Energy Policy 62 (2013) 1356–1365

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

Jörg Friedrichs a,b,n, Oliver R. Inderwildi c,d

a University of Oxford, Department of International Development, Queen Elizabeth House, 3 Mansfield Road, Oxford OX1 3TB, United Kingdomb St Cross College, 61 St Giles, Oxford OX1 3LZ, United Kingdomc World Economic Forum, 91-93 Route de la Capite, 1223 Cologny, Geneva, Switzerlandd University of Oxford, Smith School of Enterprise and the Environment, Hayes House, 75 George Street, Oxford OX1 2BQ, United Kingdom

H I G H L I G H T S

� Fuel rich countries appear doomed to high carbon intensity, for four reasons.

� First, extractive emissions; and, second, fuel-related crowding-out effects.� Third, weaker incentives to invest in improvements of energy efficiency.� Fourth, significant pressure to grant uneconomic fuel consumption subsidies.� But the carbon curse is not destiny, as indicated by positive outliers like Norway.

a r t i c l e i n f o

Article history:Received 26 March 2013Accepted 13 July 2013Available online 22 August 2013

Keywords:Fuel rich economiesCarbon intensityResource curse

15/$ - see front matter & 2013 Elsevier Ltd. Ax.doi.org/10.1016/j.enpol.2013.07.076

esponding author at: University of Oxford,ment, Queen Elizabeth House, 3 Mansfield RoKingdom.ail address: joerg.friedrichs@qeh.ox.ac.uk (J. F

a b s t r a c t

The carbon curse is a new theory, related to but distinct from the resource curse. It states that fossil-fuelrich 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 richcountries emit significant amounts of CO2 in the extraction of fuel and through associated wastefulpractices such as gas flaring. Second, easy access to domestic fuel in such countries leads to crowding-outeffects for their energy mix and economic structure (for example, abundant oil may displace other fuelsfrom the energy mix and lead to the “Dutch Disease”). Third, fuel abundance weakens the economicincentive to invest in energy efficiency. Fourth, governments in fuel rich countries are under considerablepressure to grant uneconomic fuel consumption subsidies, which further augments the carbon intensityof their economic output. Due to the combined effect of these causal mechanisms, it is genuinely difficultfor fuel rich countries to evade carbon-intensive developmental pathways. And yet there are remarkableexceptions like Norway. Such positive outliers indicate that the carbon curse is not destiny whenappropriate policies are adopted.

& 2013 Elsevier Ltd. All rights reserved.

1. Introduction

Mineral resources are an economic and commercial asset, soone would expect them to contribute to the wealth of a nation.Paradoxically, this expectation is often frustrated by the resourcecourse: countries with a rich resource endowment tend to be lesswell governed, to have lower growth rates, and to be less sociallydeveloped than other comparable countries. Even civil wars tendto be longer and more intense in resource rich countries (Sachs

ll rights reserved.

Department of Internationalad, Oxford OX1 3TB,

riedrichs).

and Warner, 1995, 2001; Collier and Hoeffler, 2004; Humphreyset al., 2007; Ploeg, 2011).

In this article, we propose the notion of the carbon curse.The core claim of this new theory is that a country's fossil fuelendowment drives its carbon intensity to a large extent. Otherthings being equal, countries rich in fossil fuel resources tendto follow more carbon-intensive developmental pathways than[if they were] fossil-fuel poor countries. While this leads towasteful economic practices that significantly contribute to globalwarming, it is very hard for countries awash with fossil fuels toevade carbon-intensive developmental pathways.

The carbon curse and the resource curse share a commonfoundation: they both focus on detrimental effects of resourceabundance. But while inspired by the resource curse, the carboncurse stands on its own. To date, the scholarship on the resource

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curse has explored adverse economic and political effects linked toresource abundance such as violent conflict, rent seeking andincome volatility, but has neglected the environmental dimension.The carbon curse gives an environmental twist to the resourcecurse, but it is more than simply a conceptual extension. Forexample, the “Dutch Disease”—an adverse trade-related phenom-enon linked to the resource curse—predicts a wholesale decline ofthe industrial sector in resource rich economies, reflecting the lossof export price competitiveness as real exchange rates appreciatein the wake of commodity exports. It is easy to see that thisparticular aspect of the resource curse mitigates the carbon curse:a weaker industrial base suppresses carbon intensity, because theindustrial sector typically represents a highly carbon intensivesegment of aggregate economic output. Thus, the two curses arerelated but distinct.

Fossil-fuel rich countries are a neglected category in currentpolicy debates on climate change mitigation. So far, thesedebates have largely gravitated around the cleavage of establishedversus emerging economies. What has been overlooked is thecrosscutting cleavage of fossil-fuel rich versus fossil-fuel poorcountries.1 This is unfortunate. In fuel poor economies the logicof scarcity constrains carbon intensity. In fuel rich economies, bycontrast, the logic of abundance produces the opposite effect.Therefore, fuel rich countries require special attention. A betterawareness of fuel rich economies and the obstacles they mustovercome to keep their carbon intensity within acceptable boundsis necessary in order to steer the climate debate in a moreproductive direction and to gain a balanced and comprehensivepicture of the fundamental challenges that make it so difficult toreduce overall global CO2 emissions.

Fuel consumption as a percentage of domestic production infuel rich economies has increased rapidly over recent decades. InSaudi Arabia, for example, more than a quarter of the oil producedis now consumed domestically. This reflects the impact of exten-sive and institutionalized fuel consumption subsidies, which haveprevented domestic fuel prices from reflecting their true marketvalue. It also embodies the systemic inefficiency of the Saudienergy market, in which 65% of the electricity generated isproduced from crude oil. In contrast, oil-powered electricitygeneration in economically rich and developed, but fuel poorcountries has become all but obsolete, due to its inefficiency andthe impact of successive oil price shocks (The Economist, 2013).Tragically, most of Saudi Arabia's domestic oil consumption fuelswasteful high-carbon lifestyles rather than sustainable economicdevelopment. As we shall see, this is just one of many examples ofthe structurally rigid dependence of fuel rich economies oncarbon-intensive economic processes.

