OECD Development Centre releases new policy toolbox for a just low carbon transition of fossil fuel producer and mineral-rich developing economies

Paris, November 21, 2022

Fossil fuel-producer and mineral-rich developing economies have contributed least to cumulative greenhouse gas emissions. Yet, they suffer some of the worst impacts of climate change and are among the least equipped to navigate the risks arising from the low-carbon transition or take advantage of the opportunities. The Equitable Framework and Finance for Extractive-based Countries in Transition (EFFECT), presented on the side-lines of COP27 in Sharm El-Sheikh, provides a toolbox for policy makers to chart just and sustainable low-carbon transition pathways, in line with their development priorities.

“We need to support a transition that is effective, people-centred and fair. Every country has a different starting point for its climate action, and will meet its climate and development goals based on a mix of approaches that best suit its particular circumstances,” OECD Secretary-General Mathias Cormann said. “In this regard, EFFECT is both realistic and ambitious. It recognises the transition will be harder for developing economies that depend heavily on fossil fuels, and will support policy dialogue and peer learning, help to shape partnerships, and provide practical guidance to chart their own low-carbon roadmaps.”

Fossil fuel-producer developing economies rely on cheap access to those resources for power generation and industry, and depend heavily on revenue from fossil fuels exports. Many are in the midst of severe economic downturns caused by the enduring effects of the COVID-19 pandemic and Russia’s invasion of Ukraine. These crises have created strong inflationary pressures, increased public debt to unsustainable levels and made it harder and more expensive to access international finance.

In the longer run, rapid demographic growth and urbanisation, burgeoning demand for energy, inadequate power networks, as well as significant gaps in technology, capacity and financing could lock these economies into costly high-carbon development pathways. Policy makers in fossil fuel-producer countries seeking to decarbonise their economies are thus facing a particularly complex challenge, while mineral-rich developing countries need to manage new risks and opportunities.

“As we navigate our way through the energy transition in Nigeria, EFFECT will play a key role in reducing exposure to risk, increasing resilience and helping Nigeria realise the benefits of a low-carbon economy. We intend to use EFFECT as a reference tool to assess gaps, support the implementation of our national Energy Transition Plan, and advance systemic transformation in Nigeria”, said H.E. Timipre Sylva, Minister of State for Petroleum Resources of Nigeria and co-Chair of the initiative.

EFFECT provides practical guidance for those policy makers. It accounts for their need to address short-term pressures, particularly energy access, affordability and security, without losing sight of long-term structural transformation and decarbonisation objectives. Developed in close partnership with developing economies, OECD countries, international organisations, industry (including extractives), civil society, and development finance institutions, EFFECT pursues three objectives:

  • Decarbonising extractives and managing uncertainties. According to the International Energy Agency, by 2050, fossil fuels will still represent 20 % of the global energy supply under the NetZeroEmissions Scenario. As a step on the road to net zero, fossil fuel-producer developing countries, including their national oil companies, should ensure that their production is as low-carbon as possible. This can be achieved through a mix of regulations, policy incentives and partnerships for the deployment of best available technologies and practices. Major proposed initiatives include the reduction of flaring, venting, and methane emissions across the fossil fuel value chain; the integration of renewable energy into upstream extractive projects; and, where appropriate, the deployment of Carbon Capture (Utilisation) and Storage to reduce emissions from energy intensive and hard-to-abate industrial sectors in the long term.
  • Sustainable exit strategies and just transition plans for affected communities, industries, and regions. EFFECT helps identify and mitigate transition risks and provides options to structure an effective dialogue between government, employers, employees and other stakeholders. The aim is to define equitable strategies for the phase-down/out of fossil fuels and offset negative impacts through the roll out of social protection schemes and specific labour market policies. EFFECT also outlines strategies to ensure any new fossil fuel infrastructure is transition-ready, avoiding risks of high-carbon lock-in and stranded assets. It provides guidance for fossil fuel-based developing countries to access new finance, including by de-risking green investments, developing robust and investible low-carbon projects, and setting up innovative mechanisms to raise finance for the low-carbon transition.
  • Systemic change and economy-wide decarbonisation to achieve net-zero whilst addressing biodiversity loss and environmental degradation. EFFECT provides guidance on seizing the opportunities associated with the transition, including green industrialisation, the valuation of natural capital, and promotion of low-carbon value chains with higher local benefits. EFFECT proposes strategies to accelerate the decarbonisation of the power, transport and building sectors, leading to improved well-being for citizens. It also offers advice on carbon pricing, the reform of inefficient fossil fuel subsidies, and that of tax systems more generally as essential features of any least-cost decarbonisation plan.