Dan Banik and Tony Addison discuss the lessons learned from low-and middle income countries that have successfully managed their revenues from extractive resources, how these countries can benefit from growing global interest in transitioning to renewable energy, the impact of the Extractive Industries Transparency Initiative (EITI) and the international community’s future role in natural resource governance.
Tony Addison is a Professor of Economics, University of Copenhagen in the Development Economics Research Group. He was a Chief Economist and Deputy Director of UNU-WIDER in Helsinki, Finland. He was previously Professor of Development Studies, University of Manchester; Executive Director of the Brooks World Poverty Institute (BWPI), University of Manchester (from 2006-2009); and Associate Director of the Chronic Poverty Research Centre (CPRC).
His books include: From Conflict to Recovery in Africa (Oxford University Press), Making Peace Work: The Challenges of Economic and Social Reconstruction (Palgrave Macmillan), and Poverty Dynamics: A Cross-Disciplinary Perspective (Oxford University Press). He was a lead author for The Chronic Poverty Report 2008-09: Escaping Poverty Traps.
Banik Tony, it’s so lovely to have you on the show, welcome.
Addison Thank you for inviting me Dan.
Banik As you know we have just had a general election in Norway and climate became a major issue, it turned out that three weeks before the election, the IPCC report came out and many political parties began citing the call by the UN Secretary General to end fossil fuels and some political leaders were calling for an end date for oil exploration in Norway. The oil that has made us rich and funded very generously the Norwegian welfare state. But what happened was a very polarised debate on the role of oil and gas in Norway; whether we should be talking about an end date, whether the Norwegian practice of oil exploration is green, and whether it is better that Norway produces renewal energy or even oil in a different and better way than other countries. But the debate, Tony, that I understand in other parts of the world is very different, because extractive industries such as metal, minerals, oil, and gas continue to play a very important role in many economies in low- and middle-income countries. In many of these countries, I see in your book and in other articles, there has actually been a strong and positive increase in the level of dependence that these countries have on the export of extractors, countries like Chad, Mozambique, and Sudan. Let’s begin by discussing the fact that although high income countries like Norway may dominate the extractives production figures, countries with the highest levels of export dependence on extractives are actually predominately low- and middle-income countries. Tony, how should we nuance this discourse on the links between extractives, economic growth, and poverty on the one hand, and sustainable development and our ability to combat climate disruption on the other.
Addison It is true that many or most low-income countries and a large number of middle-income countries are very dependent on oil and gas together with mining for both export revenues and for a large proportion of their public revenues. To a degree that dependence has not been diminishing over time for many countries, it has actually been increasing, particularly since the start of the new century and the global commodity super cycle kicked off, particularly due to the growth of China and China's veracious demand for energy resources and for minerals of all types. That is the current situation in many countries, and it is a very big challenge for them, it has always been a challenge in terms of macroeconomic management, and we have known about that for decades because commodity prices are somewhat of a roller-coaster, but it is also a massive challenge in the light of climate change action and policy, particularly as we come up to the COP conference in Glasgow. So, we really are in a new situation, the world of extractives not only for oil and gas but also for mining, in that we are really coming up against the environmental and climate change issues in a very big way, so the old story of how you manage these resources is now sieging into a new story about how we manage those in the light of climate change. This is obviously an issue in very rich countries like Norway, but it is a very big issue in the poorer world because they have got so much investment in these resources, and they are so dependent on them for their export earnings and for the public revenues.
Banik So, is it the simple question of the richer parts of the world reducing their dependence on extractive industries while other parts, developing countries perhaps, continue with that focus? Because, it is going to be important, extractive industries, for many of these countries in the years ahead, right?
Addison Well you could say that from an ethical viewpoint, given the world has a carbon budget, and we are rapidly eating into what is left of that carbon budget, because we know that global temperatures have risen by about 1.1 degree Celsius above pre industrial levels and we have this target of containing the rising within 1.5, so are we are not very far off that. Given the global carbon budget we have left, you could argue that there is a very strong ethical case for the developing world to be the main producers of these resources and for the richer world, and this would not only be the economies of Europe but also the Middle East and so-forth, to actually cut back and leave their fossil fuels, in particular, oil, coal and gas, in the ground. That would be an ethical and moral response, but the geopolitics of this means that all countries whether they are rich or poor want to continue down the same path. They are all issuing very bold statements about climate change and how they are aiming to achieve net zero by a date usually far off in the future. But the geopolitics are the geopolitics.