As this article demonstrates, fossil-fuel rich countries facespecific barriers to reducing the carbon intensity of their economicoutput. Carbon intensity is defined as CO2 emissions per unit ofGDP. The focus on carbon intensity reflects the norm that, in an eraof unprecedented climate change, it is imperative to generate amaximum of economic wealth and human welfare with a mini-mum of carbon emissions (Herzog et al., 2006). High carbonintensity is indeed a curse because it indicates that whatevereconomic wealth and human welfare are generated come withundesirably high levels of greenhouse gas emissions.2

1 The cleavages are crosscutting because fossil-fuel rich countries can beemerging and established (India vs. Australia), and they can be poor developingor rich developed countries (Nigeria vs. Norway); the same applies to fossil-fuelpoor countries.

2 Emissions per capita are not an appropriate yardstick for the carbon cursebecause they are determined by income rather than natural factors such as fuelendowment (Neumayer, 2002).

To subject our theory to scrutiny, we examine a large sample ofjurisdictions ranging from the most fossil-fuel rich countries to theleading industrial and high-tech economies. After a short explica-tion of our methodology, we outline the theory and show ampleempirical evidence. We subsequently present four causal mechan-isms to explain it. First, fuel rich countries emit significantamounts of CO2 in the extraction of fuel and through associatedwasteful practices such as gas flaring. Second, easy access todomestic fuel in such countries leads to crowding-out effects fortheir energy mix and economic structure. Third, fuel abundanceweakens the economic incentive to invest in energy efficiency.Fourth, governments in fuel rich countries are under considerablepressure to grant uneconomic fuel consumption subsidies, whichfurther augments the carbon intensity of their economic output.Due to the combined effect of these mechanisms, it is genuinelydifficult for fuel rich countries to evade carbon-intensive develop-mental pathways. And yet there are positive exceptions, mostnotably Norway. In the last two sections before the conclusion, wediscuss such positive outliers and spell out the specific policyimplications of our findings.

2. Material and methods

To test our claim that there is a carbon curse, and to deriveplausible explanations for why it is so exceedingly difficult for fuelrich countries to avoid high carbon intensities, we have undertakena preliminary examination of 41 countries and jurisdictions. Thesample covers the full spectrum from fuel rich to fuel poor countriesand from technologically unsophisticated to high-tech economies.Details about our country sample, as well as its various subsets, canbe found in the Supporting Information (SI, Tables 1–3).

In other words, we deploy a careful exploratory data analysisfor the purpose of theory building. For obvious reasons, such anexploratory analysis cannot yield the final word. Better datasetswill have to be constructed, and formal statistical models devel-oped and tested. In the meantime, we hope that our theoreticalarguments and prima facie evidence for the carbon curse aresufficiently strong to motivate others to join us in pushing theenvelope.

3. Theory and evidence base

The carbon curse theory links a country's fossil fuel endow-ment with the carbon intensity of its economic output. Its maintenet is that a country's fossil fuel endowment drives its carbonintensity, and that it is difficult for fossil-fuel rich countries toprevent this from happening.

The effect is visually presented in Fig. 1, which charts nationalcarbon intensities in 2008.3 The highest carbon intensities areinvariably observed in countries rich in oil and coal, marked in redand blue, respectively. The lowest carbon intensities are seenin fossil-fuel poor but technically advanced industrial countries.Interestingly, Norway is a positive outlier. Other special cases,such as oil-rich Nigeria and Angola, are largely the productof high inequality, low per-capita income, and industrial sectordisplacement.4

The carbon curse is not a static concept but a dynamic theory,looking at the effect of fuel abundance on carbon intensity.A useful measure for this is decarbonization, defined as a reduction

3 We have chosen the year 2008 because from 2009 onwards our data sourcesbecome patchy.

4 These effects are accounted for by our second causal mechanism, see Section 4.2.

Fig. 1. National carbon intensities in 2008. Oil-rich countries marked in red, coal-rich countries in blue. Data taken from SI, Dataset 1.(*) Russia is rich in all major fossil fuels: coal, oil, and gas. (For interpretation of the references to color in this figure legend, the reader is referred to the web version of this article.)Source: http://data.un.org.

Fig. 2. Carbon trajectories. Calculations based on SI, Dataset 2. (For interpretation of the references to color in this figure, the reader is referred to the web version of thisarticle.)Source: http://data.un.org.

5 Singapore largely relies on trade and services. As a highly urban small islandstate, it must constantly struggle against import dependency on virtually anynatural resource from fuel to water and timber, and has therefore invested heavilyin technologies to reduce energy insecurity and improve resource efficiency.

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of carbon intensity over time. Fig. 2 plots the average annualincrease or decrease of carbon intensity against average economicgrowth rates. Between 1996 and 2008, seven countries managedto decarbonize more quickly than their economies were growing,leading to an absolute emissions reduction. All of them, with thepartial exception of the United Kingdom are highly developed,technically advanced, and fuel poor. By contrast, countries thatsaw a massive intensification of their carbon emissions due to acombination of economic growth and increasing carbon intensityshare the following characteristics: they are all petro-states ormajor coal producers and, with the exception of Norway, mem-bers of the Organization of the Petroleum Exporting Countries(OPEC).

