Ameer Randolph
Fossil fuels have played a dominant role in global energy systems, with around four-fifths of global primary energy coming from coal, oil, and gas. However, there is a growing need to transition to low-carbon energy sources to address climate change. This raises the question of whether developing countries, which have contributed the fewest greenhouse gas emissions, should continue to rely on fossil fuels for their economic development. While some developing countries are rich in fossil fuel resources and have benefited economically from extraction and exports, there are concerns about the environmental and health impacts of burning fossil fuels, as well as the risk of declining demand and prices. Developing countries face challenges in transitioning to renewable energy sources due to factors such as energy access, poverty, and the cost of new technologies.
| Characteristics | Values |
|---|---|
| Fossil fuel use in developing countries | High |
| Reasons for high use | Fossil fuels are a fundamental driver of technological, social, and economic development |
| Fossil fuels are cheaper than low-emission energy sources | |
| Fossil fuels are more accessible than low-emission energy sources | |
| Fossil fuels are a significant source of government revenue | |
| Negative consequences of high fossil fuel use | Fossil fuels are the largest driver of global climate change |
| Fossil fuels contribute to local air pollution, which is linked to millions of premature deaths each year | |
| Fossil fuel markets are fickle, and developing countries may be left with few buyers as the world transitions to low-carbon energy sources | |
| Alternatives to fossil fuels | Low-carbon energy sources such as nuclear and renewables |
| Hydropower |
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What You'll Learn
- Fossil fuels are a significant driver of climate change
- Developing countries are vulnerable to shrinking fossil fuel markets
- Developing countries are being asked to transition to renewable energy
- Fossil fuel exports are a key source of government cash
- Fossil fuel usage is driven by income and energy consumption
Fossil fuels are a significant driver of climate change
Fossil fuels (coal, oil, and gas) have played a dominant role in global energy systems. However, they are a significant driver of climate change. When burned, fossil fuels produce carbon dioxide (CO2) and are the largest driver of global climate change. The burning of fossil fuels releases greenhouse gases, such as carbon dioxide, that trap heat in the Earth's atmosphere, causing global warming and climate change. The net effect of burning fossil fuels is warming, as the cooling effect of airborne particles is small compared to the heating caused by the greenhouse gases that remain in the atmosphere for decades to centuries.
The use of fossil fuels has severe climate, environmental, and health costs. The burning of fossil fuels has led to rising global temperatures, causing sea level rise, higher temperatures, and extreme weather events. These impacts disproportionately affect developing countries, which are more vulnerable to the effects of climate change due to existing poverty, inequality, and historical exploitation. Additionally, the recent increased appetite for fossil fuels due to geopolitical events is likely temporary, and developing countries relying on fossil fuel exports may soon face reduced demand and economic risks.
Furthermore, fossil fuel exports are often a key source of government revenue for developing countries, accounting for over 50% of government budgets in the top 15 oil and gas-producing countries between 2006 and 2010. A decline in fossil fuel prices or demand can significantly impact the economies of these countries, reducing critical revenues for investments in health, education, and infrastructure.
To mitigate these risks, developing countries should carefully consider the pace of licensing and extraction, as a slower pace may allow governments to upgrade institutions and potentially increase future income by reducing investor risk. Additionally, governments should promote the competitiveness of their fossil fuel sectors while moderating public investment, reducing costs for investors, and attracting production to mitigate the stranding of reserves.
Overall, the transition to low-carbon energy sources is essential to address the significant contribution of fossil fuels to climate change.
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Developing countries are vulnerable to shrinking fossil fuel markets
Developing countries are highly vulnerable to shrinking fossil fuel markets. Fossil fuel-rich developing countries are highly exposed to a shrinking market for oil, natural gas, and coal. A fall in fossil fuel prices for producers significantly reduces the excess profits available from fossil fuel extraction on existing investments and makes further development of reserves less profitable. If those reserves stay in the ground, future government revenues from fossil fuel extraction will be reduced, as will other benefits to the domestic economy, such as job creation.
Developing countries are more vulnerable to the impacts of a permanent decline in fossil fuel prices than their richer counterparts. This is because fuel reserves constitute a significant portion of their national wealth. These countries have a median ratio of fossil fuel reserves to GDP of 3.6—which means the national wealth held in these reserves is valued at more than three and a half times their total economic output. Lower demand for oil and gas would drain critical revenues that governments could spend on investments in health, education, and infrastructure.
The global energy transition is affecting fossil fuel exporters from multiple angles, adding to longstanding uncertainties about the relative movements of fossil fuel demand and supply. While policymakers are very familiar with these challenges, they now also face expectations of a permanent decline in the long-run global demand for fossil fuels. Key factors that could determine country-level impacts include the type of fossil fuel a country exports, extraction costs, and country characteristics.
To limit the increase in global temperature to 2 degrees Celsius, more than two-thirds of current known reserves must remain in the ground. This will likely cause the market for fossil fuels, especially highly polluting coal, to dramatically shrink, and with it, their value to exporting countries. As countries move away from oil and gas, new strategies must be created to ensure no harm to the communities that depend on them. This includes protecting workers and communities that are vulnerable to job displacement and insecurity.
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Developing countries are being asked to transition to renewable energy
However, there is an urgent need to reduce the share of fossil fuels in the energy mix due to their negative impacts. Fossil fuels are the largest driver of global climate change and significantly contribute to local air pollution, which is linked to millions of premature deaths annually. As low-carbon sources of energy, such as nuclear and renewables, become more accessible, a rapid transition away from fossil fuels is imperative. This is especially important for developing countries, as they often suffer the most from the effects of climate change, such as sea level rise and higher temperatures, despite contributing the fewest greenhouse gas emissions.
