered it in negotiations.

The decision was noted with intense interests among oil industry specialists – and was seen by developing country governments as an important victory for the developing world – but didn’t get much attention in the mass media. This is a big precedent – and, of course, there are other countries that will continue to have disputes with oil companies over control of resources.

Why should environmentalists care? Well, for those of us who would like to slow the accumulation of greenhouse gases in the atmosphere, we would like to keep more oil in the ground. That is one reason why most environmentalists would support a carbon tax, which would raise the price of carbon emissions. The main reason that Venezuela insisted on a majority share in these oil projects is that it wants to control production. Venezuela is a member of Opec, and abides by the organization’s quotas. If you want to reduce climate disruption, then you have a big interest in whether governments that want to reduce oil production are able to do so.

A higher price of oil due to reduced production by oil-producing countries reduces oil consumption in the same way that a carbon tax does. It also encourages the development of non-fossil fuel alternatives, including solar and wind technologies, which become more economically feasible at higher oil prices. (Of course, higher prices do also encourage non-Opec countries to produce more oil, and Opec members to cheat on the cartel, and a carbon tax would not have that same effect; but this would be an argument for a stronger and more inclusive Opec.)

On the other side, our adversaries have always had the goal of flooding the world with cheap oil, which would greatly accelerate global warming. Before Hugo Chávez was elected in Venezuela, the national oil company (PDVSA) shared that goal with Washington. But as soon as he was elected, Chávez successfully pushed Opec to reduce production, moving oil prices off their deep low point of $11 a barrel in 1998. The US State Department, in a 2002 report (pdf), admitted that the US government “provided training, institution-building, and other support to individuals and organizations understood to be actively involved” in the military coup that briefly overthrew Venezuela’s elected government that year. That same report also stated that one of the main reasons for Washington’s “displeasure” with Chávez was “his involvement in the affairs of the Venezuelan oil company and the potential impact of that on oil prices”.

Of course, it is not politically popular for anyone to appear pro-Opec in the rich, oil-consuming countries. But most environmentalists are willing to support policies, such as a carbon tax, that are not necessarily going to win elections this year. So they should also recognize that they have an immediate stake in the producing states’ struggle with multinational companies over control of fossil fuel and other natural resources.