Banik I am thinking about the fact that not everything has to be negative, this whole transition to the renewable energy era can be quite positive. Thinking about countries that produce nickel, cobalt and lithium, we are all driving eclectic vehicles in Norway, 60% of the new cars are all electric, there is the need for greater battery storage capacity not just for cars but also for other sectors. Some of these low- and medium-income countries are rich in these minerals, and they could become very important, there is surely the case that could be made that some of these countries are actually quite well positioned to benefit from this new renewable energy era. The question of course is whether they can.
Addison Well, they are well positioned in the sense that they have the mineral deposits, and those mineral deposits are going to be in high demand, particularly if you are a producer of lithium, cobalt, manganese, nickel and all the things required for the electrical vehicle revolution, to make the wind turbines, to make the battery storage and so forth. But that gives you two problems, one of which, you have to manage the macro economics of that, so you don't simply replace or follow the pathway that some of the oil economics did historically falling into a resource curse track. Secondly, mining those minerals involves carbon emissions, often, the energy system you are using in mining is coal fired electricity, you have a biodiversity impact, you have a water impact, particularly if you are mining lithium. The challenge there is how are the countries, and the mining companies going to achieve net zero in mining, it is not just good enough to produce the nickel, cobalt and lithium, they are going to have to produce in ways that don't add to emissions.
Banik That could actually be pretty expensive right?
Addison It is going to be widely expensive because you are going to need large scale investment in renewable energy and in some cases, mines are the biggest energy consumer in an economy. Think about South Africa, a lot of mining is driven by coal fired electricity, you are going to need a lot of technical assistance to do that. If you do it though, there is an advantage, which is you are going to get a premium in the marketplace for your metals, you are going to sell for a higher price because you will be able to say to Apple or Tesla or whoever is buying the metal, look, this is being produced under net zero conditions, with no bio diversity impact and hopefully a very good benefit for communities.
Banik That is actually a very good point, so it is not just supplying something that is in great demand, but also supplying it in an environmentally friendly way, at least the production aspect. Tony, I am thinking about the case of Guinea which recently underwent a coup, and there has been a spotlight on Guinea’s huge bauxite reserves, apparently a country with 13 million people has the world's largest reserve of bauxite which is important for aluminium. I know that China is important for this story because, China imports a lot of bauxite and it is important for the Chinese industry and a country like Guinea has the mining sectors which are important in terms of gold and diamonds, but Guinea has not done as well as say Botswana, which is often highlighted as one of those success stories. What should Guinea do at this moment? The military junta in power or whatever happens in terms of a new election, what kind of issues should policies makers be looking at?
Addison Well Guinea, as you say Dan has immense mineral resources, it is not just bauxite which produces something like 20% of the world's aluminium supply, but it is also gold and also Guinea’s enormous deposits of iron ore which have not yet been exploited. So, this is a country that is a classic case of a country that has enormous potential to raise itself up to middle income status pretty fast and indeed to high income status to follow the Botswana model, if you could only just get the policy and politics right. Unfortunately, the history of Guinea has been characterised by a lot of non-transparency and corruption around the resource sector. So, what any government in Guinea has to do is to signal that this time it is going to be different, and it is credible in terms of full transparency which is actually essential for its own citizens and also for the investment community. The world community can actually see that these resources are being produced in a transparent manner and that all of the revenue is flowing to the people of Guinea. It sounds easy, but that is a massive challenge as we know from elsewhere in Africa not just Guinea.
