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Countries With High Dependence On Fossil Fuels

There are some countries that have both a higher dependence on fossil fuel production and relatively low capacity for supporting a transition away from fossil fuel production.

Highly dependent countries include, for example, Angola, Iraq, Nigeria, and Venezuela, which currently receive more than 90% of their export revenues from fossil fuels.

Such countries face particularly challenging transitions and are least able to manage the resulting social disruption and costs.

A major challenge for these countries will be identifying, investing in, and growing alternative sources of export revenue and domestic economic activity.

In heavily indebted countries, this revenue makes it possible to service foreign debt; consequently, debt forgiveness could make a transition away from fossil fuels more viable, provided it does not sacrifice access to future finance.

These countries may rely overwhelmingly on royalties and other fiscal income from fossil fuel production for a broad range of public expenditures, such as investments in education, health, and infrastructure for development and poverty reduction.

Therefore, building an alternative tax base may be a prerequisite to shifting away from fossil fuel production, although doing so quickly is especially challenging.

Overall, the oil and gas industry is capital-intensive and typically represents a relatively small share of jobs in major fossil-fuel-producing developing countries, though it is a much larger share when oil-revenue funded public sector salaries are included, as noted above.

The picture is different for coal, which employs over 7 million people and supports more indirect jobs globally. When a country has very high unemployment — such as South Africa, where there are about 80,000 jobs in the coal mining sector — even the loss of a relatively small share of the national workforce could have severe consequences, particularly in producing areas.

In addition, an inability to fund strong social welfare systems and labour market characteristics — such as large informal workforces — make it harder for developing countries to implement active labour policies for a just transition.

This is especially the case where labour union influence is also on the decline, as unions have historically played a strong role advocating for worker protections and social welfare policies.

Failing to involve unions in just transition efforts appears to weaken overall outcomes. In higher-dependence, lower-capacity countries, a powerful barrier to transitioning away from production is the strength of the extractives-led growth paradigm, combined with the lack of credible alternative socio-economic development strategies.

Even though norms are changing, many multilateral development banks, donor agencies, and private investors have historically promoted this paradigm, which can be reinforced domestically by rent-seeking behaviour and patronage networks.

However, fossil fuel extraction (especially oil extraction in the context of weak governance) has often been associated with poor economic performance and high rates of multidimensional poverty, corruption, conflict, and authoritarianism.

So far there has been limited discussion in these countries about a just transition, not least because their focus has been on extraction-driven development.

Concepts such as “unburnable carbon” and “stranded assets” have also had little traction, as concerns about poverty alleviation and infrastructure needs have prevailed.

Nevertheless, some countries have started to take initial steps. In Colombia, the Ministry of Finances has recognized the risks associated with a decline in global demand for coal.

China — with a higher capacity for transition than many other countries in this grouping — has established an Industrial Special Fund, totaling USD 14.5 billion, for employment restructuring in coal areas.

Trade unions and multilateral development banks have initiated policy discussions around transitions in Africa, Asia, and Latin America.