Key Challenges Faced by Fossil Fuel Exporters during the Energy Transition

Staff Climate Notes, March 27, 2024

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Canonical URL: Key Challenges Faced by Fossil Fuel Exporters during the Energy Transition

Authors: Diego Mesa Puyo, Tarun Sridhar, Martin Stuermer, Christoph Ungerer, Alice Tianbo Zhang
Published: March 27, 2024
Series: Staff Climate Notes
DOI: https://doi.org/10.5089/9798400270147.066

The global energy transition is affecting fossil fuel exporters from multiple angles.
It is adding to longstanding uncertainties on relative movements of fossil fuel demand and supply—which impact fossil fuel-related exports, fiscal flows, investment and subsequently external and fiscal accounts, economic growth, and employment.
Policymakers now also face expectations of a permanent decline in the long-run global demand for fossil fuels.
Low- or zero-carbon emission energy industries could offer new avenues that build on existing fossil fuel knowledge and infrastructure.

The monitoring and mitigation of fiscal risks will need to be stepped up.
Key factors that could determine country-level impacts include:
- (i) the type of fossil fuel a country exports
- (ii) extraction costs
- (iii) country characteristics

Fiscal policy has a role in:
- reducing domestic emissions,
- encouraging adoption of low-carbon technologies,
- helping those most vulnerable to changes from the transition.
Monitoring and mitigation of fiscal risks will need to be stepped up.

Broader macroeconomic risks can be reduced by accelerating ongoing structural reforms that support alternative engines of growth.
Low- or zero-carbon emission energy industries could offer new avenues that build on existing fossil fuel knowledge and infrastructure.

Improved financial regulation and supervision could reduce financial sector exposures.

International coordination on the design and implementation of climate policy could reduce uncertainties surrounding the transition path and associated adverse economic consequences.
International transfer schemes (financing and capacity development) could reduce uncertainties surrounding the transition path and associated adverse economic consequences.