Banik This brings me to the resource curse versus economic diversification argument, you may have heard others on my show talking about the resource curse, I recently talked to Paul Collier about this on Season 3, and there seems to be quite a lot of attention on the resource curse thesis, corruption, bad leadership, bad governance, all of this somehow explaining why resource rich countries haven’t developed. But there has also been considerable push back from others saying that you can’t really group this very diverse group of countries together and call them resource rich because they are very different kinds of countries, with different kinds of minerals, oil reserves, petro economics like Chad and Cameroon. I also noticed in your book, so called lootable economies, such as Angola, Liberia and DRC that have lucrative pockets of extractive wealth like diamonds and gemstones and then we are talking about conventional mineral producers like Ghana, Guinea, Zambia and Tanzania. That is one side of the story, and then you have Botswana that we have just mentioned and then we have Norway that is often seen to be the excellent model of natural resource governance, it does help that in Norway most of the oil was offshore; it didn’t disrupt the local society. So, the point here is that, and I notice this in your work too, that there is a lot of focus on the resource curse and the importance of good governance but even though we could all agree that good institutions are crucial, the experience so far it turns out, is that technocratic institution building is severely limited sometimes. Could you elaborate on this issue?
Addison Well, the name resource curse became popular because so many of the countries with resources fell into deep distress but I think we would agree, and I say this as an economist and economists by training often look for simple explanations, but if you are looking at the history of Venezuela or the DRC, simple nostrums about institutional weakness or good or bad governance only take you so far, you have to really look every deeply into the histories of those economies and societies, their histories in the colonial era and post-independence. We have that difficulty; we know that reforming institutions is a much tougher task than we would have envisaged 30 years ago when we were rather, as a profession of development economist, rather gun hoe about what could be achieved. But I think the word transparency is important because sometimes in these societies it does come down to blatant non-transparency and corruption and I don’t wish to imply that it is all internally in the politics of those countries, because, international actors have a great role to play in actually feeding some of that corruption and facilitating some of that non-transparency. We think here, particularly of some of the oil companies and their history and some of the mining companies and commodity trading companies, so it is a simple way to say, let’s improve institutions and let’s improve transparency, I think those are very important, but we also have to think very hard about the history of these countries and where they are coming from.
Banik So, did it help Botswana that it was democratic, is that the key thing? Or was it also the fact that it had diamonds which are different from other resources? What would you highlight as the lessons learned from those countries that did manage? I’m not talking about Norway, but other countries that have somehow managed to promote social inclusion rather than social exclusion, that have actually managed to use revenues from extractive resources to advance social inclusion and investments in education, health and infrastructure. What do we know? What is the evidence so far?
Addison Well, Botswana is the standout example and in some ways the success of Botswana is down to cattle because cattle are so important to the society and economy in Botswana. Botswana had to maintain a good exchange rate to maintain its cattle exports so that when the Diamond income began to flow, the policy makers in Botswana were very concerned to avoid what we saw in Nigeria after the flow of oil revenue which is an overvalued exchange rate. So, Botswana at the very early stage engaged in good macro-economic management. One of the keys to Botswana is that it has always had a strong emphasis on the national plan, right from the start of its post-independence history. When you talk to a minister in finance, what they will say to you is that when some sector ministry comes to them, say the ministry of industries, and says we have this great opportunity for investment in a particular area, the finance minister can say: well, how does this accord with the national plan? That involves some discipline and some assessment of the costs and benefits. Botswana is an example of how the history of a country is both informative, one can understand where good policy making came from but there is also a question about whether the lessons are very transferrable to other countries with very different cultures, societies, and political systems. I don’t think there is any particular magic sauce you can put into the cooking, as it were of resource rich countries, but there are a certain set of principles, and one is to avoid macroeconomic disequilibrium to avoid overspending and over accumulation of debt. And the other is to very rigorously think it through, what you are going to do with the revenues in terms of investments, what are good sectors and activities to invest in, that is a very important principle.
Banik I often use the Norwegian example in terms of the sovereign wealth fund, we are saving for a rainy day, and much of the recent discourse we have had in Norway, at least during the election campaign has been to use the huge wealth fund to help facilitate the green transition and interestingly enough I think it was yesterday, one of the big newspapers in Denmark had this front page headline saying: If Norway with its trillions of dollars in the wealth fund can’t make the green transition, who can? So, our neighbours seem to be looking up to Norway to make certain changes and decisions that could actually help other countries. But, whenever I talk about the Norwegian example of course, one of the responses is that: but the Norwegian example isn’t relevant. Just as you were saying about the Botswana experience, it cannot necessarily be transferred to other countries. The argument I have heard from low-income countries is that we can’t really save for a rainy day, so it is all about using those revenues to do something about poverty reduction, for social protection programs etc. Then the next set of issues we end up discussing is about legislation and taxation all of these issues that again the Norwegians have tried to impart their experience in terms of this program that Norhed, the Norwegian Agency for Development Cooperation has called: Oil for Development. But I was looking at some of the evaluations and it turns out that these bits of advice that the Norwegians were imparting to other countries had limited impact because it was really about politics, you could come up with all these well-intentioned guidelines and advice, but politicians do not necessarily have the kind of ownership that is required for these initiatives such as legislation and taxation to have an impact.