The countries in Fig. 2 fall into three categories: emissionreduction (green); emission increase (yellow); and emissionintensification (red). The upper left panel presents all countriesin our sample, while the other three panels show specific subsets:the twenty leading industrial countries (G20), the fifteen most

advanced high-tech economies as defined by the Global Competi-tiveness Report (Schwab, 2012), and the twelve OPEC members.

The green-shaded areas denote countries that have managed todecarbonize more quickly than their economies were growing. As aresult, they have reduced the absolute amount of their carbonemissions. Because these countries were growing while at the sametime reducing emissions, the result may with some justification becalled “green growth”. Apart from Russia and the United Kingdom,all members of this group are highly developed and technicallyadvanced industrial countries that do not possess any significantfossil fuel reserves. Interestingly, it seems difficult if not impossible toachieve growth rates of more than 5% while reducing total carbonemissions (only Singapore has achieved that).5

Fig. 3. Top-10 in terms of CO2 emissions from the energy industry's own use as ashare of total emissions in 2010. Calculations based on SI, Dataset 3.Source: IEA (2012a, p. 72–74).

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At the other extreme, the red-shaded areas denote countriesthat have seen an intensification of their carbon emissions for tworeasons: not only have their economies been growing, but theircarbon intensity has also increased in the process. The compoundeffect is a massive increase of carbon emissions in absolute terms.All countries in this group are either petro-states or major coalproducers, and with the exception of Norway they are all OPECmembers and developing countries, although not necessarily poorones. Even Norway is only a partial exception: it is wealthy,developed, and high-tech, but a petro-state nonetheless. Thecountries with the highest absolute growth of CO2 emissions areinvariably fossil-fuel rich.

In between, the yellow-shaded areas denote countries that havemanaged to reduce their carbon intensity but still saw an absoluteincrease in carbon emissions due to even higher rates of economicgrowth. These countries have seen an emission increase in absoluteterms, mitigated by a reduction of their carbon intensity. The groupincludes the world's largest economies such as China, the UnitedStates, and India. Due to their enormous weight, this group sets thepace for growth in global carbon emissions. During the 2000s, theworld economy decarbonized by 0.77% per annum but this was morethan offset by average economic growth. As a result, global CO2

emissions kept rising (Friedrichs, 2013, pp. 22–27).In short, countries rich in fossil fuels are mostly in the red and

sometimes in the yellow, but never in the green. Technologicallyadvanced and highly industrialized but fossil-fuel poor countriesare mostly in the yellow and sometimes in the green, but never inthe red.

4. Causal mechanisms

Based on our analysis of 41 countries, we have identified thefollowing four causal mechanisms to explain the rigidity of carbonintensity in fossil-fuel rich economies: extractive emissions; fuel-related crowding out; weaker incentives to invest in energyefficiency; and fuel consumption subsidies. Due to the combinedeffect of these mechanisms, it is difficult for fuel rich countries toevade carbon-intensive growth trajectories.

4.1. Extractive emissions

Our first causal mechanism to explain the carbon curse is relatedto the fairly obvious yet non-trivial fact that fuel rich countriesalmost per definition have large extractive industries. They emitsignificant amounts of CO2 in the extraction of fossil fuels andthrough associated wasteful practices such as gas flaring, drivingup their carbon intensities.

As a matter of fact, it takes fuel to get fuel. The literature onenergy return on energy invested (EROI) shows that the extractionof fuel and the production of power always require an energyinput, and while the input is generally smaller than the output itcan be quite significant (Gagnon et al., 2009; Gupta and Hall, 2011;Guilford et al., 2011). Fuel rich countries usually have a beneficialEROI because they can concentrate their extractive industries on“easy” resources. But there are exceptions to this rule, such asCanada as a producer of tar sands or Venezuela as a producer ofheavy oil.6

Even with a highly beneficial EROI, the sheer size of theextractive sector can lead to considerable carbon emissions. More-over, the extraction of fossil fuels often comes with byproducts likeassociated gas or coal seam methane. In fuel rich economies, there

6 Although it is contested whether the United States is a fuel rich country, tightoil is another case in point.

are not always sufficient incentives to capture these gaseousbyproducts and exploit their commercial value, so they are oftenflared into the atmosphere. Wasteful practices such as gas flaringcan significantly drive up a country's overall carbon intensity(Elvidge et al., 2009).

Fig. 3 shows that the highest share of carbon emissions fromthe energy industry is indeed found in fuel rich economies. Of the41 jurisdictions in our dataset, the top-10 countries in terms ofextractive emissions are all fuel rich. Unsurprisingly the highestshares of 20% or more are found in heavily export-dependentpetro-economies, notably Qatar, Venezuela, Kuwait, and SaudiArabia. Norway also falls in this category—despite its uniquelypositive record on other aspects of the carbon curse (see furtherbelow).

4.2. Fuel-related crowding-out

In addition to extractive emissions, easy access to domestic fuelhas two important crowding-out effects for a country's economywhich in turn may influence its carbon intensity. The first one iswell known from the general literature on the resource curse.Strong reliance on fossil fuel resources, particularly oil, cancrowd out non-extractive industries, most notably manufacturingoperations. While this has negative long-term implications forthe welfare and development of a nation, from a carbon curseperspective it is positive because a weak industrial base andlow per-capita income effectively suppress the rise of carbonintensity.7 So whereas in many other regards the carbon curseis a specific manifestation of the resource curse, for this parti-cular aspect the effects of the resource curse mitigate thecarbon curse.

