Gains from trade in renewable energy can pay fossil exporters to leave carbon underground

Achieving global climate neutrality requires a substantial share of fossil reserves to be kept underground. Yet the number of countries committing to supply side policies has remained small, and direct compensation for leaving fossil fuels in the ground has repeatedly struggled to mobilize durable finance and credible commitments. We propose a different bargain: fossil fuel exporters with strong renewable resources would substitute fossil exports with that of clean electricity, hydrogen or electricity-intensive clean commodities. Long-distance renewable electricity trade creates gains because regions with complementary seasonal generation profiles can share firm clean power rather than overbuild generation capacity or expensive seasonal storage. These gains or fractions thereof can be allocated to fossil-exporting countries as clean export rents and, where necessary, as buyer-side transfers through infrastructure finance or long-term offtake contracts. We outline the policy architecture, identify which exporter groups could plausibly replace a substantial share of fossil export revenues and discuss potential pathways.

Karl W. Steininger is Professor of Climate Economics and Sustainable Transition at the Wegener Center for Climate and Global Change, University of Graz. He also serves as the Wegener Center's director, heads its research group Economics of Climate and Environmental Change, and is in the faculty of the Field of Excellence Climate Change Graz. His research focuses on economic impacts of climate change and long term net-zero-carbon transition, analyzing options such as adjustments in spatial planning, technological development in industry or enhancing the supply of renewable energy, including solar. 

Moderation: Keith Williges