Paula Haerle

Abstract: In 2021, 31 low- and middle-income countries simultaneously facing high fossil fuel dependence and sovereign external debt distress held 21% of global fossil fuel reserves while carrying a combined external debt stock exceeding USD 1.3 trillion. This convergence raises urgent questions about whether fiscal pressures may undermine the feasibility of Leaving Fossil Fuels Underground (LFFU) in these contexts. However, (1) existing scholarship remains fragmented and lacks a consolidated analytical framework to explain how sovereign external debt and fossil fuel dependency co-evolve; (2) carbon lock-in theory omits the role of sovereign external debt; and (3) no global, quantitative overview identifies where and how the Debt-FF Nexus materialises, which countries are most structurally exposed, or the developmental or transitional risks involved. Therefore, this thesis asks: How do sovereign external debt and fossil fuel dependency interact in fossil fuel-dependent, indebted low- and middle-income countries between 2000 and 2024, and how does their interaction indicate the presence of a Debt-Driven Carbon Lock-in?. Addressing this, the study synthesises diverse literature to identify five mechanisms through which sovereign external debt and fossil fuel dependency reinforce one another. It extends carbon lock-in theory by proposing the concept of Debt-Driven Carbon Lock-in as a novel analytical lens. Drawing on semi-structured expert interviews and a global quantitative analysis based on two original indices, the thesis maps the co-evolution of these dynamics, identifies 31 countries most structurally at risk, and examines the present and future implications of their entrapment. Findings suggest that overlapping fiscal and fossil fuel dependencies create structural barriers to LFFU, risking delays in decarbonisation and economic diversification, and rendering transitions fiscally destabilising and politically unviable.