The world’s poorest oil-dependent countries are set to take the biggest hit in the transition away from fossil fuels, according to a new report published on Thursday (11 February).
The report, Beyond Petrostates, was published by Carbon Tracker, a London-based not-for-profit think tank researching the impact of climate change on financial markets.
It found that the forty nations that are the most heavily reliant on fossil fuel income could face a $9 trillion gap in government revenues over the next 20 years if demand drops in line with tightening global climate policy and technological advances.
The 19 worst affected countries, which have a combined population of 400 million, could see total government income drop by 20%, leading to job losses and cuts in public services.
Among those, the poorest countries face the largest shortfalls.
“Many of the countries set to suffer the most from revenue losses are also the poorest. In some cases, they also have large and rapidly growing populations, for example in Nigeria and Angola,” reads the report.
In Nigeria, a 70% drop in oil revenues would cut government income by a third, while in Angola, the government could lose 40% of its income. Six emerging petrostates with plans to expand undeveloped oil and gas, like Uganda, will also face revenues falling far short of expectations.
The world’s biggest oil and gas producers, including the US, the UK, the Netherlands, China, India and Brazil, are also looking at major drops in revenue, but have diverse economies that are less dependent on fossil fuels.
In #BeyondPetrostates, we focus on the 40 countries with the greatest fiscal dependence on oil and gas revenues – the #petrostates. These are the most #oil and #gas-reliant countries (as a % of GDP) https://t.co/uirLv115Gm #EnergyTransition pic.twitter.com/SUcuKXFch8
— Carbon Tracker (@CarbonBubble) February 11, 2021
The report argues that helping developing countries through the transition is in the international community’s interest as world nations strive to meet the demands of the Paris Agreement.
“Understanding the scale of the challenge and which nations are most vulnerable will help policymakers focus their efforts. Cushioning the landing for hundreds of millions will deliver better outcomes for both climate and human development,” said Andrew Grant, co-author of the report.
There is no one-size-fits-all approach to reducing reliance on fossil fuels, said report author Mike Coffin, but he added that developed countries can provide technical and financial support or assistance for tax or legal reforms.
“The EU could also look to help accelerate efforts already in progress by the World Bank and the IMF and help the poorest oil-dependent countries share some of the gains from the energy transition,” he said.
The report is a “wake-up call” for fossil fuel reliant countries and international policymakers who base their planning on industry and OPEC forecasts.
“It’s in the interests of all nations to minimise global temperature rise and this means rapidly reducing our use of fossil fuels,” said Mike Coffin. “But many countries are heavily reliant on oil revenues – the time to act on rebalancing their economies is now. Waiting for demand to fall will be leaving it far too late,” he warned.
Governments make money from oil and gas through national companies, which produce just over half of the world’s oil and collect tax revenues from private fossil fuel companies.
Many countries would see a drastic fall in total government income, with revenues falling short of industry expectation by 50-66% in Europe, Asia, sub-Saharan Africa, Latin America and the Caribbean. In North America, it is expected to fall by 77%.
Overall, oil producing countries risk losing $13 trillion in total by 2040, the report estimates, urging petrostates to plan ahead and reduce their dependence on fossil fuel revenues immediately by cutting public spending, raising new taxes and reconstructing their economies.
EU leaders have said they want to promote a global fossil fuel phase out and systems like the emissions trading scheme in the EU are making it more expensive for most sectors to use fossil energy.
“This shift away from fossil fuels has to happen – the impacts of global temperature rise fall disproportionately on the poorest countries globally, including many of the petrostates,” said Coffin.
“The challenge is for countries to act now to diversify their income streams, and to reduce their dependence on oil and gas for fiscal stability, and the continued provision of government services,” he added.
[Edited by Frédéric Simon]