Wednesday, September 25, 2013

The carbon curse: Are fuel rich countries doomed to high CO2 intensities?

Energy Policy: The carbon curse is a new theory, related to but distinct from the resource curse. It states that fossil-fuel rich countries tend to follow more carbon-intensive developmental pathways than [if they were] fossil-fuel poor countries, due to a hitherto unappreciated syndrome of causal mechanisms. First, fuel rich countries emit significant amounts of CO2 in the extraction of fuel and through associated wasteful practices such as gas flaring. Second, easy access to domestic fuel in such countries leads to crowding-out effects for their energy mix and economic structure (for example, abundant oil may displace other fuels from the energy mix and lead to the “Dutch Disease”). Third, fuel abundance weakens the economic incentive to invest in energy efficiency. Fourth, governments in fuel rich countries are under considerable pressure to grant uneconomic fuel consumption subsidies, which further augments the carbon intensity of their economic output. Due to the combined effect of these causal mechanisms, it is genuinely difficult for fuel rich countries to evade carbon-intensive developmental pathways. And yet there are remarkable exceptions like Norway. Such positive outliers indicate that the carbon curse is not destiny when appropriate policies are adopted.

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