Another crowding-out effect is related to the fact that easyaccess to domestic fuel can influence the carbon footprint of acountry's fuel mix. The reason is that a country's carbon intensitycan be seen as a function of its fuel mix, in combination with itsenergy intensity (Herzog et al., 2006, p. 4, p. 9).8 Let us give a fewempirical rules of thumb regarding this effect. Gas has the smallestcarbon footprint of all fossil fuels, coal has the biggest one, and oil

7 In industrial countries, the bulk of carbon emissions do not occur in fuelextraction but in road traffic, industrial operations, and power production.

8 CO2/GDP¼Energy/GDP�CO2/Energy.

Fig. 4. Relationship between carbon intensity and the size of miningand utilities relative to GDP. Calculations based on SI, Dataset 4.(*) Russia is rich in all major fossil fuels: coal, oil, and gas.Sources: http://data.un.org; http://unctadstat.unctad.org.

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is somewhere in between. Unconventional gas has a bigger carbonfootprint than conventional gas, and unconventional oil has abigger carbon footprint than conventional oil. Between differenttypes of coal, anthracite has a smaller carbon footprint than lignite(for details, see IEA, 2012a). Accordingly, a large share of gas has abeneficial effect on a country's fuel mix, although the effect ismore muted for unconventional gas. But easy access to oil cancrowd out more climate friendly energy resources, especially incountries like Saudi Arabia which, despite their high potential forrenewable energy and despite the availability of gas, are stillburning some of the oil gushing from the ground for powergeneration.

The effect is most serious for coal, which has by far the highestcarbon footprint of all fossil fuels and is less liable to the resourcecurse than oil or even gas. Historically, reliance on coal has alwaysbeen associated with massive carbon emissions. During theindustrial era, England and most other leading economies basedtheir industrialization on coal. Even today, coal producers such asChina, Russia, India, and South Africa use significant portions oftheir coal resources for carbon-intensive manufacturing opera-tions. In the extreme case of South Africa, coal is also liquefied toproduce oil which is then used rather inefficiently. Coal abundancecontributes to the disproportionately high carbon intensity of suchcountries.

The combined impact of extractive emissions and crowding-outeffects can be gleaned from Fig. 4.9 Due to the small relative size oftheir extractive industries and the absence of any significantcrowding-out effects, fossil-fuel poor countries are all in a narrowband of low carbon intensity, ranging from 0.13 for Singapore to0.30 for Finland. Only South Korea is a negative outlier, but stillwith a relatively modest carbon intensity of 0.37.

For fossil-fuel rich countries, by contrast, all bets are off. Let usfirst examine the group of significant coal producers, plus Canadaas a significant producer of tar sands. These countries all havehigher carbon intensities than fossil-fuel poor countries, rangingfrom 0.38 for the United States to 0.98 for South Africa. The shareof mining and utilities relative to GDP is rather small for thesecountries because, for historical reasons, coal has enabled indus-trial operations rather than crowding them out.10 But theircarbon intensity can be extremely high because domestic coal has

9 Since appropriate comparative data on fuel extraction relative to GDP are notavailable, we use the share of mining and utilities relative to GDP as a proxy.

10 Only in the current era of global interdependence has it become common forenormous amounts of commodities such as fossil fuels and timber to be shippedoverseas.

a tendency to displace less carbon-intensive fuels from a country'senergy mix. A good example is India, an emerging economy with arich coal endowment. Since coal emits more CO2 than gas or oil, itsshare in the Indian fuel mix badly increases the country's carbonintensity. The situation is aggravated by the fact that most ofIndia's coal is suitable for sub-critical thermal power generation,but not necessarily of sufficient quality for low-carbon technolo-gies such as supercritical power generation—making it harder toreduce India's carbon footprint (Government of India, 2013, p. 119;Ghose, 2012b, 2012a).

Oil-rich countries are spread even more widely. They can havevery low carbon intensities when they aggressively avoid extrac-tive emissions and crowding-out effects, as in the exceptional caseof Norway. Their carbon intensities are also fairly low in cases likeNigeria and Angola, where the resource curse has displacedmanufacturing and lead to low per-capita incomes.11 But carbonintensities can reach extremely high levels in cases where part ofthe resource wealth is spent to fuel wasteful forms of industria-lization, as in the cases of Iran and Venezuela, or high-carbonconsumer lifestyles, as in the case of Saudi Arabia. A particularlydepressing case is Iraq, which has one of the highest carbonintensities of the world and is one of the world's top-five gasflaring countries (World Bank, 2012).

In sum, extractive emissions (Section 4.1) and crowding-outeffects (Section 4.2) are related in interesting and intricate ways.On the one hand, carbon curse countries have higher carbonintensities due to their extractive emissions. When the resourcein question is a high-carbon fuel such as coal or unconventionaloil, this is compounded by the displacement of lower-carbon fuelsfrom the national energy mix. On the other hand, especially in oiland gas-rich countries, there is a countervailing crowding-outeffect related to the resource curse. In these cases, carbon intensityis constrained by the fact that resource abundance can lead to asmall industrial sector and low per capita income. And yet, whenindustrialization does take place in such petro-economies, orwhen the resource rent is distributed more evenly, this is boundto foster undesirably high-carbon forms of industrialism and massconsumerism.

4.3. Weaker incentives to invest in energy efficiency

Our third causal mechanism to explain the carbon course isthat fuel abundance weakens the economic incentive to invest inenergy efficiency. This is not to deny that national regulators infuel rich countries may have sincere motivations to promote low-carbon technologies. But good intentions alone are not sufficientwhen easy access to domestic fuel weakens the business case foreconomic actors to invest in energy efficiency. The crux is thatweaker incentives to invest in energy efficiency lead to higherenergy consumption per unit of GDP (Rühl et al., 2012, p. 112),which in turn augments carbon intensity.

