The global transition toward renewable energy sources was always going to pose a challenge for oil-exporting states. A recent report from Carbon Tracker, a think tank based in the United Kingdom, attempts to quantify this challenge.

The data will make for grim reading for policymakers in oil-exporting states, as it paints the picture of a reckoning that comes faster and cuts deeper than many are expecting.

Analysis

The report identifies a significant gap between the IEA’s Stated Policies Scenario (STEPS), which aggregates the policy intentions of oil-exporting states, and the IEA’s Sustainable Development Scenario (SDS), which can be viewed as an optimistic projection for decarbonization (a 50% chance of limiting warming to 1.65 degrees Celsius). This gap is most pronounced in North America, where industry projections are 77% higher than the low carbon totals, followed by Latin America (66%), Africa (58%), Asia (57%), Europe (50%), and MENA (43%).

Herein lies the first conclusion: if decarbonization unfolds along the lines of the more optimistic projections, it will catch many countries off-guard. And if states and state-owned corporations are underestimating the speed and extent of declining oil revenues now, they are also far less likely to be mapping out an effective economic transition, which will inevitably compound the fiscal pain to come.

A second conclusion: the fiscal pain will be severe.

Using historical revenue data, Carbon Tracker projects various budget shortfalls should the SDS come to pass, grouping oil exporters into various tiers based on their projected budget shortfalls over the next 20 years.

The tiers break down as follows (no data for Venezuela, Myanmar, Uzbekistan, and Ukraine):

Tier 5 (over 40% budget revenue shortfall): Bahrain, Angola, Azerbaijan, South Sudan