Energy Transition Puts High Economic Burden on Low-Income Fossil Fuel Exporters

With the United States’ reentry into the Paris Agreement and the $2 trillion American Rescue Plan that aims to reduce the carbon intensity of the US economy, the global energy transition from fossil fuels to renewables is gaining momentum. While every nation stands to benefit from prevention of excessive global warming, growth of the green economy can also mean economic losses for many fossil fuel exporters.

Fossil Fuel Resource Rents and Per Capita GDP

• According to data from the World Bank, today there are more than fifty countries where fossil fuel resource rents contribute to more than 1% of GDP. This list includes the forty largest net fossil fuel exporters.
• In more than a dozen countries, fossil fuel rents constitute more than 20% of GDP.
• Since the transition to renewables will reduce global fossil fuel consumption, economies that depend heavily on fossil fuel exports will feel the greatest impact from the loss of resource rent. Fossil fuels exporters with low per capita income are likely to suffer the most because of the lack of resources and human capital to boost investments in new sectors of the economy.
• The fossil fuel exporters most vulnerable to energy transition are those with GDP per capita of $20 thousand or less and fossil fuel rents exceeding 10% of GDP. This group, which can be found in the upper left of the chart below, consists of fourteen economies: eight African countries (Nigeria, the largest African economy, is among them), Iraq, three former Soviet republics, and Mongolia.
• Given the persistent political instability in many of these countries, the new climate policy and global energy transition may introduce additional risk for unrest and conflict.

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