Addison Yes, I mean you can write these things into law, but then the politics can take over. For example, one standard recommendation from economics is that resource abundant countries should deploy a fiscal rule whereby they save a portion of their revenue for a rainy day and a rainy day stabilisation fund but, really the only country that has made that work politically is Chile. Most other countries have actually overridden their fiscal rule often previous to elections, so there is sort of an electoral cycle involved here. I think the issues about saving versus investing is an important one because, low-income countries have so many potential investment opportunities, particularly in the health and education areas so you really have to ask yourself why would you be saving for a rainy day far in the future when you could be investing the money in good quality primary education and rural health care. Particularly advancing the agenda of female education and we know that from all the evidence that providing quality education has got very high social returns and private returns in terms of higher earning and benefits to nutrition and so on. When I always look at the investment profile of a country, one of the questions I always like to ask policy makers is: do you feel you are investing enough in those key critical development areas. And that is before you go on to consider fancy things like having a sovereign wealth fund or an industrial policy or whatever is the flavour of the month.
Banik I take your point and I don’t mean that low income countries should be saving but Venezuela is an interesting example here because one went out and began these very expensive populist programs on a spending spree without being financially prudent. I am just thinking about having some sort of a backup plan, some savings, not much, but at least some kind of cushioning for the immediate future while investing as much as one can now.
Addison Well, I think it is perfectly reasonable and desirable for some countries to have some savings in very liquid assets, usually U.S Treasury Bonds which they can sell at quite short notice to defend a budget and public spending or to defend a currency and this is quite a reasonable thing to do. But when countries get sucked into generational savings, saying we will be saving for future generations, that is perfectly fine in Norway which is a high-income society, but in low-income countries there is a tremendous opportunity cost there, and unfortunately many of these sovereign wealth funds have been extremely badly run. They have had corruption problems of their own, Libya, for example is sitting on an enormous sovereign wealth fund at the moment which is completely unused because of the political situation there, the situation in Equatorial Guinea is completely opaque, non-transparent sovereign wealth fund, again Botswana is the stand out example of building a sovereign wealth fund which has been of benefit to the nation but sovereign wealth funds are quite tricky things if they are intergenerational sovereign wealth funds.
Banik So, it’s not just actually governments but it’s all sorts of partners that a government has internationally that are important for the extractive industry. The way in which these wealth funds are governed, the way in which revenues are shared with communities, there may be NGOs and all kinds of different actors involved. I want to ask you about the role of some of these external stake holders especially let’s say donor agencies, rich countries through foreign aid programs trying to help better manage the natural resources in some of these countries. What should donors be doing? In the book I’ve seen some examples of say the Erstwhile Dipit in Britain, having had some interesting programs in Ghana and Kenya and you mention Chile, I don’t know if there was the involvement of any aid agencies there. But what should donors be thinking about? What should they be prioritising if they were to help some of these countries better govern their natural resources?
Addison I think donors really need to help countries think about the entire portfolio of their natural resources, so if you’re an oil and gas economy you should be thinking about your mineral resources. But also all countries should be setting alongside those non-renewable resources, their soils, fisheries, forests, biodiversity because it’s in those renewable resources in the natural capital that the true wealth of many of these countries sits. In 30 or 50 years’ time oil and gas resources will probably be entirely without much if any commercial value, they have to be, because we need to stop putting carbon into the atmosphere. But the tropical forest and the biodiversity particularly in Africa, the seas and the fisheries and the rest of the natural capacity truly have immense value and their distribution by new mining or oil and gas projects, that is irreversible damage. So, donors really need to help countries think about how they can build their portfolio of resources and how they can balance between the different types of resources and make sure they do not overuse their natural capital, make sure that they sustain it and that implies carbon pricing it means carbon capture and storage when they are engaged in oil and gas, but it also means regulation, community impact, community forestry, it means doing what Gabon is doing and the assistance that Gabon is now getting on payments for carbon credits. That is the direction we need to go in.