Fuel rich countries enjoy security of energy supply, and they aretempted to see cheap and abundant fuel as their most importantcomparative advantage. Because governments in fuel exportingcountries do not need to worry about energy security, they haveless of an incentive to stimulate a diversification of their energymix away from high-carbon fuels. Moreover, where fuel is abun-dant and cheap, political leaders and economic stakeholders willnot see much traction in energy conservation. On the contrary,they are likely to view energy intensive activities as the “natural”hallmark of their economies. It is true that high energy prices onthe world market suggest conservation at home in order to benefit

11 This is despite the fact that Nigeria is the world's number-two gas flaringcountry, after Russia (World Bank, 2012).

Fig. 5. Relationship between carbon intensity and research spending, 1996–2008. Calculations based on SI, Dataset 5.Source: http://data.un.org.

12 Although more industrialized than Ecuador and Algeria, Mexico appears tobe in the same group.

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from higher export revenue, but business actors within petro-economies are themselves commonly shielded from the globalprice mechanism by domestic fuel subsidies (see Section 4.4).

In line with this causal mechanism, we expect that fuel richcountries spend less on energy efficiency and conservation andthat this correlates with higher carbon intensity. In trying to testthis proposition, we encountered a data problem. Internationaltime series for investment in energy efficiency are unfortunatelynot available for the 41 countries and jurisdictions under exam-ination. As a second best strategy, we therefore rely on data forexpenditure on research and development (R&D). This is a suitableproxy insofar as economies with higher R&D spending are alsolikely to invest more in energy efficiency.

Fig. 5 provides the full picture regarding the relationshipbetween carbon intensity and research spending over time. Thevertical axis presents carbon intensity. The horizontal axis pre-sents gross domestic expenditure on research and development,or GERD, as a percentage of GDP. The graph plots individualcountries in the period from 1996 to 2008.

The trend line indicates that industrial and high-tech countriesare on a long trek from high to low carbon intensity that goes handin hand with increasing expenditure on R&D. The curvilinear trendline suggests diminishing returns on investment in R&D. It ispossible to considerably reduce carbon intensity from a very highbaseline with low levels of R&D. But once a country is below acarbon intensity of about 0.5, any further reduction is possibleonly with R&D expenditure larger than 1.25% of GDP. Or, in otherwords: countries on the steep side of the curve have high returns,as suggested by the cases of Russia and, to some extent, China;from a certain point onwards, however, it appears that furtherdecarbonization can only be had at the prize of considerablyhigher levels of research spending.

This seems to suggest that, despite Russia's favorable locationin Fig. 2, the country is caught in the carbon curse. Russian carbonintensity has been in free fall for more than two decades since thestart of the transition from communism to state-led capitalism andthis may continue for a while, but only until the low-hanging fruithas been picked. From then on, any further reduction of carbonintensity will be premised on Russia seriously starting to devotefinancial resources to the improvement of its energy efficiency.The Chinese case gives more reason for hope, as China has

industrialized at the same time as increasing investment in theenergy efficiency of its economy. Unlike Russia, China has also setitself enormously ambitious decarbonization targets (Lin et al.,2012), and a further increase of the Chinese R&D spending beyond1.5% or even 2% of GDP appears to be possible.

Countries on the flat side of the curve have low returns, i.e. thereduction of their carbon intensity is relatively modest even whenthey spend heavily on R&D. A good example is South Korea,which increased its R&D expenditure by 50% but achieved onlymodest decarbonization. This is remarkable because Korea ishighly committed to “green growth”. The decarbonization recordof other green champions such as Germany and Japan is similar.

What matters most, for our purposes, is that on the left side ofthe figure there is a group of countries that spend little on R&Dand quite simply do not appear to be on the long trek indicated bythe trend line. Three features of these countries are remarkable.First, with the exception of Turkey they are all resource-rich petro-economies. Second, in some cases their carbon intensity is veryhigh—as in the cases of Saudi Arabia, Kuwait, and Iran. And third,for most of them there is no clear decarbonization trend. Instead,their carbon intensities oscillate from year to year. The carbonintensities of Indonesia, Algeria, and Ecuador vary fairly randomlyand are largely decoupled from their (low) levels of researchspending.

As we have seen in the last subsection, the relatively lowcarbon intensity of some petro-economies is largely due to theirlow level of industrialization and due to their low per-capitaincome. If ever countries like Ecuador and Algeria were tobecome more industrialized or if their citizens were to becomemore affluent, then we can safely assume that they would followa similar high-carbon trajectory as Saudi Arabia, Kuwait, andIran.12

To partake in the long trek to lower carbon intensity, countriesmust invest heavily in the modernization of their economiesand especially in improved energy efficiency. But such costlyinvestment is less likely to occur in fuel rich economies whereeasy access to domestic fuel is seen as a comparative advantage

Fig. 6. Combined fuel prices for diesel and gasoline as of November 2010 in US-cents/liter. Calculations based on SI, Dataset 6. (For interpretation of the references to color inthis figure, the reader is referred to the web version of this article.)Source: GIZ (2012).

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(fortunately there are two positive outliers from the pattern,namely Norway and the UK, and they will be discussed furtherbelow).

13 It is not necessary to consider coal here, as it amounts to a tiny fraction oftotal fuel subsidies (IEA, 2012b, p. 70).

14 We count Indonesia with OPEC because it was an OPEC member until 2008.15 The Norwegian and British cases are discussed in Section 5.

4.4. Fuel consumption subsidies

Our fourth causal mechanism to explain the carbon curse is fuelconsumption subsidies. Countries rich in oil and gas are undermore pressure than others to grant uneconomic fuel consumptionsubsidies, which encourage wasteful patterns of fuel use andthereby contribute to a higher carbon intensity of their economies.Essentially, fuel rich countries are driven to grant these subsidiesfor three reasons (IEA, 2011b, pp. 507–527; IEA, 2012b, pp. 69–72).

