I have written on multiple occasions arguing that developing countries have to navigate a development trajectory that has to constantly reconcile the often conflicting imperatives of promoting economic growth and limiting climate change.
Gaiutra Bahadur in the NYT has an excellent long read on how Guyana is forced to confront this challenge.
Before oil, outsiders mostly came to Guyana for eco-tourism, lured by rainforests that cover 87 percent of its land. In 2009, the effort to combat global warming turned this into a new kind of currency when Guyana sold carbon credits totaling $250 million, essentially promising to keep that carbon stored in trees… Six years later, Exxon Mobil discovered a bounty of oil under Guyana’s coastal waters. Soon the company and its consortium partners, Hess and the Chinese National Offshore Oil Corporation, began drilling with uncommon speed… The find is projected to become Exxon Mobil’s biggest revenue source by decade’s end. The deal that made it possible — and which gave Exxon Mobil the bulk of the proceeds — has been a point of public outcry and even a lawsuit, with a seeming consensus that Guyana got the short end of the stick. But the deal has nonetheless generated $3.5 billion so far for the country, more money than it has ever seen, significantly more than it gained from conserving trees. It’s enough to chart a new destiny.
The government has decided to pursue that destiny by investing even further in fossil fuels. Most of the oil windfall available in its treasury is going to construct roads and other infrastructure, most notably a 152-mile pipeline to carry ashore natural gas, released while extracting oil from Exxon Mobil’s fields, to generate electricity. The pipeline will… carry the gas to a proposed power plant and to a second plant that will use the byproducts to potentially produce cooking gas and fertilizer. With a price tag of more than $2 billion, it’s the most expensive public infrastructure project in the country’s history… The country has already been transformed. Next to its famously elegant but decaying colonial architecture, new houses, hotels, malls, gyms and offices of concrete and glass crop up constantly. Trucks carrying quartz sand for all this construction judder along the highways. While nearly half of Guyanese still live below the poverty line, the country is bustling with possibility, and newcomers arrive from around the world.
And all the trappings of modernity and capitalist growth, with their good and bad, have been quick to arrive.
Oil has created a Guyana with pumpkin spice lattes. The first Starbucks store appeared outside the capital last year; it was such a big deal that the president and the American ambassador attended the opening. People still “lime” — hang out — with local Carib beer and boomboxes on the storied sea wall, but those with the cash can now go for karaoke and fancy cocktails at a new Hard Rock Cafe… Hyperinflation has made fish, vegetables and other staples costlier, and many Guyanese feel priced out of pleasures in their own country. A new rooftop restaurant, described to me as “pizza for Guyana’s 1 percent” by its consultant chef from Brooklyn, set off a backlash on social media for serving a cut of beef that costs $335, as much as a security guard in the capital earns in a month.
This aspirational consumerist playground is grafted onto a ragged infrastructure. Lexus S.U.V.s cruise new highways but must still gingerly wade through knee-deep floods in Georgetown when it rains, thanks to bad drainage. Electricity, the subject of much teeth-sucking and dark humor, is expensive and erratic. It’s also dirty, powered by heavy fuel, a tarlike residue from refining oil. In 2023, 96 blackouts halted activity across the country for an average of one hour each. A growing number of air-conditioners taxing aging generators are partly to blame… The country’s larger companies — makers of El Dorado rum, timber producers — generate their own electricity outside the power grid. Small companies, however, don’t have that option… The government’s investment in a natural gas pipeline and power plant offers the prospect of steady and affordable power. The gas, a byproduct of Exxon Mobil’s drilling, tends not to be commercialized and is often flared off as waste, emitting greenhouse gases in the process.
All this is happening even as Guyana appears to be Ground Zero in the fight against climate change.
At the same time, climate change laps at Guyana’s shores; much of (capital) Georgetown is projectedto be underwater by 2030.
Countries like Guyana are forced to assume the responsibility of tackling a crisis that they did nothing to create, and that too by foregoing a rare opportunity to follow the same economic growth strategy that all others who developed before them zealously pursued.
Countries like Guyana are caught in a perfect storm where the consequences for extracting fossil fuels collide with the incentives to do so. Unlike wealthy countries, they aren’t responsible for most of the carbon emissions that now threaten the planet… the Biden administration approved drilling in the Alaska wilderness just last year, and the United States is producing more oil than ever in its history. A country like Guyana, with an emerging economy, has even more reason to jump at temptation…
How can wealthy countries be held to account for their promises to move away from fossil fuels? Can the institutions of a fragile democracy keep large corporations in check? And what kind of future is Guyana promising its citizens as it places bets on commodities that much of the world is vowing to make obsolete?
