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Oluwasola Emmanuel Omoju:Energy transition in developing countries: Gradual but risky

Oluwasola Emmanuel Omoju, Researcher at the Nigerian National

Dr. Oluwasola Emmanuel Omoju gave an exclusive interview on the global energy transition. Dr. Oluwasola Emmanuel Omoju is a researcher at the Nigerian National Institute of Legislation and Democracy. His research interests are in the areas of energy economics and policy, public finance management, and sustainable development economics. His recent research includes "Public Investment in Nigeria's National Food Security Program: A CGE Analysis of macroeconomic, Welfare and Gender Impacts on Nigerian Small Farmers" and "Assessing the Welfare, Employment and Gender Impacts of Nigerian Renewable Energy Financing Policy Choices."

Energy transition in developing countries: Gradual but risky

Modern countries can adopt renewable energy technology to improve energy security, but some developing countries are relatively backward in technology and low utilization rate of renewable energy, which are very vulnerable to the impact of the energy crisis. What measures should developing countries take to enhance their ability to resist risks? In addition, how should traditional energy exporting countries cope with the rise of new energy technologies?

The impacts of climate change have necessitated a global energy transition. The evidence that climate change is caused by combustion of fossil fuel has created the need to transform the global energy system to a cleaner and more sustainable energy system. While this transition has been relatively easier and rapid for advanced and developed economies, developing countries are lagging behind.

The low utilisation of renewable energy in developing countries persists despite the fact that developing countries are more vulnerable to the negative impacts of climate change. Developed countries have the technological expertise, know-how and financial resources to invest in climate change adaptation and mitigation. Developing countries, especially those in Africa, Latin America and South Asia, have less capacities to adapt to climate change. Some of the reasons for the limited adoption of renewable energy in developing countries include over-dependence on conventional energy for energy access, government revenue and economic growth; technological backwardness due to limited science and technology capacity; high investment costs and risks, poor financial investment, lack of conducive regulatory framework for renewable energy development, etc.

Infact, several developing countries, including energy-exporting countries, see significant risks associated with the global energy transition, if not properly managed. The global energy transition poses risks to developing countries in several ways. First, most developing countries in Africa, for example, are currently energy-deficient or poor. According to the United Nations, only about 44% of the population of sub-Saharan Africa have access to electricity as at 2017. This is despite the fact that some of these countries have abundant and cheap fossil full energy resources. It will be unconscionable to expect these countries to abandon their abundant fossil fuel resources in favour of renewable energy, which they have limited capacity and technology. China is an example of a country that has successfully exploited its abundant fossil fuel resources, manly coal, to achieve energy access and security, develop competitive industries and promote economic growth. So it is expected that most developing countries will be reluctant as far as the energy transition is concerned.

Second, energy-exporting countries like Nigeria, Saudi Arabia, etc. are at higher economic risks due to the energy transition. Over 50% of government revenue and 80% of foreign exchange in Nigeria come from export of oil and gas. The oil and gas sector also accounts for about 9% of the GDP in 2019. Looking at these facts, the global energy transition doesn’t bode well for energy-exporting countries. Some key questions that need to be asked are: how will these countries cope economically when demand and price of oil goes down due to substitution of oil by renewable energy. Also important is the trade aspects. These countries export oil, which supports the balance of payment. In the event of global energy transition, and given their limited capacity in developing their own renewable energy technologies, they would have to import renewable energy technologies, with a reverse impacts on their balance of payment. This a major risk every energy-exporting country is taking into consideration as far as the energy transition is concerned.

For developing countries to mitigate the risks associated with the energy transition, they need to take the transition gradually. A rapid transition will impose economic risks, which may further derail the transition process. Therefore the transition has to be gradual, and cannot be at the same pace as developed countries. Also, developing countries need to seek the support of developed countries. The current climate crisis is caused by developed countries and other emerging economies like China and India. The contribution of Africa as a continent, for example, to global CO2 emissions is insignificant. Hence, developed countries should bear the financial costs of the transition. In other words, they need to provide significant financial support for developing countries to transition successfully. Unfortunately, this is not happening. Most of the financial pledges by developed countries to support developing countries in the transition process are not been fulfilled.

Furthermore, energy-exporting countries will need to make significant adjustments in the face of new energy technologies. Countries like Saudi Arabia and UAE are already planning for these adjustments. They are making drastic efforts to diversify and wean their economies from oil, such that the eventual energy transition would have less impacts on their economies. Other energy-exporting countries would have to take a lesson from them. Also, it is important that subsidies for fossil fuel should be ended, which will enable conventional energy to reflect their full costs.

Interviewer: Deng Yuelin

Interview date: October 14, 2021

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