Understanding Oil Producers Responses to the Renewable Energy Transition (OPRET)

The goal of the OPRET project is to assess how major oil producers are impacted by, adapt to, and prepare for the global energy transition from fossil fuels and to clean energy. The project has produced seven articles so far. Some findings: - - Petrostates may be willing and able to diversify as the global shift toward renewables raises the prospect of oil reserves becoming stranded. Petrostates can diversify efficiently by using a basket of policies that includes a mix of economic liberalization and government intervention to create investment and incentives in non-oil tradeable sectors and nurture infant industries. Opposition to reforms in petrostates can be addressed by selectively compensating vested interests. - - We find that higher oil prices are associated with lower rates of petrostate conflict initiation. Petrostates are more likely to target other petrostates when oil prices are low. This suggests that the energy transition may not be a boon for international peace among petrostates, and for a time, it may even prove to be the opposite. - - Mitigating anthropogenic climate change would likely be no less challenging for a supply-side treaty than for a demand-side treaty. In particular, distributive conflict remains a significant obstacle to effective climate action regardless of whether it is pursued through a demand-side treaty or a supply-side treaty. - - Petrostates need to begin their just transition journey. There is limited time for this to happen, and taking steps into the just transition journey will have many benefits as identified in this research such as, socio-economic, impact on public health and an increase in inward-investments. - - Green industrial policies can support carbon pricing by lowering market barriers for clean technology diffusion and strengthening political support for climate policy. Yet, a carbon price should be an essential element in any effective energy transition policy mix and the key is to find the optimal policy mix for carbon pricing and green industrial policies for the unique context of each location. In petrostates, green industrial policy could be used strategically to try to build political support for and reduce resistance to a carbon price. Events: * On 27 Oct. 2023, we organized a seminar with Stella Tsani at NUPI titled "Research on local content policies and energy wealth management issues". * On 9 May 2023, we organized a seminar with Soran Mohtadi at NUPI titled "Oil Producers Responses to the Renewable Energy Transition" * On 6 Aug. 2021, we organized a kick-off seminar for the project (not previously reported). In July 2022, Indra Øverland visited Johns Hopkins University and University of Miami to discuss and plan the project with project partners (not included in previous reporting). We are currently working on two other articles, one on how the credit ratings of petrostates are affected by the prospect of declining oil revenue, another one on how declining oil revenues will affect the participation of women in the labor markets of petrostates.

The global transition toward renewable sources of energy like solar and wind, combined with increasing adoption of electric vehicles, poses serious challenges for countries that rely on the production of oil. The principal consequence of the energy transition – long-term decline in demand for oil – will over time reduce both the revenue that oil producers collect and the amount of oil they produce. Declining revenue will affect oil producers' ability to distribute patronage to political supporters, provide jobs and a generous welfare state to citizens, and make investments in public goods such as education and infrastructure. These trends have the potential to undermine citizens' economic well-being, the country's economic growth, and ultimately policymakers' own political survival. Governments may be able to guard themselves against these negative consequences by engaging in adaptation policies. These can include diversifying the economy, investing in human capital, or finding alternative sources of revenue, such as levying taxes or investing in sovereign wealth funds. We focus on several factors that drive variation in the extent to which producers pursue these adaptations. First, we expect the degree of adaptation to depend in part on the cost of oil production. All else being equal, producers for which producing oil is extremely costly are at a competitive disadvantage relative to producers for which the cost is lower, and are likely to adapt sooner. Second, countries with greater bureaucratic-administrative capacity are more capable of adapting, as they are better positioned to collect revenue from citizens, administer and enforce enacted policies, and afford and distributed public and targeted goods, despite opposition from vested interests. Third, producers who already had diversified economies prior to becoming major producers should be more capable of adapting, owing to weaker vested interests in fossil fuels.