The Proof is in the Politics: Fossil Fuel Interests and Domestic Energy Transitions

This post is part of the "Resource Governance and the Energy Transition" series. 

Governments of oil, gas- and coal-producing countries often send mixed signals about using cleaner energy at home. Months after Mexico passed fresh laws and targets for renewables, its new nationalist government scrapped a successful clean energy auction and said it would spend billions on oil refineries. Officials in prospective oil and gas producer Lebanon targeted 30 percent renewables use by 2030, then laid plans for three new natural gas import facilities when one might have sufficed. Even in India, where the government has shown real commitment to burning less of its coal, subsidies for renewables recently fell by a third while those for fossil fuels rose by twice as much.

What does all this say about prospects for renewables in these countries?

Fossil fuels will inevitably be part of resource-rich countries’ domestic energy plans. But use of them for electricity is tapering off most quickly in industrialized, resource-poor nations while many oil, gas, and coal producers are burning more. The energy choices of an India or Mexico may matter more for global climate goals than Lebanon’s. Still, backing solar and wind power could help producers of all sizes cut energy costs and free up their valuable gas for export. Energy poverty and air pollution may also fall in places, though some studies suggest this isn’t inevitable.

At NRGI, we see signs that extractives sector policies and governance choices are holding back solar and wind projects in many of the countries where we work. Part of the trouble lies in the shortsighted habits of political decision-making that oil, gas or coal exploitation can foster. Debates about domestic energy use, after all, are highly political. They happen at unique political moments and can fall prey to narrow agendas.

Consider, for instance, the choice by governments to keep subsidizing oil, gas or coal. Such subsidies are not merely—or even mainly—exercises in economic policy. They buy popular support, defer tough reforms and benefit well-heeled elites. Likewise, officials can invest government funds in new fossil fuel electricity projects to dole out patronage and fulfil campaign promises.

Most of the political challenges that extractives pose to solar and wind in producer countries turn on control of money and influence. Developing oil, gas and coal reserves can bring governments higher rents than investing in renewables, not least because the state usually owns the resource. This comparison is somewhat one of “apples to oranges”: extraction is supposed to generate rents; renewables generate electricity. All the same, skewed incentives around fossil fuel extraction and use can crowd renewables out of a country’s domestic power market.

My colleagues and I see this playing out in several different ways. In a political system built around elites sharing natural resource money—as in Nigeria, for instance—officials may simply not see the value of making policy changes that support solar and wind projects. Other governments back coal or gas-fired electricity over renewables partly because some leaders think the money involved is key to their survival, as one analysis suggested in Tanzania. Elsewhere, politicians who face overlapping economic and energy crises conflate returns from exporting oil and gas with the possible upsides of converting more gas into electricity. This, in turn, leads them to overvalue the latter—especially when prices are much higher than they are right now. They may also oversell gas’s “transformative” potential to the public, as arguably has happened in Ghana and Lebanon.

Energy transition’s enemies in the fossil fuel industry can also “capture” important policy processes. In Nigeria and Lebanon, we found, powerful interests in the diesel generator market appear to be lobbying hard against the creation of new policies and institutions that could help nurture solar and wind power.

State-owned enterprises (SOEs) can block progress as well. When regulators directed it to buy more renewable electricity for the national grid, Indonesia’s state-owned utility, PLN, refused, even though the country had already started replacing its old coal plants with renewables. Conflicts of interest may explain this: PLN sells fuel for generators and owns half the country’s coal-based electricity supply. The SOE also has a settled business model and a large staff with little experience in solar or wind.

Globally, resource-rich countries still spend hundreds of billions of dollars a year propping up the private firms and SOEs that run fossil fuel extraction and power projects. Tax and duty breaks are the most visible subsidies to industry, but dozens of others exist. These can benefit fuels that compete with solar or wind in the local power market—for example, price caps on coal sales to Indonesian power plants, or the payment guarantees in Ghana’s purchase agreements with gas producers.

Consumer subsidies can also undercut solar and wind. In many resource-rich countries, officials court popularity by holding electricity tariffs below generation costs. This shields citizens from volatile fossil fuel prices, making the search for cleaner, efficient alternatives less urgent. It also drives the SOEs that produce power into debt, creating huge deficits that the state must absorb. In some poorly governed, resource-dependent economies—Nigeria or Myanmar, for instance—cheap electricity is among the few public benefits that poor citizens receive, even sporadically. When citizens come to see this as an entitlement, tariff hikes—including those that would make solar or wind projects viable—can feel like political suicide. This, in turn, reflects the broader politics of extraction, which tends to favor quick handouts over strategic investments in people, sectors and public goods.

Any predictions about solar or wind power’s chances in a fossil fuel-rich country must account for these dynamics. Politicians naturally speak different languages to different audiences. Yet deeper disconnects can exist between what they support on paper or at international events and the thorny energy politics they face at home. Some officials in developing countries may see solar and wind power as part of the fight against climate change, which could sit low among their priorities. Still others may tout clean energy in public while privately decrying it as a Western, donor-driven ploy to undercut their influence, market shares and sovereignty. In each producer country, then, a critical question for those who champion renewables will be: Which actors have the influence, interest and incentives to swim against the strong undertow of fossil fuel production and consumption?

Aaron Sayne is a senior governance officer with the Natural Resource Governance Institute (NRGI).

Photo from Wikimedia Commons via Creative Commons Attribution-Share Alike 4.0 International license