Whose carbon?

Emerging economies struggle to balance climate finance and carbon sovereignty

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“The biggest issue in this market is revenue sharing…If we got 50% we would be very happy, those are the figures we are looking at as well.” - Zambian environment minister

Resource nationalism is when a government seeks greater control or value from its country’s natural resources at the expense of the private sector. This can range from outright expropriation – when a government takes away a private company’s assets – to more creeping forms of appropriation – such as higher taxation or tougher regulation.

The commodity industry is no stranger to resource nationalism. In 1938, the Mexican oil industry was nationalised. Seen in the context of its people, it was viewed that, at last, a poor country, long buffeted by predatory foreign powers, had exercised its right to own the wealth of its subsoil, seeing off rich countries that treated access to these resources at low cost as their right. Meanwhile, in 1951, the Iranian government nationalised the assets of the Anglo–Iranian Oil Company (now known as BP). The decision was enormously popular within the country and seen as a long overdue staunching of its national wealth that could now be harnessed to fighting poverty in Iran. More recently, in Venezuela, the late Hugo Chávez grasped strategic assets to propagate his Bolivarian revolution. Bolivia and Ecuador followed his cue.

It’s not just a feature of the oil industry. It can also affect those resources that are critical to the energy transition. In April 2023, newly elected president of Chile, Gabriel Boric announced plans to nationalise the country’s lithium industry, with the state taking a majority stake in all new contracts. Chile is the worlds second largest producer of lithium after Australia. Only a year earlier, the Mexican government announced sweeping nationalisation of its bountiful lithium resources, even though it has yet to extract any ‘white gold’.

Governments must tread a fine line between outright resource nationalism on the one hand, and ensuring a fair deal for their country on the other. One of the defining features of resource nationalism is that it’s often prompted by a sense of unfairness, whether perceived or actual. Contracts between governments and foreign private sector operators may have been signed before the government realised the underlying value of the resource - a case of asymmetric information. Deals may have been done when the economy was on its knees and the government was desperate for cash, or secured during the depths of a recession when commodity prices were weak.

High commodity prices have been a significant driver of resource nationalism in the past, with foreign multinationals often accused of pocketing excessive windfalls or not doing enough to extract a valuable and scarce resource. However, a decline in commodity prices doesn’t necessarily signal the end of resource nationalism. If a resource dependent country suffers a slowdown in economic growth, its government may try and get a bigger share of the shrinking pie to help prop up its revenues.

The degree to which resource production is concentrated in a small number of countries also influences resource nationalism risk. This is especially important when the commodity is seen as being of strategic importance. The higher the concentration, the greater leverage a single government can have over private sector operators. In contrast, a diverse geographical distribution reduces the chances that any one government will be able to exercise its power.

Resource nationalism has a cost though. Although a government may appear to be good, transparent and welcoming to foreign producers, years later – once a mine or an oil well has opened – they may change their tune. This time inconsistency and resulting uncertainty may reduce longer term investment in the country’s resource productivity; leading to a loss of skills and capital from the private sector, reducing production, and potentially leading to higher economic volatility.

Carbon nationalism on the rise

There are signs that a new form of resource nationalism may have begun to rear its head in the global voluntary carbon market. Carbon nationalism as its known is when a government asserts its control over the emissions abatement or carbon storage potential available within its national borders, at the expense of the private sector.