Amidst all this, we are not even talking about the political economy challenges and historical legacies that countries like Guyana have to confront when exposed to such resource windfalls.
The potential for the petroleum boom to implode is in plain sight next door, where Venezuela — which has recently resurrected old claims to much of Guyana’s territory — is a mess of corruption, authoritarian rule and economic volatility. For centuries, foreign powers set the terms for this sliver of South America on the Atlantic Ocean. The British, who first took possession in 1796, treated the colony as a vast sugar factory. They trafficked enslaved Africans to labor on the plantations and then, after abolition, found a brutally effective substitute by contracting indentured servants, mainly from India… Fifty-seven years ago, the country shook off its imperial shackles, but genuine democracy took more time. On the eve of independence, foreign meddling installed a leader who swiftly became a dictator. Tensions between citizens of African and Indian descent, encouraged under colonialism, turned violent at independence and set off a bitter contest for governing supremacy that continues to this day. Indigenous groups have been courted by both sides in this political and ethnic rivalry.
It wasn’t until the early 1990s that Guyana held its first free and fair elections. The moment was full of possibility. The institutions of democracy, such as an independent judiciary, began to emerge. And the legislature passed a series of robust environmental laws. Now that Exxon Mobil has arrived to extract a new resource, some supporters of democracy and the environment see those protections as endangered. They criticize the fossil-fuel giant, with global revenue 10 times the size of Guyana’s gross domestic product, as a new kind of colonizer and have sued their government to press it to enforce its laws and regulations.
The article vividly brings out the challenges faced by developing countries as they grapple with the often conflicting goals of development and climate change mitigation.
Consider the context.
Notwithstanding the several political economy challenges and less-than-promising historical precedents, Guyana has the rare generational opportunity to leapfrog into a higher development trajectory. If it misses this bus, there’s an even chance that the country will remain stuck or at best marginally improve on its current stage of development. Further, in any case, if Guyana is to reach the status of even a middle-income country in a reasonable time, even with the least carbon intensity growth, its aggregate emissions will inevitably rise several-fold.
In relative terms, countries like Guyana have done next to nothing to create the environmental disaster that threatens humanity. The gains from its mitigation efforts, even if it forego oil drilling, would pale into insignificance when compared with the gains from comparable mitigation efforts in developed countries and the opportunity cost of national economic development. Imagine consumers in developed countries giving up on SUVs or steep cuts in private air charter flights.
I’m reminded of Larry Summers’ famous internal World Bank memo where he made the theoretically sound argument that polluting industries should be relocated to developing countries given their lower marginal cost of negative externalities. Summers should now be asked why he’s not performing an encore to reverse his argument on emission reductions by highlighting the much higher marginal welfare loss per unit of emission reduction for developing economies.
All this means that advanced countries must keep reducing their emissions much faster than developing countries are increasing their carbon footprints. In fact, given the climate change realities imposed by the accumulated stock and flow of emissions share of developed countries, the sustainable boundaries of growth and income-level status for developing countries are today dictated by the pace of emission reductions by developed countries.
But it looks very unlikely that the developed countries will even remotely closely adhere to their part of the bargain. As the recent trends with fossil fuel exploration and production in Europe and the US show, even as developing countries are forced into assuming their climate change responsibilities, the developed economies continue to pursue business as usual where economic incentives prevail or where the political economy constraint is very strong. Besides, they have been unwilling collectively as economies or societies to make the hard choices that can make a meaningful dent in climate change mitigation.
Will Western policymakers enact policies to make their consumers give up high carbon footprint wants (as against needs)? Would advanced economy societies be able to mobilise and create new norms that reduce consumption of items with high carbon emissions, even at the cost of popular conveniences and lifestyles? Would the political economy in developed economies allow the subordination of corporate financial incentives to climate change mitigation? Would advanced country governments be able to meet even their current meagre commitments, much less multiply them, to support developing countries in climate change adaptation?
If we read the tea leaves today and even with an optimistic assessment of the future trends in these countries, I’m not hopeful of any of these happening in any significant enough manner for the foreseeable future. Unless there are persisting shocks (like Covid 19) which make everyone face up to reality.
In these circumstances, it’s wishful thinking to hope that Guyana and other developing countries where a large the major share of people are struggling with subsistence challenges will be able to somehow magically surmount domestic opposition, pass over their development opportunities in the name of climate change mitigation, and assume disproportionately greater economic costs than the developed countries.
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