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, adapting to, and preparing for the global energy transition from fossil fuels and to clean energy. During the reporting period for 2022 several research assistants and two fellows were hired. Currently under review at Energy Policy is an article that explores how credit ratings agencies like Fitch, Moody’s, and S&P are weighing the creditworthiness of petrostates in light of the expectation that the energy transition will constrain their revenues in the coming decades. Four other papers are currently under preparation, on the macroeconomic, labor, and foreign policy of petrostates. The first studies the conditions under which oil-rich countries are willing and able to diversify their economies, and compares the experiences of two relative success stories, including Malaysia and Egypt, against comparatively less successful cases, including Nigeria and Kazakhstan. The second studies the impact of variations in oil revenue on female labor force participation in petrostates. The third working paper focuses on how petrostates react to variation in oil revenue in their foreign policy. The fourth working paper focuses on the “Just Transition” and how it relates to petrostates. In terms of next steps, we are currently in the process of scheduling interviews and conducting deep historical case study work for the diversification, gender, and foreign policy projects. These three papers, along with the Just Transition paper, are likely to be ready for journal submission in early 2023. Once these projects are completed, our focus will turn more squarely onto the present-day, whereas many of our earlier projects focus on the historical experience of petrostates and the effects of variation in oil revenue.

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.