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July 22, 2021
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Why a managed shift away from fossil fuels is essential and urgent. Including for petrostates.

Unless they’ve been living under a rock (or inside the boardrooms of some oil and gas companies), no one seriously disputes anymore the need to rapidly phase out fossil fuels.

The main reason why, obviously, is that we need to do whatever it takes to keep global warming under 1.5°C. Even those who didn’t get the memo from scientists can see the raging wildfires, the rapidly melting Arctic and so many disastrous storms and typhoons.

Other reasons are: because air pollution kills millions every year; because ecosystems are collapsing and we’re living through the sixth mass extinction in the history of the planet; because it’s now cheaper to produce energy using renewable sources; etc. The list goes on and on.

But there’s one additional reason we need a managed, just and equitable transition away from fossil fuels: it’s actually in the interest of people living in oil and gas producing countries.

Today, Carbon Tracker released a report on how much petrostates stand to lose from a low-carbon transition (13 trillion USD at least), unless the oil and gas revenue is replaced with something else.

This is important. Over 400 million people live in the 19 most vulnerable countries that rely heavily on oil and gas (“petrostates”). As we fight for a cleaner world free of fossil fuels, we need to make sure that the world we want does not include leaving hundreds of millions out in the cold.

The first thing to know is that not all petrostates are equal: Bahrain, Norway and Angola all depend on oil and gas revenue, but some of them have managed to get a better deal over time. Some countries rely heavily on oil and gas to keep the lights on (up to 90% of government budget in Iraq, 80% in Equatorial Guinea). Others, like Norway, have large sovereign wealth funds and can diversify. (Yes, EV paradise Norway still gets about 20% of its revenue from oil and gas.)

According to Carbon Tracker’s analysis, these countries might lose up to 13 trillion USD over the next two decades compared to expected revenue. In short: over half of the money they’re expecting to come into their public coffers will never materialize. Those are hospitals, schools, public servants’ salaries.

What’s more important, 80% of this drop in revenue will be due to lower oil and gas prices. It means that even if they continue pumping out oil, they’ll get paid less and less for it by the “market,” which is shorthand for “large corporations and financial markets setting the price for a certain commodity.”

It’s a vicious cycle, and as oil prices fell over the past decade, the average government debt of petrostates nearly doubled: from 24% of GDP in 2010 to 46% in 2018. When oil prices crashed and went down to negative levels in March 2020, countries like Iraq and Angola started running out of cash to pay public sector employees.

Indeed, some of the most oil- and gas-reliant countries are also among the most vulnerable: Equatorial Guinea, South Sudan, Angola, Azerbaijian. Despite being rich in natural resources, they haven’t been able to build large sovereign wealth funds and make their economies less reliant on fossil fuels over time.

In short: some of the most vulnerable communities on the planet, which are often both on the frontlines of climate change and directly impacted by fossil fuel extraction, risk being more and more impacted over time.

This is why it should be a moral imperative for rich countries and large financial institutions to support heavily oil- and gas-reliant countries and communities to manage this huge transition in a just and equitable way.

The benefits of the zero-carbon transition are clear and well documented. Shifting to clean energy means that more people will have a job per dollar invested and GWh of energy produced. Hundreds of thousands fewer people will die or fall ill due to direct pollution from fossil fuel production. And communities will be able to access energy more cheaply and sustainably through decentralized and subsidized renewable energy infrastructure.

What is the task before campaigners and activists?

For starters, a lot of oil and gas development in these countries is actually financed by large development and private banks (directly) and central banks (indirectly). We all need to hold these banks accountable and get them to stop funding fossil fuels and put money into a just transition instead. There have been positive steps in the right direction, for instance when the European Investment Bank, the largest multilateral development bank in the world, reviewed its lending policy and ruled out most fossil fuels starting from 2022. But much more needs to happen much faster, and every euro, dollar or yuan invested on fossil fuels now is one less euro, dollar or yuan that goes towards a just zero-carbon transition. It’s also going to be many more dollars and, crucially, lives and livelihoods lost due to climate impacts.

On top of shifting future investments, rich and G20 countries also need to cancel the mountain of debt that oppresses poorer and more vulnerable countries, and they need to pay back their share of responsibility for the accumulated emissions over 150 years through robust climate finance and direct technological support.

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