As COP28 Closes, Promise and Peril for Lower-Income Oil-Producing Countries

Coverage of the conclusion of the UN climate conference has rightly focused on the historic inclusion of the “f-words” in the call for “transition away from fossil fuels,” and on the roles and reactions of the most powerful countries and negotiating blocs whose interests are reflected in the carefully worded deal struck in Dubai.

Much less has been said about what the deal means for the scores of lower-income producers such as Colombia, Ghana, Nigeria and Mexico, countries whose national oil company revenues power economic life and dreams of sustainable, human development. Collectively, such countries are home to the largest share of the world’s people living in poverty. Spread across the Global South, they face diverse challenges and opportunities, but hold in common a reliance on oil, gas, and/or coal production for income, employment, and national energy security.

They are takers, not makers, in terms of both the price of oil, over which they have no meaningful influence, and planet-heating carbon pollution, from which they increasingly suffer and to which they contribute relatively little.

Yet they do have agency when it comes to forging new pathways, as Colombia’s president Gustavo Petro is trying to do. Similar hopes are pinned on Brazil’s Luiz Inácio Lula da Silva. They must innovate out of their fossil fuel dilemmas, with much more support from those countries responsible for the climate crisis. The four announced just energy transition partnerships (JETPs) are possible models, but Global North countries must become much more willing accompagneurs.

Between a rock and a hot place

The COP28 result only accentuates the double bind these countries face in the global energy transition. On one side, all are highly exposed and vulnerable to the increasingly frequent floods, fires, droughts and severe weather events that even the wealthiest countries are still ill-equipped to endure.

Many of these fossil fuel producers are also members of the Climate Vulnerable Forum (CVF) – a political club of countries that straddles several negotiating groups at the UN climate talks, including AOSIS, AILAC, and the African Group. As chair of the CVF, Ghana welcomed the funding contributions made to the Loss and Damage Fund at the outset of COP28. But the $792 million in pledges to the new fund made in Dubai will likely make up less than one percent of needs in these countries. As climate impacts mount, lower-income countries will face growing pressure to invest in climate adaptation, even as their tax bases shrink because of climate damage and falling fossil fuel demand.

Riskier bets after COP28

On the other side of the double bind lies the long-term, structural decline in demand for oil, gas and coal that meeting global climate goals requires. Going in to COP28, national oil companies were preparing to invest huge amounts in new oil and gas production, effectively making a massive bet against urgent global climate action.

NRGI’s research suggests that, globally, $1.2 trillion—71 percent of national oil companies’ planned investments—will not turn a profit if the world aligns with a 1.5°C pathway. Africa’s share of that figure is $35 billion. In Latin America and the Caribbean, it’s $146 billion. Critically, these large sums belong to the citizens of these countries, and the cost of investment in further expansion of fossil fuel production comes at the expense of urgently needed investments in climate-resilient economic diversification and human development.

The COP28 call for a transition away from fossil fuels clearly adds to the likelihood of a tipping point in global fossil fuel demand before 2030. And yet less than half of the national oil companies NRGI recently analyzed even recognize the risk this presents to their business plans. Fully acknowledging, assessing and acting to limit this “transition risk” should be central to NOC managers’ strategies—and those of the national ministries of energy and finance that will ultimately bail out these companies if their assets are stranded by a rapid global energy transition. (And a great many of these countries are experiencing worsening debt crises.)

With all its ifs, ands and buts (or the “litany of loopholes”), COP28’s call to transition away from fossil fuels looks set to make economic life much harder for lower-income oil and gas producers long before it alleviates mounting climate impacts. This is why a fair and funded fossil fuel phaseout is fundamental.

Concretely, the CSO Equity Review’s recent “Equitable Phaseout of Fossil Fuel Extraction”—the best available guide to what the “just, orderly and equitable” qualifier to the transition away from fossil fuels in the COP28 decision means—is clear: fairness demands that lower-income fossil fuel producers have both more time and international support to wind down their production.

Money talks

A full needs-based assessment of the scope and scale of international finance needed to support the transition away from fossil fuel production in lower-income countries doesn’t yet exist and is an urgent priority for the new climate finance goal under negotiation. The CSO Equity Review estimates that the world’s wealthiest countries—mostly from the G7—should provide a minimum of $210 billion per year.

Climate finance permeated talks in Dubai but is almost entirely absent from the agreed outcomes of COP28. The High-level Expert Group on Climate Finance made clear at the outset of the conference that the lack of investment in emerging markets and developing countries is the “primary reason” the world is so badly off-track with respect to the Paris goals. The gap is glaring when it comes to international support available to lower-income fossil fuel producers now facing even more pressure to transition. And it explains why climate finance is expected to top the agenda at COP29 next year, in Baku, Azerbaijan.

(Azerbaijan's poor record on civic space—essential to any debate about climate or the future of fossil fuels—is an obstacle to meaningful dialogue or participation. NRGI and partners continue to call upon Azerbaijani authorities to immediately release Gubad Ibadoghlu, who has criticized the state's governance of oil.)

Without large-scale international finance to support their transition, the ambitions of lower-income oil and gas producers brave enough to start (such as Colombia) will be damned – along with the prospects of a livable future for all people and the planet. But the result at COP28 also means they’ll be damned by stranded assets if they don’t start on a greener path. Governing this dilemma is now among the most urgent tasks facing the UN climate regime.