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A new report says that economic diversification will be crucial as governments across the world set ambitious climate action goals. Forty countries have economies dominated by the oil industry, and as demand for and use of oil is phased out in importing nations, these “petrostates” risk major economic challenges. The report states that oil-producing nations need to prepare for a drop in demand, scrap any plans that were based on growing demand, and diversify their economies before it’s too late. The Biden administration is attempting to make that pivot here in the U.S., announcing a pause in all new oil and gas lease sales (on land and offshore) pending a review of the program.
Why This Matters: A “just transition” away from fossil fuel-dependent economies will be needed globally. Many “petrostates” are developing nations, and some are only just beginning to reap the economic benefits of their oil reserves. Losing oil and gas revenues could cause an economic crisis of such scale in the poorest of these nations will disrupt other industries that feed, house, and provide power to large populations. But without climate action, those same people face drought, famine, and health crises. The same is true here in the U.S. We can’t afford NOT to shift from fossil fuels. So the wealthy countries and companies that have driven oil and gas demand need to help these “petrostates” diversify their economies.
Iraq and Equatorial Guinea rely on oil for 80% of their GDP. Saudi Arabia, Nigeria, and Algeria are predicted to lose 20% to 40% of their oil and gas revenue by 2040.
Ghana, Uganda, and Guyana have only just recently made investments in oil and gas, but are now at risk of losing those investments.
Climate action is imperative, but that doesn’t mean we have to sacrifice people to economic disaster. The report emphasizes that countries can prevent such a crisis by immediately divesting from existing fossil fuel development and investing in renewable infrastructure and other industries that can thrive in the absence of oil. The report also suggests investing in public services like education, to support the citizens through a drastic change, and prevent civil unrest.
On Deaf Ears
Despite these warnings, the world’s state-owned fossil fuel companies are planning to invest $1.9 trillion in projects that would prevent the world from meeting the goals of the Paris Agreement. David Manley, a senior economic analyst at the Natural Resource Governance Institute think tank explained, “a lot of the oil industry wants one last party, and they are going to invest trillions. We are worried about how long that party will continue. If the energy transition [away from fossil fuels and into clean energy] is to be fast enough to meet the Paris agreement, the party needs to be over very quickly.”
In the U.S. President Biden has taken some steps to divest from fossil fuel companies, recently suspending a Trump policy that was effectively a federal oil subsidy, which would have allowed oil and gas companies to drill at a discount on federal lands. In addition, in furtherance of the President’s climate change executive order, last Friday the Bureau of Ocean Energy Management and the Bureau of Land Management put off planned auctions for oil and gas leases in the Gulf of Mexico and in Colorado, Montana, Utah and Wyoming. Recent leasing auctions have received sparse responses mostly due to the drop in oil and gas prices. Ironically, experts predict that Biden’s policy to cut sales will decrease supply and thus prices will go up.
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