Banik Let’s talk about EITI and its impact: The Extractive Industries Transparency Initiative, which as I understand it has been implementing the global standard for the promotion of open and accountable management of oil, gas minerals etc. Apparently, this standard by EITI requires disclosure of information about the extractive industry value chain, the points of extraction, how revenues make their way through government, and how they benefit the public, all of this with the aim of strengthening public and corporate governance. Now what has been the EITI's impact in your view so far? I understand that at the moment there are 55 countries implementing this standard and lots of governments, companies, civil society organisations have been involved. Have things been working? What is your view on EITI?
Addison Well EITI has been a very sound investment by the donor community and a very sound activity for both governments and civil society. Compared to say the year 2000, before all of this began, we are in a much better position than we were then, certainly 20 years ago, in understanding the flows of revenue around extractive sectors and understanding where the problems are arising in terms of missing revenues and in terms of licensing, regulation and so forth. The difficulty that EITI runs up against is the politics of many of these countries, but it is a very useful means of civil society, in particular, to place pressure on governments and companies to act responsibly. Countries that are not members of EITI raises all kinds of flags, including for investors because alongside EITI we have ESG which is Environmental Social and Governance Investing which has become particularly important in the Nordic countries and the management of our pension funds. When a pension fund is looking at investments it is also in some senses looking at the quality of investment in a country and whether it is EITI compliant. At the moment, very few if any mining projects are actually ESG compliant, but over time we want to see the industry push itself to establish net zero mining, to have a full accountability of the revenues, and to have a good solid community and environmental impact. Then the ESG investor might go in and invest in that mining operation and the associated company. So, I think EITI has been very important in creating an environment of discussion and action, but nevertheless there are technical difficulties around interpreting the information that is now available in the public domain but at least we have it in the public domain which is what we never had 20 years ago.
Banik So I was actually having a look at EITI's website and it turns out that the countries that are members, there are only two countries that have been suspended due to political instability, Myanmar and the Central African Republic. Most of the others are classified as having satisfactory progress or meaningful progress or sometimes inadequate progress. The question to you Tony, is: Do you think it is easy in some of these international imitative to d list or suspend countries? How high is the bar for suspension?
Addison I think the EITI board very carefully consider these things and Myanmar is an unfortunate example where they have had to take action, but there are also countries that have been rejected in terms of EITI membership and here I am thinking of Equatorial Guinea which has tried to join on several occasions and which I believe is still not yet a member. That is a very strong signal for the government of Guinea and others involved in Guinea, that something is not going right here and needs to improve. But yes you are right, like all these international initiative it runs up against the politics of development and if there is one thing we have learnt over 30 years it is that politics sometimes dominates economics and politics quite often dominates democracy and democracies are very imperfect, but I think civil society and civil society organisations and actors like Global Witness are doing invaluable work. But what really needs to happen is that we also need action in the advanced economies and in the OECD economies to really push very hard on corruption and transparency. The commodity trading sector has been a really bad sector for many years, and they are constantly saying that they have improved, yet we regularly read reports in the media about yet another oil trade or mining venture that has caught up in some corruption scandal with an oil trading company or a metal trading company and really, we do need a lot more in terms of sanctions and investigations in the commodity trading space.
Banik Talking about the different actors involved in the extractive industries, Tony, there are these companies that are branded as being enlightened companies and that if you could have a government that is effective and inclusive and practices effective and inclusive governance, working together with these enlightened companies, would be, as you put it in the book, an ideal combination but conversely ineffective and divisive government combined with rogue companies is the worst. Do you see many more of these enlightened companies being active in this sector and are these companies mainly from the west or do you also see some of these companies from emerging countries?