First, political leaders are under pressure to accommodate theircitizens, most of whom understandably feel entitled to benefitfrom the national resource wealth. Many citizens of countries suchas Venezuela, Saudi Arabia, and Russia see it as their birthright topay lower prices for oil and gas than people in less fuel richcountries. Interestingly, this sometimes includes a legacy effect, asexpectations become entrenched and fuel subsidies become insti-tutionalized. For example, Indonesia is having a hard time phasingout its fuel subsidies despite the fact that the country has been anet oil importer since 2005 and had to leave OPEC in 2008. Andeven though the United States has been relying for a long time ongargantuan amounts of imported oil, many US citizens still seedriving large gas guzzlers as part of the American way of life, inline with the erstwhile oil wealth of their nation.

Second, in most of these countries fuel subsidies are opportu-nity costs rather than fiscal expenditure because the marginal costof fuel production is only a fraction of world market prices. Eventhough fuel is sold to domestic consumers below world marketprices, the revenue is still likely to be comfortably above produc-tion cost. Thus, fuel consumption subsidies lead to a loss of exportincome but do not impose any tangible direct costs.

Third, fuel subsidies are sometimes affordable even in countrieswhere marginal production costs are higher than subsidized fuelprices. Again, this is because fuel prices on the world market aremuch higher than marginal production costs in these countries.Given the considerable export income gained from foreignmarkets, net exporting countries are in a position to offset the

difference between marginal production costs and subsidizedprices.

Unsurprisingly, fuel rich countries grant the most lavish fossilfuel consumption subsidies by any metric. In absolute terms, thetop-five subsidizers of fuel consumption are Iran, Saudi Arabia,Russia, India, and China (IEA, 2012b, p. 71). As a share of GDP, thehighest level of subsidization is seen in Iran, Turkmenistan, Iraq,and Saudi Arabia (IEA, 2011b, p. 516). As a share of end prices, of all41 countries in our sample fuel consumption is subsidized by 70%or more only in Kuwait, Venezuela, Saudi Arabia, Qatar, Libya, andIran (SI, Dataset 7).

As indicated, there are different metrics for fuel subsidies. Inaddition to that, fuel subsidies can operate directly on consump-tion or indirectly on production. They are often hidden as taxbreaks for the extractive industries. Moreover, they can be partlyoffset by negative consumption incentives such as fuel taxation.It's complicated. But fortunately, there is a workaround. Pumpprices for diesel and gasoline (GIZ, 2012) are a simple but powerfulproxy for the net effect of both positive incentives and negativesanctions (Fig. 6).13

The spread of pump prices is enormous, from 3.4 cent inVenezuela to $4.55 in Turkey for a liter of diesel plus a liter ofgasoline. At one end, OPEC forms a single block of aggressivesubsidizers (marked in red).14 At the other end, high-tech coun-tries impose very high taxes on fuel consumption (marked ingreen). Leaving aside the somewhat idiosyncratic case of Turkey, itis remarkable that Norway and the UK tax fuel consumption morehighly than any other high-tech country, despite the fact that theyhave a significant petro-endowment.15

But is there really a causal connection between fossil fuelendowments, fuel subsidies, and carbon intensity? Most definitelyyes! When comparing Fig. 6 with Fig. 2, it becomes clear that not asingle one of the most aggressive subsidizers of diesel and gasolinehave achieved an emission reduction (i.e. none of them are in thegreen group in Fig. 2). Some have “only” seen an emission increasein absolute terms (yellow group), but most have seen an emission

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intensification in terms of higher carbon intensities (red group).This is most obvious for the 12 OPEC countries, all of which areaggressive fuel subsidizers and eight of which have seen anescalation of their carbon intensity from 1996 to 2008.16

5. Positive outliers

The carbon curse is a serious impediment to decarbonization,but there are positive outliers. These are significant because theycan provide useful clues on how the carbon curse may be avoided.Norway and the United Kingdom are the most remarkable casesin point.

In the Norwegian case, there is some good news and some badnews. Let us present the bad news first: Norway's carbon intensitydeteriorated from 1996 to 2008 (Fig. 2). This is hardly surprising ifwe consider that today Norway is one of the world's majorexporters of oil and gas, with fuel production representing itslargest economic sector (IEA, 2011a). As a consequence, Norwayhas enormously high rates of extractive emissions (Fig. 3).

But the good news prevails. The carbon intensity of theNorwegian economy is not only lower than for any other petro-state but on a par with other highly developed countries (Fig. 1),despite the fact that the Norwegian economy relies to more than25% on mining and utilities (Fig. 4). Norway significantly invests inresearch and development, which contributes to improving itsenergy efficiency and reducing its carbon intensity (Fig. 5). More-over, Norwegian taxes on liquid fuel are incredibly high, especiallyif we consider that petro-states normally do not tax but rathersubsidize liquid fuels (Fig. 6).

Norway uniquely combines a rich fuel endowment withclimate-friendly policies (IEA, 2011a). The country aggressivelypromotes the domestic use of renewable energy. Power generationand energy use in buildings are largely carbon neutral, despitehigh per-capita energy use related to Norway's cold climate andthe affluence of the Norwegian population. Norwegian regulatorshave forced the fuel extraction sector to tightly constrain itscarbon intensity. There is significant public spending not only onresearch and development, but also on the deployment of tech-nologies (RD&D) to mitigate Norway's carbon footprint. Norway isaiming for leadership in the promotion of carbon capture andstorage (CCS) and other cutting-edge low-carbon technologies(Black, 2012).

