Global Decarbonization in Fossil Fuel Export-Dependent Economies - Fiscal and Economic Transition Costs

This paper identifies 40 economies heavily dependent on the extraction and exports of fossil fuels. Aside from a handful of primarily wealthier countries, most have little or no savings to help manage an inevitable steep fall in external demand under an ambitious global decarbonization scenario. The paper estimates that the group of 40 will lose more than 60 percent of oil rents alone from 2023-2040 under a net-zero 2050 global decarbonization scenario compared to a stated policies scenario. Impulse response function estimates from a local projections model provide evidence in support of potentially large economic and fiscal transition costs in emerging market and developing economy exporters, as a decrease in (real) oil price inflation is associated with a significant and persistent decline in real GDP, loss of government revenue and higher debt. Finally, the paper discusses vulnerability to global decarbonization and the needed mitigating domestic and international policy options