Addison The International Council of Mining and Metals in London (ICMM), which was established over a decade ago has been doing good work with the companies that have signed up to its standards in terms of pushing a better agenda on this, but that doesn’t mean to say that these companies do everything right. For example, the boss of Rio Tinto, had to resign a few months ago, as a result of the fiasco where Rio Tinto managed to destroy an aboriginal heritage site in Australia. But the very fact that these companies are signed up to an organisation like ICMM means that there is a lot of peer and industry pressure upon them. You saw that in the role ICMM, and others took, ESG investors for example in the initiative on tailings dam after the disaster of Vale in brazil a few years back. Unfortunately, the oil companies behind the mining companies in terms of progress don't really have an ICMM and their commitment to the climate agenda is still really quite unconvincing and they are still operating in some countries with dubious standards of either politics or human rights, so the oil sector really does need cleaning up. As you say there is now a whole raft of emerging market companies moving into these economies and industry associations like ICMM are doing hard work to try and sign them up and I believe there are some Chinese companies that are moving toward membership or that are in membership. This is a key concern, but you shouldn’t forget that in emerging economies like China, China is taking an enormous amount of action on its own emissions and climate change agenda and its own concern now to establish responsible supply chains the inputs it uses, to a degree has a commercial rational behind it, which is that increasingly in a global market we as consumers want to buy products where we know there was been no use of child labour, that environmental standards are being followed and so forth and Chinese products are of more concern to us than products made in Europe or north America. So, there is a strong commercial reason for China, India and other emerging market economies to come into line with these new evolving global standards.
Banik There have been some positive signals coming from China of late, I have been following the construction of coal fired power plants in Sub-Sahara Africa and now there is this directive for greening the Belt and Road Initiative, which says that Chinese companies should just as in the past, abide by national legislation, which as you mention, is sometimes very weak. Now, there are higher level requirements that the Chinese Government is to pursue, and these are requirements for sustainable development and green energy etc. So, the positive thing I notice is that Chinese companies are now much more reluctant if they haven’t already cancelled all future coal fired power plants that they were trying to build on the African continent. I think that is an impressive development.
Addison Yes, and don’t forget this is a tremendous commercial opportunity for China or indeed other companies in sustainable and renewable energy in Africa. We know that Africa is using maybe less than 1% of its potential in wind power, it is quite extraordinary the low levels of wind power use in Africa, and China may well be the main supplier of that technology in the future, particularly if it is part of its aid program, around the Belt and Road we may see a lot of action coming from that direction. You shouldn’t forget that in the oil and gas market, China's movement towards a national carbon market and carbon pricing means that they are increasingly looking for cargos of liquefied natural gas with the lowest emissions. So, china is going to be a big driver of emission standards in the Asian gas market, because the Asian gas market is a big growing market and any gas producer that wants to get access to that market is going to have to minimise its methane emissions. It’s probably going to have to engage in a great deal of carbon offset in the future to sell those cargos of LNG to China. I think we shouldn’t underestimate how big of a standard setter China could emerge as, in both the existing fossil fuels area and you mentioned coal but there is also gas and the areas of renewable power, wind, solar and also in being the world's largest producer of electric vehicles and the standards around electric vehicles and the mineral content that goes into those vehicles.
Banik Now that is really interesting Tony, because, when I look at India and China, I see a bit of a paradox in the sense that while China has made all the right noises, and talks about its commitment towards green transitions, both India and China rely heavily on coal. So, China has done somewhat better in terms of renewable energy, I don’t have the total overview here and I know that India has been pretty successful in terms of solar power, some people say that the Indian electricity sector is on the cusp of a solar power revolution. But the fact of the matter is that these two big giants in Asia still rely on fossil fuels and will continue to do so for the near future.
Addison India has a really growing demand for oil and gas and indeed coal. Going into the immediate future, if you look at the reports by the International Energy Agency on India’s demand, the point that the IE makes is that a lot of this future energy demand is going to come from stuff that India has not yet built. But, at the same time there is a tremendous ability and advantage for India as indeed there is for china and other emerging economies in the area of energy storage because the world needs really good energy storage technologies. We have wind and solar but we haven’t yet really got on top of the problem of intermittency and supply so we still need the coal and gas for driving the thermal power plants that provide the base load of electricity so what we need is much more energy storage and we need more technology innovation around the energy storage. It is quite conceivable, that you will see China and possibly India, if it invests enough of its science and technology resources, as quite big innovators of energy storage technologies and that would be of immense value to those countries themselves but also to Africa and indeed to the rest of the world. There are tremendous commercial opportunities there.