What is more, Norway has consistently supported climatechange mitigation. This is not only explained by Norway's aptitudefor hydropower and the concomitant high share of green energy indomestic consumption, but also by benign domestic institutionsincluding strong regulators managing petroleum resources in anenvironmentally and climate-friendly way. These institutions arebacked by domestic norms, including the environmentalist orien-tation of the Norwegian electorate which accepts, for example,high fuel taxes.

The role of domestic institutions points back to the resourcecurse more in general. Norway is one of a handful of resource-richcountries—including Canada, Australia, and Botswana—that havebeen able to defy the resource curse (Mehlum et al., 2006; Larsen,2006). This is conventionally explained by vigorous domesticinstitutions, including sovereign wealth funds to avoid the DutchDisease, as well as strong regulators preventing rent seekingbehavior and channeling incentives in productive and high-techdirections (Acemoglu and Robinson, 2012). It seems that stronginstitutions, including strong environmental regulators,

16 Emission intensification: Venezuela, Iran, Libya, Saudi Arabia, Angola, UAE,Nigeria, Iraq (plus Indonesia, see Footnote 14). Emission increase: Qatar, Kuwait,Algeria, Ecuador.

significantly contribute to the avoidance of both the resourceand the carbon curse.

It is also important to note that Norway already knew aboutimportant aspects of the resource curse such as the "DutchDisease" before the takeoff of its fuel sector. Strong domesticinstitutions were already in place when the country hit upon itsbonanza of offshore oil and gas. This has significantly increasedNorway's chances to avoid the resource curse and, by implication,the carbon curse. Yet, a comparison with other major Western fuelproducers such as Canada and Australia suggests that Norway'sability to avoid not only the resource curse but also the carboncurse is indeed a truly remarkable accomplishment.

To wit, Canada and Australia also have strong institutions andhave largely evaded the resource curse, but their commitment toclimate change mitigation is jeopardized by their role as major fuelproducers. Canada is increasingly gaining from the highly carbonintensive exploitation of its tar sands, and has pulled out of theKyoto Protocol. Australia is a major coal producer, which militatesagainst its commitment to climate change mitigation. In fairness,one may wonder if Norway would look as climate friendly if itscore staple were coal and tar sands rather than oil and gas. Andindeed, as mentioned, even Norway was unable to prevent anincrease of its carbon intensity between 1996 and 2008 (Fig. 2).

The second positive outlier is the United Kingdom. With0.22 kg of CO2 per unit of GDP, Britain's carbon intensity is slightlyhigher than that of Norway but still remarkably low (Fig. 1). LikeNorway, the UK is an oil and gas producing country exploitingoffshore fields in the North Sea. But, unlike Norway, Britain hasreduced its carbon intensity from 1996 to 2008. In fact, Britain is arare case of a fuel rich country falling into the “green” group ofemission reduction (Fig. 2). Considerable spending on research anddevelopment may have contributed to a gradual improvement ofenergy efficiency and reduction of carbon intensity (Fig. 5). LikeNorway, Britain also taxes liquid fuel very highly (Fig. 6).

The British success has many idiosyncratic reasons includingthe resource bonanza from the 1970s when offshore gas from theNorth Sea enabled a gradual shift away from higher-carbon fuels,and the shift from manufacturing to services in the 1980s. LikeNorway, Britain was a technologically advanced country withstrong institutions and a diversified economy already before theexploitation of its offshore oil and gas. This was an importantprecondition for Britain's ability to stay on a low-carbon path.A recent analysis of the British manufacturing sector shows thatlow energy intensity, or high energy efficiency, was a key con-tributor (Hammond and Norman, 2012). Ambitious governmentalpolicies and vigorous regulation played an important role inmaking this possible. But much of this is history. British oil andgas production peaked in 1999/2000, and the UK became a netimporter in 2004/2005. Since then, Britain can hardly count as aresource rich country any longer.17

Are there any other positive outliers? Fig. 2 suggests that Russiasaw moderate growth in the period between 1996 and 2008 whilestrongly reducing its carbon intensity, with the net result of totalemissions in 2008 being slightly lower than they were in 1996. Butthis is largely due to the demise of the enormously inefficientSoviet planning economy. As a result, carbon intensity improvedbut not so much as a result of economic development but rather asa result of deindustrialization and picking the lowest-hanging fruitin terms of energy waste. Few countries will find this worthemulating because, although Russia has achieved a remarkabledecarbonization, this was from a very high baseline. The low

17 Moreover, extractive emissions are hardly critical in the UK (note theabsence of the country from Fig. 3) because the share of mining and utilities inthe British economy is not particularly high.

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spending on research and development suggests that decarboni-zation is likely to stall at some point (Fig. 5). Any further gains willbe difficult unless considerable resources are spent on improvingenergy efficiency. Compared to Russia, recent policy statementsand increased research spending give considerably more reasonfor hope for China, which is aggressively reducing the carbonintensity of its economy (Paltsev et al., 2012; Lin et al., 2012).

6. Policy implications

The resource curse has a paradoxical ring to it. After all, most ofus would expect resource riches to contribute to the wealth of anation. The carbon curse, by contrast, sounds like a no brainer. If acountry is richly endowed with high-carbon fuels, then it is likelyto emit more CO2 than it otherwise would. And yet the carboncurse is widely ignored in the debate about climate changemitigation. Moral arguments are regularly presented in this debateto attribute responsibility for emissions reductions. Some, forexample, argue that historical emissions originate mostly fromWestern countries, so Western countries should bear the eco-nomic burden of climate change mitigation programs. Othersobject that emerging economies like China are rapidly overtakingthe West as the main contributors to climate change. Against this,in turn, yet others retort that China is rapidly decarbonizing itseconomy, only to be reminded that Chinese decarbonization ishappening at a slower pace than economic growth so that overallcarbon emissions from China are actually growing (Fig. 2).

