COP28: Energy transition may cut oil-producing states’ revenue by 60%

More than 20 countries dependent on oil and gas revenues could see these sources of funds cut in half by the transition to clean energy. Such an outcome could have disastrous consequences for workers and governments in these “petrostates” without international support to help manage the transition away from fossil fuels.

“Many of these states are quite fragile,” says Guy Prince at Carbon Tracker, a think tank in the UK. “To lose such a core source of their revenue would have quite dangerous implications for them domestically.”

Prince and his colleagues looked at how the energy transition would affect 40 petrostates that rely on oil and gas revenues to balance their budgets. In nearly half of these countries, oil and gas make up over 40 per cent of government revenue, and several are even more dependent. In Venezuela, Iraq and Turkmenistan, oil and gas make up nearly 100 per cent of federal revenue.

Under a moderately fast transition to clean energy based on existing pledges made by countries attending COP28, the researchers found 28 of the petrostates would lose more than half of their oil and gas revenue by 2040, leading to a collective shortfall of $8 trillion. A more rapid transition would have an even greater effect.

Nine of these countries are exceptionally vulnerable, standing to lose over 60 per cent of their total revenue – not just oil and gas dollars – by 2040. Of those countries, five are in Africa – including Nigeria, which has a population of more than 200 million people.

The researchers also identified six African countries – including Uganda, Senegal and Mozambique – as “emerging petrostates”, which risk losing money on fossil fuel infrastructure they are just beginning to build.

“That’s a huge investment to be putting down at a time when the International Energy Agency is projecting a peak in demand for fossil fuels,” says Prince. “The payback period is really, really long.”

The loss of that revenue and growing debt could destabilise governments and leave communities and workers in the fossil fuel industry without livelihoods, says Natalie Jones at the International Institute for Sustainable Development, a think tank headquartered in Canada. “That could lead to some really dire consequences for people,” she says, comparing it to the economic devastation after the closure of coal mines in the UK.

This dynamic is already shaping negotiations at the COP28 climate summit currently underway in Dubai, United Arab Emirates. The host country is itself at risk of losing over half its oil and gas revenue. The future of fossil fuels is a central focus of the talks, with some countries pushing for a “phase-out” of oil, gas and coal to meet climate targets and others favouring weaker language.

During the first day of talks on 30 November, the African Group of countries called strongly for more support. The group said its backing for any language on a fossil fuel phase-out was contingent on the proposal being “just, equitable and taking a differentiated approach”, says Jones, who attended the meeting.

“While we are aware of the urgent need to mitigate fossil fuel use, there must be an equitable solution to the problem of phasing out fossil fuel production and consumption globally,” the African Group said in an earlier statement.

Jones says support for vulnerable petrostates could resemble programmes launched at COP26 in Glasgow that encouraged high-income countries to aid countries dependent on coal. Those programmes aimed to help the coal-dependent countries invest in clean energy, diversify their economies and retrain workers who lose jobs. “We have yet to see how well they will succeed, but they could become a model for countries transitioning off oil and gas,” she says.

Fossil fuels are likely to play an even bigger and more tumultuous role at COP28 given an early agreement among countries on the contentious issue of loss and damage funding. “I’m absolutely certain the drama will continue to the last possible second,” says Jones.