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Jared Miller and Tarun Gopalakrishnan from The Fletcher School, Tufts University, examine the political and economic fragilities of fossil fuel-producing states facing down a global energy transition.

A global energy transition from fossil fuels to renewable energy will have major political and economic ramifications around the world, especially for fragile fossil fuel-producing states (FFFPs). Still, these impacts are not yet well understood let alone prepared for. Within many FFFPs, an energy transition is not simply a transformation of the energy sector, but also a fundamental challenge to the political economy of the state and the way politics are practiced. Yet, high-level reports making the climate and economic cases for global energy transition focus on potential benefits, such as expanded energy access, employment in new green sectors, and increased private investment leaving the impact on states’ political economy unexamined.

Drawing on our recently published article, “” and , we explore three different ways in which the energy transition challenges the political economy of FFFPs.

The Political Roles of Fossil Fuel Rents & Lurking Replacement Problems

FFFPs are not all dependent on fossil fuels in the same way. This may seem like an obvious point, but one which often gets lost or muddied within the literature and commentary on the global energy transitions. There are two main types of broad dependence—economic and political—with variations within each. Economic and political dependence are not mutually exclusive and are often related, but they do differ and, as a result, require different policy responses.

Economic dependence, meaning how reliant an economy is on the fossil fuel industry, is what often dominates debate. This is often measured as fossil fuel rents as a percentage of gross domestic product (GDP). The general argument is that countries in which fossil fuel rents account for a significant portion of GDP (usually meaning more than 20%) are vulnerable to the impacts of phasing out production. Those with higher levels of wealth (measured as GDP per capita) are seen as those who are more able to weather these impacts and invest in diversifying their economy to avoid the negative repercussions of phasing out fossil fuels. The Gulf states are emblematic examples of this.

Yet economic dependence is often intertwined with political dependence. Political dependence is how reliant the political system is on the fossil fuel industry for the majority of government revenues, to manage its monetized, transactional politics, or a combination of the two. The first is common in rentier states like Saudi Arabia, the United Arab Emirates, and Kuwait, where oil rents enable high levels of public spending and investment. The second is a feature of countries that are described as , meaning countries where elite dealmaking dominates the formal political institutions. In political marketplace countries, such as , , , and , fossil fuel and other resource rents are vital components of how the . They are what political leaders use to buy elections, build coalitions, hire cronies, grease political deals, and fund patronage networks. For instance, in , elite actors have leveraged oil rents for their campaigns, to hire armed actors, and to pay off political opponents—all in the pursuit of political power. These deals made among the elite are where the real politics occur, often outweighing ballots cast on election day.  

The big question, which is rarely asked, is how political marketplace countries politically dependent on fossil fuel rents will respond to the decline of those rents. The loss of those rents fundamentally challenges the way elite actors make deals, and more importantly, the resources with which they make them. In an initial answer to this question, colleagues of ours produced a series of case studies on , , , , , a , and a , but more research is urgently required. 

The Future Green Economy: Claimed Benefits and Trauma 

A transition to renewable sources of energy is often framed as a once-in-a-century opportunity to not only decarbonize, but to build a new industrial economy that is more inclusive, democratic, and beneficial to average citizens. However, the reality facing some FFFPs is entirely different.

While there are significant opportunities that accompany the energy transition—expansion of access to electricity, the emergence of new job sectors—the distribution of costs, benefits, and rewards of decarbonized energy markets will be highly contested, subject to manipulation, and by no means guaranteed. Scholars have robustly outlined the potential advantages of decarbonization, but there is a need to better grapple with the contextual realities facing specific countries.

Renewable generation, through solar and wind, may solve technical, political and environmental problems in large parts of the world, but in FFFPs, a politically feasible low-carbon transition may have to focus on fossil-adjacent sectors (e.g. hydrogen, non-energy petrochemicals, and carbon capture and storage). These fossil-adjacent sectors need a significant buildup of technical capacity and are more politically viable because they do not directly challenge the political economy of FFFPs in the way reducing oil production would. Additionally,  may inadvertently fuel a spike in demand for critical earth minerals creating new forms of the and .

Achieving the claimed benefits and avoiding the disruption that the future green economy may bring, FFFPs requires a clear-eyed analysis of these tensions and how they will shape and be shaped by the politics within these countries.

Hazards of Financializing Decarbonization

It is generally accepted that global decarbonization will require both a re-orientation of existing flows of finance, as well as additional finance to manage the costs of transition in FFFPs. However, linking decarbonization to the logic of global finance has its pitfalls.  

Solutions such as carbon offsetting, un-differentiated fossil fuel divestment, de-risking energy markets to encourage private investment using scare public finance and debt financing of escalating climate risks creates a variety of risks that can accumulate. These include offshoring risk burdens toward the most fragile producers and creating new forms of resource rents that exacerbate fragility while slowing down decarbonization. Beyond green taxonomies and de-risking, the challenge is to recognize diverse purposes and patterns of finance across political economies, more carefully consider what and who finance is for, and build consensus on ways in which finance can support decarbonization, as well as reduce political fragility. In prioritizing scarce transition finance, greater importance must be given to fragility over carbon production capacity. 

Where do we go from here?

Analysis of energy transition potential needs to take far more seriously the impact on politics of fossil fuel phase out in countries dependent on those resources. In many FFFPs, fossil fuel rents comprise not only a significant portion of the economy but are also fundamental to government budgets or what is literally used to grease the wheels of the political system. A successful transformation requires a technical plan designed for the specific politics that surround its implementation. Current policy frameworks often understate the risks, overstate the benefits, and solutions often fail to grapple with the political reality of these states. If humanity is to achieve international climate commitments, this must change.