Dominique van der Mensbrugghe

This book is the first stocktaking of what the decarbonization of the world economy means for fossil fuel–dependent countries. These countries are the most exposed to the impacts of global climate policies and, at the same time, are often unprepared to manage them. They depend on the export of oil, gas, or coal; the use of carbon-intensive infrastructure (for example, refineries, petrochemicals, and coal power plants); or both. Fossil fuel–dependent countries face financial, fiscal, and macro-structural risks from the transition of the global economy away from carbon-intensive fuels and the value chains based on them. This book focuses on managing these transition risks and harnessing related opportunities. Diversification and Cooperation in a Decarbonizing World identifies multiple strategies that fossil fuel–dependent countries can pursue to navigate the turbulent waters of a low-carbon transition. The policy and investment choices to be made in the next decade will determine these countries' degree of exposure and overall resilience. Abandoning their comfort zones and developing completely new skills and capabilities in a time frame consistent with the Paris Agreement on climate change is a daunting challenge and requires long-term revenue visibility and consistent policy leadership. This book proposes a constructive framework for climate strategies for fossil fuel–dependent countries based on new approaches to diversification and international climate cooperation. Climate policy leaders share responsibility for creating room for all countries to contribute to the goals of the Paris Agreement, taking into account the specific vulnerabilities and opportunities each country faces.

Many countries have developed comparative advantages in energy and carbon-intensive sectors which have helped them escape poverty and fuel shared prosperity. This report deepens the understanding of the impacts that carbon-intensive countries may face from uncertain but possible developments such as international climate policies, trade measures, transformational technology trends, and shifts in consumer preferences that can affect global demand for fossil fuels and the cost of burning them. The report's methodological framework combines qualitative and quantitative analysis, offering new insights into understanding impacts and the most robust and sustainable coping strategies. Its key messages include: • Countries have different carbon-intensive assets-resources in the ground and built infrastructure-that vary in their exposure and vulnerability to transformational trends. • Structural transformations are normal in history, and many coping strategies have turned risks into new development opportunities. • Climate change adds new momentum to the traditional diversification debates in resource-intensive countries. The best hedging strategies are based on deep diversification not only of outputs and exports but also of the asset base-natural, physical, human, and intangible capital. • Countries will use a menu of policies to manage structural transformations including energy, fiscal, and climate policies as well as trade measures. • Anticipating or reacting to the climate transition shocks, some carbon-intensive countries may choose to be the early movers and divest quickly, some will choose to be the followers, while others may try the harvesters’ strategies. Each strategy has opportunities and risks.