Banik Sometimes this debate on renewable transitions and green energy assumes that it is all a win-win, that everyone will want it. The experience we have had in Norway in recent years, especially in terms of wind power is quite illustrative of democratic challenges, a lot of people don’t want windmills in their area. If it is offshore like oil has been in Norway, it doesn’t disrupt communities and that is fine but I don’t want it here, I want it somewhere else. Do you see that kind of debate affecting the adoption or encouragement towards renewable energy transitions elsewhere in the world?
Addison I think if you're providing tangible gain to the community, say in Africa which has had no grid electricity, but you are able to invest and say: this grid electricity is able to be supplied by the wind turbine and we need to build a gravity storage facility on top of a hill so that we can store the electricity from the wind turbine and this will then drive the power to your school, homes and clinics. If these people have had no electricity before then I think there will be far less opposition than say you would get in a country like Norway. That said, where you are going to get a political problem and where you already have a political problem is in coal mining communities in South Africa, India, and China, we have this idea of just transition, which is a lovely phrase that people like to bring out, that this community is going to be given a great deal of help. But really what is this just transition going to consist of? and there it is quite likely you are going to see the politics of that being really quite difficult and hard. This is also a problem with some of the discussion around local content, for example, if you are trying to develop an industry around coal mining to try and derive more local value added from coal mining, but the future of coal mining is dismal, well you are simply making a lot more people dependant on a sector that is going to go out of business fairly soon. The challenge with those communities is really to find new sources of economic activity and that is going to be hard.
Banik Indeed. A final set of issues Tony has to do with one of the main messages in the book, and I will provide a link to that book which is open access. This message that you and your co-authors argue, is that climate action will create new winners and losers among the extractive sectors. The question is, who do you think will be the new winners and losers?
Addison The new winners will be among the mineral economies, that not only have the mineral resources but have the institutional capacity and willingness to work with mining companies and investors to build green mining. It is not enough to simply just have the iron ore or the lithium or cobalt, you also have to have the ability, both technically and also politically, to work with the industry to deliver that kind of mining. Those economies will be the winners, they will be the winners because they will also attract the investment, the ESG investors and indeed multilateral development banks will work with those economies because there will be something of an insurance, the environmental impact will be good, the community impact will be strong, and the revenues will be flowing to where they are needed. The big losers are going to be the smaller economies that have fossil fuels, so coal is going to go out of business. But also, if you are a small and costly oil producer then you are going to face a lot of head wind because as the price of oil eventually starts to weaken you are a high-cost producer so you are going to become much less attractive for investment and indeed we have seen during the pandemic, the pullback by some large and international investors from economies producing that are oil but are quite high cost producers. This also applies to countries that have large amounts of oil such as Venezuela which has probably the largest reserve of oil in the world but the oil is very emissions intensive to extract or has a very high carbon content so that is going to be the problem. Among the gas economies it is going to be the producers of gas, exporting it by LNG that can reduce their emissions and show their consumers that this is very low or net zero gas which is a technical challenge. Some of those gas economies might actually be able to move into hydrogen production, which is something we haven’t discussed in this podcast, but which would be a very good topic for a future podcast. Probably among the oil and gas economies, the big winners are simply going to be the existing, very large-scale producers in the Golf, Middle East Saudi Arabia, possible in Latin America Guyana which is going to be a very large oil producer. If I were an African country like Senegal, Angola, or Uganda I would be quite worried.
Banik Tony it was great fun to chat with you today, thanks so much for coming on my show.
Addison Thank you Dan, it was a real pleasure to speak with you and participate in what has been a great series of podcasts.
Banik If you enjoyed this podcast, please spread the news among your friends and share it on social media. The Twitter handle for this podcast is @GlobalDevPod.
Thank you for listening to In Pursuit of Development with Professor Dan Banik from the University of Oslo’s Centre for Development and the Environment. Please email your questions, comments and suggestions to email@example.com.