Window of opportunity for African fossil fuels

IN August, a plaque was installed where Iceland’s once-iconic Okjökull glacier stood, before climate change turned it into a lake. “This monument,” the plaque reads, “is to acknowledge that we know what is happening and know what needs to be done. Only you know if we did it.”

What is happening, the Intergovernmental Panel on Climate Change and virtually the entire scientific community warn, is the rapid approach of a climate catastrophe. And while much must be done to prevent it, for developing regions like Africa, this will require a new approach to industrialization.

In many ways, the world is finally beginning to take climate change seriously. A total of 195 countries have signed onto the 2015 Paris climate agreement. In the United States, while President Donald Trump has withdrawn from the Paris accord (and rolled back environmental protections), state governments have taken up the mantle of achieving its goals, and Democratic presidential candidates are proposing ambitious climate strategies.

But it is young people, not political leaders, that are leading the call for action. The 16-year-old Swedish climate activist Greta Thunberg has grabbed headlines with her eloquent speeches, school strike movement, and voyage across the Atlantic on a zero-emissions yacht. OPEC’s secretary general, Mohammed Barkindo, recently described such activists as “perhaps the greatest threat” to the oil industry’s future.

Barkindo also argued

that

the petroleum industry is not the sole cause of climate change. In some ways, he’s right. However, the oil sector also needs to acknowledge that our reliance on “fossil capitalism” is coming to an end. In his early July remarks, he noted that the international oil industry will need to have some difficult conversations about the future.

But while efforts to shift to increasingly cost-competitive renewable-energy sources should be welcomed, the challenge this poses for developing countries with oil and gas resources — which have contributed far less to climate change than their industrialized counterparts — remains unaddressed.

Fossil fuels have underpinned prosperity-enhancing industrialization wherever it has taken place.

But in the Global South, oil and gas resources have not translated into sustained economic development and higher standards of living.

Instead, they have generally involved extraction from some for the benefit of others: a “resource curse.”

In this moment of greater interest in sustainable and just transitions, an increasing number of African countries are pursuing new petroleum exploration and production.

Understandably, they hope finally to reap the development benefits of their natural endowments.

While more sustainable energy systems are crucial from an environmental perspective, during the transition — and while petroleum resources continue to be required — African states will need to make the most of their fossil-fuel resources and exploit them in ways that contribute to positive welfare outcomes. This is the logic underpinning petrodevelopment.

But even with substantial new investment, especially from China and India, the possibilities for petro-development are waning.

What once looked like a source of infinite opportunity now has clear limits, given lower global oil prices and a shift in demand toward renewable-energy sources.

A post-carbon world

As a former head of Nigeria’s national oil company, Barkindo is acutely aware of the difficulties in exploiting oil and gas resources in ways that produce net benefits to both the state and its citizens.

As renewable energy becomes more cost-effective and societies make the transition to a post-carbon world, the conversation should not be about how the existing oil industry can be part of the solution, but rather about how the industry can make more contributions to socioeconomic development during the transition.

Even if oil prices recover, it seems unlikely that most African countries will be able to achieve the desired petro-development without radically overhauling their approach to natural-resource management and governance. And that will require a long-term, carefully designed and feasible strategy for social and economic development.

Such a strategy should, for example, recognize that new investment in the oil industry leads to billions of dollars of spending on a wide variety of goods and services from companies that, in many cases, do much more than service the oil industry. In recent years, Nigeria has been leading a push for African petroleum producers to capture more value by promoting “local content.”

Across Africa, countries are trying to build local companies and encourage international companies to do more of their work in-country. In effect, they are trying to find a way to make good use of their resources before the window for doing so closes.

The industrialized economies, for their part, must do more to support African oil industries and make sure the negative effects of oil production are mitigated.

Working with other stakeholders, campaigners for a sustainable and just transition can also achieve something more: allowing carbon energy to have a positive impact on economies which have so far experienced only the negative effects of the oil-backed development of the twentieth century.

Rather than dismiss young climate activists as a business nuisance, the oil industry should be discussing openly how it can enhance its legacy of development. Only future generations will know if it did.

Jesse Salah Ovadia, an associate professor of political science at the University of Windsor, Canada, is the author of “The PetroDevelopmental State in Africa.” Copyright: Project Syndicate, 2019. www.project-syndicate.org