246 P. MAHDAVI AND N. UDDIN
ever-larger petroleum savings accounts that accumulate wealth in boom
periods to cover deficits in bust periods. 29 Of course, few states heeded
this advice prior to the oil price collapse of 2014 (with the exception of
Iran and the UAE, whose reforms preceded the price shock).
Now the case can be made in terms of life-and-death: advisers and
multilateral agencies will argue for the transition before assets are stranded
and because it will solve massive unemployment. A ‘do-nothing’ approach
is fiscally unsustainable: international climate policy pressure and rise of
low-carbon technology will eventually displace reliance on hydrocarbons,
leaving all but the most low-cost extractors out of business.
The volatility-induced fiscal crises of fossil fuel dependency would pale
in comparison with the fiscal cliff that awaits because of the transition.
The IEA estimates that low demand for oil and gas could lead to losses
on the order of 25% to 40% of petroleum revenue over the 2020–2040
period. 30 The sheer magnitude of this pitfall is staggering: according to
a Citicorp report in 2015, approximately $100 trillion worth of fossil
assets could be stranded by 2050 to stay below 2 °C. 31 The potential loss
of one-quarter to two-fifths of government revenue is enough to send
shockwaves through society and increase mass pressure for investment in
decarbonized solutions.
While this may play out less dramatically in the low-carbon-intensive oil
producers—Saudi Arabia, Bahrain, Qatar, Kuwait, and the UAE—it will
be particularly problematic for high-carbon-intensive producers, namely
Algeria, Iran, Sudan, Yemen, Iraq, and Oman. Algeria, for example, is
estimated to have the highest carbon intensity of crude in the world, at
20.3 grams of carbon dioxide per megajoule of crude oil (gCO 2 eq./MJ)
compared to the global average of 10.3 gCO 2 eq./MJ and to the astoundingly low 4.6 gCO 2 eq./MJ of Saudi Arabia. 32 The carbon tax on an
Algerian barrel of oil would be roughly four times that of a Saudi barrel
of crude. 33 In an oil-constrained world, any nontrivial price on carbon
would all but strand oil assets in places like Algeria and Iran from coming
to market. Of course, such a tax would be secondary in terms of fiscal
impact than the collapse of global oil prices in a carbon-constrained
future. Even a high carbon tax of $100/tonne would only result in a
roughly $9/barrel loss of revenues for a state like Algeria, which would
pale in comparison with a significant decline in oil prices. 34
From a purely fiscal-driven understanding of leadership decisions, 35
shifting to renewable energy in the medium- to long-term will maximize political survival and stability. As with the oil-glut era of the 1980s,
ever-larger petroleum savings accounts that accumulate wealth in boom
periods to cover deficits in bust periods. 29 Of course, few states heeded
this advice prior to the oil price collapse of 2014 (with the exception of
Iran and the UAE, whose reforms preceded the price shock).
Now the case can be made in terms of life-and-death: advisers and
multilateral agencies will argue for the transition before assets are stranded
and because it will solve massive unemployment. A ‘do-nothing’ approach
is fiscally unsustainable: international climate policy pressure and rise of
low-carbon technology will eventually displace reliance on hydrocarbons,
leaving all but the most low-cost extractors out of business.
The volatility-induced fiscal crises of fossil fuel dependency would pale
in comparison with the fiscal cliff that awaits because of the transition.
The IEA estimates that low demand for oil and gas could lead to losses
on the order of 25% to 40% of petroleum revenue over the 2020–2040
period. 30 The sheer magnitude of this pitfall is staggering: according to
a Citicorp report in 2015, approximately $100 trillion worth of fossil
assets could be stranded by 2050 to stay below 2 °C. 31 The potential loss
of one-quarter to two-fifths of government revenue is enough to send
shockwaves through society and increase mass pressure for investment in
decarbonized solutions.
While this may play out less dramatically in the low-carbon-intensive oil
producers—Saudi Arabia, Bahrain, Qatar, Kuwait, and the UAE—it will
be particularly problematic for high-carbon-intensive producers, namely
Algeria, Iran, Sudan, Yemen, Iraq, and Oman. Algeria, for example, is
estimated to have the highest carbon intensity of crude in the world, at
20.3 grams of carbon dioxide per megajoule of crude oil (gCO 2 eq./MJ)
compared to the global average of 10.3 gCO 2 eq./MJ and to the astoundingly low 4.6 gCO 2 eq./MJ of Saudi Arabia. 32 The carbon tax on an
Algerian barrel of oil would be roughly four times that of a Saudi barrel
of crude. 33 In an oil-constrained world, any nontrivial price on carbon
would all but strand oil assets in places like Algeria and Iran from coming
to market. Of course, such a tax would be secondary in terms of fiscal
impact than the collapse of global oil prices in a carbon-constrained
future. Even a high carbon tax of $100/tonne would only result in a
roughly $9/barrel loss of revenues for a state like Algeria, which would
pale in comparison with a significant decline in oil prices. 34
From a purely fiscal-driven understanding of leadership decisions, 35
shifting to renewable energy in the medium- to long-term will maximize political survival and stability. As with the oil-glut era of the 1980s,