Towards Net-zero in Fossil Fuel-Developing Economies: Is the burden fairly shared with importers?

How can international co-operation foster the transition to a greener future? Banner image: Shutterstock/Da Da Diamond
Towards Net-zero in Fossil Fuel-Developing Economies: Is the burden fairly shared with importers?

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Earlier this year, the Intergovernmental Panel on Climate Change issued a stark warning: act now to reduce emissions by 45% by 2030 and reach net-zero by 2050, or fail to limit global warming to relatively “safe” levels of 1.5-degrees of pre-industrial times. Exceed this limit, and extreme weather events and changes to weather patterns will intensify and become more common, exposing millions to uninhabitable living conditions—particularly those in the Global South.

A couple of weeks ago the European Commission called for oil, gas and coal to stay in the ground in the Arctic, and will seek for an international agreement on a moratorium on new oil and gas exploration, failing which it would ban imports of new fossil fuels produced in the Arctic. And, last week the 2021 Production Gap Report urged coal, oil, and gas producers to reduce production immediately and steeply, to be consistent with limiting long-term warming to 1.5°C.

All this suggests a new direction of travel for economies that heavily depend on fossil fuels that is  fraught with steep challenges. If not well managed, one major risk is for such transition to bear unintended yet harmful consequences to their populations, many of which already live in poverty or fragile contexts. In order to mitigate them, importers must recognise their shared responsibility in ensuring an orderly and sustainable phasing out of fossil fuels in producer countries.

In fact, a prompt reduction in fossil fuel revenue without sufficient time or support to manage macroeconomic risks and the structural transformation required to build diversified, sustainable and resilient economies could have catastrophic social knock-on effects for millions of people. Many fossil fuel-based economies have rapidly increasing populations, high levels of urbanisation and burgeoning energy demand. Most are heavily dependent on fossil fuels for income, energy and employment, struggle to access international finance and, consequent to the COVID-19 pandemic, are experiencing severe economic contractions and unsustainable levels of debt.

Nigeria, for instance, is expected to be the world’s third most populous country by 2050. Half of Nigerians are under the age of 18, and between 2010 and 2030, 77 people will move to Lagos every hour. We also have the world’s largest energy deficit: 85 million Nigerians—43% of the population—lack access to grid-supplied electricity, which results in an estimated annual economic loss of up to 2% of GDP. Renewable energy holds significant potential to alleviate these challenges, but limited absorption capacity limits the amount of variable power generation which can be accommodated by the grid. Meanwhile, the strength of our economy is closely tied to a volatile oil price, with petroleum exports accounting for 86% of total export revenue.

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Despite these challenges, the conversation around “how” fossil fuel developing economies can undertake an orderly exit from fossil fuels, while safeguarding the rights and interests of their citizens forms only a small part of global discussions on climate change. The principle of common but differentiated responsibilities and respective capabilities is a core tenet of the Paris Agreement; yet producer countries are currently left to shoulder the majority of the transition burden, with limited support from importing countries who share responsibility for accelerating the progression to a low-carbon future.

Gas flaring is a case in point. Estimated to account for annual global emissions of around 400 million tonnes of CO2 equivalent, its elimination is a low-hanging fruit in terms of climate change mitigation. We in Nigeria are doing our part: we have successfully reduced flaring by 70% over the last 15 years through a combination of regulatory interventions, including requiring producers to have gas utilisation plans and meters at flare points, and introducing penalties for flaring when it does take place.

It was only in 2021 that the shared responsibility of oil importing countries to reduce flaring was recognised, when the World Bank launched its Global Gas Flaring Reduction Partnership (GGFR)’s Imported Flare Gas (IFG) Index. And yet, there is much importers can do to help. For instance, they can require international oil companies (IOCs) operating from their jurisdictions to deploy best available technologies for emissions abatement wherever they operate. They can also identify flaring “hotspots” in their oil and gas supply chains using the IFG, provide producer governments with technical assistance to develop gas utilisation strategies or foster technology transfer to offer solutions to flaring.

Joint ventures offer a channel for transferring technology to national oil companies (NOCs), leveraging state participation to share know-how and best practices on emissions abatement with spill-over effects within the sector and the whole economy. They also provide a vehicle for NOCs and IOCs to co-develop solutions, such as the development of pipeline networks for gas to be used as feedstock in petrochemicals industries or power generation, or small-scale liquefied natural gas facilities where development of traditional gas infrastructure is not viable.

The pathway towards net-zero for fossil fuel developing economies still needs to be defined. That is what we are aiming to do by developing the Equitable Framework and Finance for Extractive-based Countries in Transition (EFFECT), through a multi-stakeholder process facilitated by the OECD Development Centre and under the co-chairmanship of the European Commission and Nigeria. We need to be creative to shape new forms of collaboration and partnerships. Host governments can work with industry to understand demand scenarios, and help governments understand underlying assumptions and implications for oil and gas production. Since you cannot reduce emissions that you do not measure, host governments and industry can also work together to improve national inventories reports for oil and gas methane emissions and transparently share information on emissions. In particular, IOCs, NOCs and local companies in the supply chain should align their objectives on emission reduction, and share data openly to advance technology improvements and identify business opportunities for capturing and selling associated gas.

COP26 is a make or break event for our future and the planet on which we live: every country must contribute. However, putting pressure on developing countries to switch immediately to new energy sources is not sustainable. World leaders have an opportunity to step up and set the tone to support fossil fuel-developing countries to accelerate their transitions to sustainable, diversified and resilient economies. We do share the same ambition for our future and our planet, but we need to work hand in hand to make this happen. We have no choice but succeed together.

Check out the OECD COP26 Virtual Pavilion, which brings together leading thinkers and policy experts who will share insights and data on accelerating climate action to reach the goals of the Paris Agreement

Learn more about Equitable Energy Transition in the OECD event How to achieve an Equitable Energy Transition in Extractive-based Developing and Emerging Economies?

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