All arguments in this blame game have some merit. But whatabout the simple fact that some of the most egregious carbonintensities are found neither in the West nor in China, but in fuel-rich developing countries afflicted by the carbon curse? Fuelextraction in these countries is far more carbon-intensive thanwould be necessary, investment in energy efficiency and low-carbon technologies is low, and domestic energy use is wasteful,partly due to uneconomic subsidies. But alas, even the lowesthanging fruit are not easy to pick when surrounded by a thicket ofshrubs. The main problem is that political and economic stake-holders in carbon curse countries lack the incentives to reducetheir carbon footprint.

Why are developing countries like Nigeria and Iraq still flaringgas, when their own citizens suffer from energy poverty andpower outages? And why are they investing in uneconomic fuelsubsidies which won't help the poor because poor people do notown cars, rather than tackling energy poverty and improving theinfrastructure? Questions like these point us back from the carboncurse to the resource curse more generally, because elites inresource rich countries often rely on export revenue rather thandomestic social development.

Given the combined effect of the carbon curse and the resourcecurse, it is clear that the incentive structure of political leaders andeconomic stakeholders in fuel rich countries will have to radicallychange for decarbonization to make any headway. From a politicalscience viewpoint, this is our most important policy implication.But there are several others.

1.

Carbon curse countries should tackle wasteful practices in thefuel extraction sector. To provide only the most drastic exam-ple, they should stop flaring gas and use coal seam methane forpower production rather than emitting it to the atmosphere.They should also carefully watch the effect of fuel abundanceon their energy mix.

2.

They should invest more in energy efficiency and low-carbontechnologies. This applies not only to research and develop-ment (R&D) but also to the deployment of cutting-edgetechnologies (RD&D). The problem is of course that R&D

requires significant human capital that may not yet be availablein some carbon curse countries. But such countries can investin R&D in high-tech economies in exchange for the guaranteethat the technologies will then be transferred to and deployedin them.

3.

They should avoid fuel consumption subsidies and imposeappropriate taxation instead. According to the InternationalEnergy Agency, a phase-out of fossil fuel consumption subsidiesby 2020 would lead to a reduction of global energy demand by3.9% by 2020, and 4.8% by 2035 (IEA, 2011b, p. 520). The gainswould be even higher if there were a more radical shift fromsubsidies to taxation.

4.

They need to promote a pro-environmental attitude amongtheir citizens and to develop better domestic institutions, becausethese are necessary prerequisites for tackling the carbon curse.Needless to say this is a tall order, due to rampant corruption inmany countries afflicted by the resource/carbon curse.

It is important to note that even advanced industrial countriesare far from immune to the carbon curse. As we have seen,Norway's economy grew more carbon intensive from 1996 to2008, despite the fact that the country was actively trying toreduce its carbon footprint. The British case is quite encouraging,but Canada has reconsidered its supportive stance on climatechange mitigation as the country continues to develop its tar sandsthrough high-carbon methods of oil production (Chan et al., 2012).The Australian case is similar, except that the resource in questionis coal. By the same token, US support for climate change mitiga-tion may be further undermined as the country develops itsconsiderable reserves of unconventional oil and gas. On the onehand, shale gas is partly displacing coal in US power generation.On the other hand, flare gas emissions from the production of tightoil and shale gas are increasing and the USA is now the world'sfifth flaring country (World Bank, 2012).

Unlikely as it may seem, even Germany is haunted by thecarbon curse. True, Germany is a leader on low-carbon growth.The country heavily taxes gasoline, aggressively spends on R&D,massively invests in renewable energy, and ambitiously renews itsinfrastructure. And yet, despite all its climate-friendly undertak-ings, Germany very much relies on domestic lignite, also known asbrown coal. Lignite is one of the most polluting and highest-carbon forms of coal, and Germany remains world leader in its usefor power generation. The German lignite industry is confidentthat this will remain so for many years to come (Lambertz andMilojcic, 2012; see also the survey by Michaelowa (2013)).

7. Conclusion

This article has been an exploratory data analysis and exercisein theory building. As such, an exercise like this can only beprovisional. Since we are frontrunners in the field, we have beenconstricted to the formulation of theoretical propositions and tothe examination of proxies to scrutinize them. Better datasets willhave to be constructed, and statistical models developed andtested. But we hope that we have shown enough theoreticalarguments and prima facie evidence for the carbon curse thatothers will join us in pushing the envelope.

Our preliminary analysis suggests that avoiding the carboncurse is extremely difficult, and arguably even harder than avoid-ing the resource curse more generally. We have been able toidentify four causal mechanisms accounting for this: extractiveemissions; fuel-related crowding out; weaker incentives to investin energy efficiency; and pressure to grant uneconomic fuelconsumption subsidies. There may be other reasons for the carbon

J. Friedrichs, O.R. Inderwildi / Energy Policy 62 (2013) 1356–1365 1365

curse, but the causal mechanisms identified will almost certainlyremain part of the theory.

There may even be a carbon curse at the planetary level.Climate change would be less severe if the planet were less richlyendowed with fossil fuels, or if fossil fuels were harder to get sothat the industrial era would be stretched out over millenniarather than centuries. But does that mean that fossil-fuel richcountries are simply doomed to high-carbon developmentalpathways? A small number of positive outliers—most notablyNorway—indicate that, at the national level, the carbon curse isnot destiny when appropriate policies are adopted.

Acknowledgments

Thanks to Adrian Wood and Zoheir Ebrahim for helpful com-ments and suggestions.

Appendix A. Supporting information

Supplementary data associated with this article can be found inthe online version at http://dx.doi.org/10.1016/j.enpol.2013.07.076.

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