The Other Resource Curse

Moving away from fossil fuels could be devastating for some of the world's poorest countries.

For as long as people have talked about moving beyond fossil fuels, another tantalizing prospect has hovered over the horizon: the decline of resource-rich authoritarian countries and the rogue nonstate actors that depend on them. A world of reduced demand for coal, oil, and gas is a world in which Iran, Russia, and various al Qaeda supporters are significantly weakened. That would certainly qualify as good news.

But visiting Mozambique last week, I was reminded that not all of the losers from lower fossil-fuel demand will be the traditional bad guys. Mozambique's economy has tripled in size in the decade since the end of the country's 15-year-long civil war, but GDP per capita remains barely over $1,000 a head -- and highly concentrated among relatively wealthy elites. Leaders in Maputo, the capital, relied on international aid for 40 percent of the national budget last year.

But an end is in sight: Massive coal deposits and offshore natural gas are poised to end Mozambique's aid dependence and rapidly increase economic output. The most bullish projections are far from assured -- Mozambique suffers from a lack of skilled labor, regulatory capacity, and essential infrastructure. But perhaps the biggest unknown is demand for what the country hopes to sell. If the world were to sharply reduce its dependence on fossil fuels, appetite for Mozambique's exports would decline or vanish, likely leaving the country in considerably worse shape.

Mozambique is hardly the only country that would face this predicament. Africa in particular is packed with countries for which resource extraction appears to be the only viable first rung on the road to economic growth. Others in Central and Southeast Asia, Latin America, and the South Pacific confront similar prospects. Some plan to sell oil, gas, or coal. Others foresee extracting minerals like iron ore and bauxite, the processing of which requires massive amounts of fossil fuels. In a carbon-constrained world, however, consumers would need to cut back on their use of these minerals.

Resource wealth is, of course, far from a guarantee of prosperity. Indeed, it can often bring the opposite: corruption, violence, and economic distortions that crowd out manufacturing and other industries, often deepening inequality in the process. But save for a few lucky countries like Costa Rica that have become favorite tourist destinations, there are few alternatives to resource extraction for many of the poorest developing countries. Development economist Paul Collier argues this point well in his powerful 2010 book, The Plundered Planet. The best alternative to suffering the resource curse, he explains, isn't necessarily forgoing resource development. It's harnessing revenues from resource extraction more effectively for broad and sustainable social and economic good.

But while a great deal of effort has been expended looking at how low-carbon development could work in resource-consuming developing countries, very little time has been spent considering what it would look like for resource-rich developing countries. Entire careers are spent devising ideas for how China could power its economy using nuclear energy and renewable fuels, or how India could boost its resource efficiency. Not so when it comes to the travails of resource-rich countries. Many rightly mock demands for compensation from of the likes of Saudi Arabia, which would be hurt by reduced oil exports, but few stop to think about others that would suffer.

There are exceptions to this pattern. Ecuador is attempting to solicit payments in exchange for not developing oil in its Yasuni National Park, though it has only raised $300 million out of the total of $3.6 billion it is seeking. Considerably more thought has gone into a closely related area of low-carbon development for the resource-rich: charting alternative paths for highly forested countries that don't involve cutting down all their trees. In 2008, the consultancy McKinsey & Co. worked with Guyana to devise an economic plan that would leave its forests intact, provided wealthy donors (or carbon credit buyers) paid compensation. The plan got off the ground a year later, when Norway stepped up with cash, though it is far from fully funded.

Moreover, some countries -- those rich in rare earth elements, lithium, and other ingredients for advanced energy technologies -- might actually benefit from resource extraction in a carbon-constrained world. Natural gas producers could benefit in the near term if countries decide to reduce carbon emissions by shifting to gas from coal. And if technologies are developed to capture and store carbon dioxide emissions -- eliminating the need to avoid them entirely -- countries rich in coal (and perhaps natural gas) could benefit.

But these are possibilities, not guarantees, and in any case they would still leave many countries behind. No one has seriously argued that the schemes being peddled by Guyana and Ecuador can be scaled up to the massive level that would be necessary to avoid serious harm to poor but resource-rich countries, should demand for fossil fuels plummet. And few alternatives have been proposed. Efforts by Britain's Department for International Development to set out a low-carbon development path for Mozambique are telling: it investigated ways to lower emissions from agriculture, but ignored potential revenue pitfalls from depressed natural gas and coal prices.

Don't get me wrong: This is not an argument against taking action to combat climate change. While I was in Mozambique, large swaths of the country were paralyzed by intense flooding, a problem that will only get worse as climate change intensifies. Mozambique's agricultural potential -- the country ranks sixth in the world in fertile but uncultivated land -- would also be put at risk from rising temperatures and more volatile weather. But it is cold comfort for poor countries that serious climate action will spare them future horrors when their daily existence remains mired in severe poverty.

Of course, demand for the developing world's resources is unlikely to evaporate overnight; the planet has proved spectacularly incapable of combating greenhouse gas emissions. As we step up efforts to change that, a vision for poor but resource-rich countries should be part of the plan.



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