Carbon risk and resilience: how energy transition is changing the prospects for developing countries with fossil fuels

Over half of the world’s least developed and lowest income countries are currently exploring for oil and gas or hoping to expand existing production. This paper discusses how tightening climate policies and shifting energy investment trends suggest that the time frame for profitable oil and gas production will be limited, and makes recommendations for developing countries, MDBs and donor agencies. The paper suggests countries with established production should assess the implications of the energy transition for domestic fiscal stability, and harness revenues and energy and industrial policy to reduce risks to public finance and support transition. Countries at an earlier stage, have a chance to limit their exposure to carbon risk and follow a cleaner pathway from the outset. Alongside this, the paper recommends MDBs and donor agencies take clear positions on fossil fuel finance, carbon pricing, and the alignment of assistance with country NDC and long term emissions reductions plans to 2050. Building country-level capacities to assess and mitigate carbon risks and working with other public and private providers of development finance to better align strategies can help avoid the promotion of conflicting development models.