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Shift to green energy could cause a 46 per cent drop in the revenues of oil economies, report claims

Countries which produce oil and gas face a 46 per cent drop in government revenues over 20 years as the world shifts to green energy, a new report warns.

The study from Carbon Tracker calculates that 40 petrostates could face an average 46 per cent drop in expected revenues from oil and gas if demand falls in line with tightening global climate policy and technological advances – a shortfall of $9trn.

Some countries will need strong international support to diversify their economies and avoid social and political instability, it warns.

More than 400 million people live in the 19 worst-affected countries where declining fossil fuel revenues could see total government income fall by at least 20 per cent, leading to cuts in public services and job losses.

The worst affected country is likely to be Nigeria, the report says, where a 70 per cent drop in oil revenues would cut total government income by a third. Angola, home to 33 million, could lose more than 40 per cent of government income.

Although many of the world’s biggest oil and gas producers including the US, UK, Netherlands, China, India and Brazil also face major falls in revenues, they are better diversified. They are not a focus of Carbon Tracker analysis because their economies are less dependent on oil and gas. Worldwide, all oil producing countries risk collectively losing $13trn by 2040 compared with industry expectations, a 51 per cent drop.

Report author Mike Coffin, senior analyst oil, gas & mining, said it was necessary for countries to rebalance their economies now, rather than waiting to respond to a drop in demand.

“It’s in the interests of all nations to minimise global temperature rise and this means rapidly reducing our use of fossil fuels,” he said. “But many countries are heavily reliant on oil revenues – the time to act on rebalancing their economies is now. Waiting for demand to fall will be leaving it far too late.”

Andrew Grant, head of climate, energy and industry and co-author, said cushioning the landing for hundreds of millions will deliver better outcomes for both climate and human development.

The report, Beyond Petrostates: the burning need to cut oil dependence in the energy transition, says petrostates will need to cut public spending, raise new taxes, and restructure their economies. Rather than investing in new oil and gas projects they should invest in sustainable new industries.

The authors identify the risks involved if petrostates seek to monetise their existing reserves while they can. They say this is likely to lead to oversupply and a destruction in value, with falling prices quickly outweighing the benefit of increased production.

It says that some countries are already taking steps to address the future potential revenue gap. Several Middle Eastern countries have introduced value-added taxes and, with countries such as Nigeria, Angola and Iran, taken steps to reduce subsidies. Wealthy gulf states are investing in industries such as renewable energy and tourism.

“However, the scale of the challenge is huge and the pace of transition accelerating,” the report says. “Many countries facing the biggest shortfalls are also among the poorest, have young and rapidly growing populations with least capacity to adapt their economies.”

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