When gold turns to sand
In this Mistra Geopolitics report, Max Åhman at Lund University explores the challenges and changes that need to be made by fossil fuel rich states to address the challenges they face due to climate policy.
Petrostates face an unprecedented crisis as oil and gas revenues, on which their economies and states are built upon, are set to diminish rapidly in the coming 20 years. The decline in revenues is an effect of the adopted climate policies in the major oil consuming countries that, together with a strong development of renewable energy, reduces the future demand for oil and gas.
→ The emerging peak demand for oil and gas is a combined effect of two interconnected developments:
- First, the growing political momentum in the major oil-consuming countries such as the US, EU, China, and Japan, to implement stricter climate policies.
- Second, the rapid technological developments of both renewable energy and of end-use technologies such as electric and fuels cell vehicles that do not use oil or gas.
→ Petrostates need to diversify their economies and rapidly become less dependent on the declining revenues from oil and gas.
→ Petrostates need to instigate political and institutional reforms to create the right incentives for an inclusive and diversified economy.
The political changes needed are first to reduce the abundant consumption subsides to fossil energy. Petrostates need quickly to adopt green industrial policies to diversify their economies. A few petrostates have started to prepare for a future beyond oil and gas.
In the longer-term, an institutional upgrading is needed to create the right domestic incentives for developing a diverse and competitive economy. More in-depth knowledge of the main petrostates, and how the political economy and state model is evolving, is also needed. The geopolitical dimension of this transition cannot be understated and requires further efforts.
Åhman, M. When gold turns to sand: A review of the challenges for fossil fuel rich states posed by climate policy. Lund University IMES/EESS Report 124. This report is a deliverable of Mistra Geopolitics, funded by Mistra, the Swedish Foundation for Strategic Environmental Research.
About the authors
Max Åhman, Senior lecturer at the Department of Environmental and Energy Systems Studies, Lund University.