Additionally, developing countries face challenges in accessing clean energy projects and are locked into fossil fuel dependency. They often pay more for electricity, and the recent decline in foreign direct investment in clean energy in these countries further exacerbates the issue. To address this, partnerships between international investors, the public sector, and multilateral financial institutions can help reduce the cost of capital for clean energy investment in developing countries. Additionally, debt relief can provide fiscal space for necessary investments in the clean energy transition.
Some developing countries argue for a more gradual transition, highlighting the economic benefits of fossil fuel extraction and exports. They suggest that a slower pace of licensing can allow governments to upgrade institutions and potentially increase future income by improving negotiating capacities. However, the risks associated with carbon market exposure are potentially catastrophic for low- and middle-income countries rich in fossil fuels. As the market for oil, natural gas, and coal shrinks, these countries become highly vulnerable to price fluctuations.
Overall, while developing countries face challenges and complexities in transitioning to renewable energy, it is crucial to address the inequalities and provide the necessary support to ensure a just and sustainable energy future for all.
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Fossil fuel exports are a key source of government cash
Fossil fuels have been a fundamental driver of technological, social, and economic development progress. They play a dominant role in global energy systems, with around four-fifths of global primary energy coming from coal, oil, and gas. However, the world needs to rapidly transition to low-carbon energy sources to mitigate climate change.
Developing countries rich in fossil fuels have enjoyed the benefits of fossil fuel extraction, including significant excess profits from oil and gas exports. However, they often fail to diversify their economies, leaving them vulnerable to shrinking markets for fossil fuels. A decline in fossil fuel prices significantly reduces excess profits from extraction and makes further reserve development less profitable.
Fossil fuel exports are a critical source of government revenue in many countries. In the top 15 oil- and gas-producing countries between 2006 and 2010, fossil fuel exports accounted for over 50% of government budgets. These revenues are crucial for funding investments in health, education, and infrastructure.
However, the dependence on fossil fuel revenues can be risky. Global energy markets are fickle, and the recent increased demand for fossil fuels due to geopolitical events may be temporary. Developing countries selling fossil fuels abroad may soon face fewer buyers as the world transitions to low-emissions sources.
To reduce their vulnerability, countries should promote the competitiveness of their fossil fuel sectors while moderating public investment. They should also diversify their economies by expanding non-fuel sectors, such as manufacturing and agricultural processing, and widening the tax base to reduce dependence on fossil fuel revenues.
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Fossil fuel usage is driven by income and energy consumption
Developing countries, facing the dual challenges of poverty and inequality, are often dependent on fossil fuels to meet their energy needs. This reliance is further exacerbated by the lack of viable alternatives. For instance, India's per capita coal consumption is only half of the world average due to the lower energy content of the coal used, and its oil and gas consumption per capita is significantly below the global average. This suggests that developing countries may not be able to abruptly switch to cleaner energy sources without sufficient alternatives.
Additionally, the transition to cleaner energy sources is hindered by economic considerations. Fossil fuel extraction and exports are significant contributors to the economies of developing countries, often accounting for a substantial portion of government budgets. A decline in fossil fuel prices or a reduction in demand can severely impact the revenues of these countries, affecting their ability to invest in health, education, and infrastructure. This economic dependence on fossil fuels creates a challenge for developing countries aiming to reduce their usage.
Moreover, the availability of resources plays a role in fossil fuel usage. Some developing countries, such as Nepal, the Democratic Republic of Congo, Namibia, and Paraguay, rely heavily on hydropower for electricity generation, eliminating the need for fossil fuels. In contrast, countries with abundant fossil fuel reserves may be more inclined to exploit these resources to improve their economic competitiveness and achieve universal energy access. This is particularly relevant for countries with large reserves of coal, oil, or natural gas, as they balance economic development with environmental concerns.
To address the complex issue of fossil fuel usage in developing countries, a nuanced approach is necessary. While the transition to cleaner energy sources is essential, it must be balanced with the immediate energy needs of these countries. Developing countries require support in scaling renewable energy solutions and access to affordable alternatives to ensure a sustainable future without compromising their development.
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Frequently asked questions
There is a direct relationship between income and energy consumption. High-income countries tend to have higher electricity consumption per person and are better able to transition to lower-emission fuels. Lower-income countries often have lower electricity consumption per person and rely more on fossil fuels for their energy needs.
Fossil fuels have been a fundamental driver of technological, social, and economic progress. They provide a source of government revenue and contribute to job creation. Additionally, developing countries may lack access to alternative energy sources or face challenges in transitioning to renewable energy sources.
Developing countries that are heavily dependent on fossil fuels face economic risks due to volatile global energy markets. A decline in fossil fuel prices or a reduction in demand can significantly impact their revenues. Additionally, fossil fuel extraction and use contribute to climate change and local air pollution, which disproportionately affect developing regions.
Developing countries face challenges in transitioning to renewable energy sources due to the high costs of new technologies, such as batteries, and the need for reliable electricity access. They may also have limited access to alternative energy sources and face infrastructure and investment barriers.
Some developing countries, such as India, have set ambitious targets for non-fossil electricity capacity. Countries like Nepal, the Democratic Republic of Congo, Namibia, and Paraguay rely on hydropower for most of their electricity needs. Additionally, global initiatives, such as COP27, have discussed the case for more fossil fuels in developing countries, highlighting the need for a fair transition.
