The Organization of the Petroleum Exporting Countries (OPEC) this week warned “western countries” that their efforts to develop Biofuels as an alternative energy source to combat climate change risked driving the price of oil “through the roof.” Forgive me if I’m somewhat confused, but when I learned economics, an increase on the Supply curve, all other factors being equal, resulted in lower prices for a particular product or service—not an increase. The secretary-general of OPEC commented that the cartel was considering cutting its investment in new oil production in response to moves by the developed world to use more Biofuels.

Presumably, the remarks from OPEC were in anticipation of the G-8 meeting this week where climate control is likely to be a major topic of discussion, especially in light of the U.S.’s plans to aggressively step-up climate warning initiatives—in other words, use alternative fuels (alternative, that is, to oil). ( ... where I grew up in Brooklyn, such comments sound more like a threat rather than economic theory.) OPEC has previously expressed skepticism about alternative energy, but apparently this is the first overt threat that the Arab nations would reduce oil production investments in reaction to a concentrated “western” effort to displace oil with “alternative” fuels ( ... who knew corn could rattle OPEC?). President Bush has pledged to cut US oil consumption by 20% over the next ten years through more efficient vehicles and a substantial increase in Biofuel production and consumption.

Biofuel, in particular, and other “alternative” fuels such a solar, wind, geothermal, etc., in 2005 accounted for a mere three percent of the U.S. energy supply. The U.S. still derives the majority of its energy from fossil fuels: in 2005, approximately 40% of the nation's energy came from oil, 23% from coal, 23% from natural and 12% was supplied by nuclear and hydroelectric energy resources. Notwithstanding, various “estimates” and “targets” through the years 2010, 2020, and, even some, as far out as 2050, they remain just that—projections—which cannot possible predict the myriad of future political, economic and social changes. It, therefore, seems premature for OPEC to be raising the question of receiving incorrect pricing signals for investment dollars made today based on a commodity subject to an array of unstable exogenous and endogenous variables. For example, five years ago, it would have seemed unlikely that a new nuclear plant would be constructed in the United States, but it appears that will happen.

OPEC’s knee-jerk reaction to the topic of global warning this week by the G-8 and in view of the U.S.’s “new” stance on renewable energy, may signify just how easily OPEC can be shaken. ( ... it appears to me that OPEC has, indeed, blinked—just a bit too soon. For those who follow energy history, current estimates and projections regarding alternative fuels are still problematic at best—especially, as the full economic dislocations have yet to be exposed). <