The Impact of Climate Policies on Oil-Producing Countries

Impact of Climate Policies Prof. Michael Akerib  |   3 mins read May 3, 2022 | 93 eye icon

Recently, the European Union proposed levying a massive new tax on its oil imports as a part of its climate policy that should lead to increased decarbonization. This measure is likely to hurt major oil producers due to the sharp decrease in revenues since it would entail a decrease in demand as consumers and industry will gradually, over a period of 10 or more years, switch to other forms of energy.

Just as an illustration of how deeply these cuts in oil exports could reach, the sanctions already in place against Russia, which do not include hydrocarbons, will lead to an 8% fall in GDP. Including hydrocarbons in the sanction portfolio would double this figure.

Governments of countries in which hydrocarbons represent a major part of the budget must come up with alternative exports. That means not only different products but also different markets. Solid links with traditional partners may have to be reviewed, and new relations and agreements established with countries that until then did not represent considerable shares of trade.

There may be the need to construct new industries and/or develop new technologies. While entrepreneurs are more qualified than state enterprises to foster nascent industries, governments have to play a decisive role by offering subsidies and other perks to assist the take-off of these new activities.

Some oil-producing countries are developing alternative energies, such as hydrogen, concentrating on production processes that are less, or even not at all, carbon-intensive.

The time available to develop these new industries, and in some cases the associated transport infrastructure, and allow them to become important contributors to state budgets is relatively scarce – no longer than ten years and perhaps even much shorter, according to some leading economists.

Failure to adapt may weaken governments and lead to significant changes. Green parties may well play an important role either as kingmakers or by fostering the creation of unstable coalitions. 

Bankers and major investors also play a leading role by refusing to finance new ventures in hydrocarbon discovery and trading. There are high expectations of the development of technological start-ups that can both be a source of profit and make substantial contributions to a cleaner environment.

There has been some resistance against the imposition of these norms by the European Union. Brazil's President, for instance, called these actions 'colonialist'. Although the EU has presently the strictest norms, it is widely expected that other countries will follow suit by imitating them.

New industries

As a general rule, and to take advantage of the knowledge of the energy market, the development of alternative energy sources, and the related industrial value chain, is the obvious new industry in which investments should be channelised.

One of the critical first steps will be to create a demand by industrial consumers. This is usually done by providing incentives and that is precisely what European governments are undertaking, but with definite limits due to budgetary constraints linked in part to the economic crisis brought about by the pandemic.

While alternative methods of producing energy are a substitution industry, alternatives are new agricultural methods, allowing the production of food less harmful to the environment. Vertical farming is a novel development in this regard.

Consumers are increasingly tempted by plant-based diets, and they may well establish limits to their consumption of meat.

Value chains will also need to adapt to shorter transport needs as food production becomes aligned to consumer needs.

Construction, one of the major contributors to negative impacts on the environment, will also require investments to be more environmentally-friendly.

In conclusion, one can say that a more sustainable world can be achieved if we develop the right technologies and encourage investments in their application.

Prof. Michael Akerib
Head of Academic and Strategic Development
Westford Education Group

Prof. Michael Akerib divides his professional life between industry, executive education and academia. He has worked for leading corporations (Dow Chemical, Merrill Lynch, COMILOG) in Africa, France and Switzerland.  He was the CEO of a South American gold and diamond mining corporation in the early 1990s. 

Since 1991, he has been involved in executive education and academia in over 20 countries. He has created curricula, franchised educational programs he created, was Dean, Managing Director of business schools and rector. 

He has published a number of articles on demography, energy and Russia.

Prof Akerib considers himself a global citizen – born in the Near East of grand-parents of four different nationalities, grown up in South America, studied in Britain. He has a Bachelor’s degree in Biochemistry, a Master’s degree in Biochemistry of Nutrition, an MBA, an Mphil in Industrial History and Geography and a PhD in Social Sciences. 

His favourite pastime  is writing surrealist short stories.

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