One of the very real but rarely mentioned impacts of the energy transition is those nations that could be left behind.
While countries such as the UAE and Saudi Arabia, the richest oil-producing countries or so-called ‘petrostates’, are currently occupying the COP28 limelight, sometimes for the wrong reasons, there are smaller more vulnerable states that rely on fossil fuel exports who aren’t wealthy enough to pay for their economies to go green.
A report published by think tank Carbon Tracker last week highlighted the stark lack of economic diversification across some of these poorer states and warned of the significant potential impact of the impending switch on less wealthy fossil fuel-reliant nations.
Nearly 100 per cent of federal revenue for Turkmenistan, Venezuela and Iraq comes from oil, while those from Algeria and Qatar are near 90 per cent.
Six African states – Nigeria, Angola, Chad, Congo, Equatorial Guinea and Gabon; a combined population of nearly 400 million people – are highly vulnerable with more than 60 per cent of their total budget at risk if they don’t change prior to the green transition, the report said.
“Many of these states are really financially vulnerable to future losses which could lead to a significant impact on GDP” Guy Prince, an analyst with financial think tank Carbon Tracker, said.
According to Prince, many governments still believe demand will remain stable and have committed financing to future projects. But if progress on the clean agenda kicks on, an oil oversupply will drive down prices and cripple the finances and public infrastructures of these countries at risk.
“As export revenues drop, so too will consumption, government expenditure, public and private investment; so there is a very real impact on GDP and international policymakers need to have a sense of urgency with this,” Prince said.
A coalition bloc representing African Nations highlighted their concerns in the face of the energy transition as COP28 got underway last week.
“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 a statement before the conference got underway.
The situation has parallels, all be it on a regional level, with the fall-out from the collapse of the UK’s coal industry where whole regions of the UK sank into destitution and the state failed to provide adequate support.
There are options, however.
COP26 in Glasgow saw the birth of Just Energy Transition Partnerships (JETP), financing models to help coal-dependent emerging economies pivot to renewable alternatives.
They are, however, complex, slow-moving facilities that are, unsurprisingly, staggeringly expensive.
The only example to date is an $8.5bn package to support South Africa, which is being showcased as a blueprint for other dependent countries such as Indonesia and India, despite its plans stalling under the weight of political instability and sky-high unemployment.
However, poorer states that exist by way of their dependence on oil and gas cannot be fixed one by one through multiple billion or trillion dollar financial packages.
COP28 should perhaps focus its attention on these states to make sure no one is left shortchanged by the crucial shift that needs to take place to radically reign in global warming.