Decarbonising the region's economies

04 January 2021
Regional governments are pursuing several initiatives to cut carbon dioxide emissions and reduce carbon intensity

This package also includes: 

Hydrogen, the missing piece to a fully decarbonised economy?
Can hydrogen fulfil its potential?

The hydrogen economy
The GCC's green hydrogen opportunity
> Clean hydrogen could compete with fossil fuels by 2030

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The first six months of 2020 saw an unprecedented 8 per cent drop in carbon emissions as the Covid-19 pandemic gripped the world. This scenario, however, entailed tremendous human and economic costs, including in the Middle East and North Africa (Mena) region, which has suffered the double impact of the pandemic and low oil prices.

While the collective Mena states are a minor source of greenhouse gas (GHG) emissions compared with China and the US, the intensity of GHG emissions per capita in some GCC countries is alarmingly high.

This is due to the nexus of small populations; energy subsidies; high cooling requirements; lack of efficient public transport; and the presence of hard-to-abate industrial emissions released by the production of power and water, chemicals, aluminium and steel, and by the extraction and processing of fossil fuels –  all of which have grown in line with the pursuit of economic expansion.

The need of the moment is to decouple GHG emissions from economic progress, says Hoesung Lee, chairman of the Intergovernmental Panel on Climate Change. He cautions against a repeat of the post-2008 emissions jump – the highest in history – due to the economic recovery in the aftermath of the global financial crisis.

The G20 meeting in Riyadh in November provided a backdrop for Saudi Arabia, which hopes to reinvent itself as a global force for clean energy, to issue a rallying call for the circular carbon economy – the country’s preferred approach to tackling climate change, based on the four ‘R’s: reduce, reuse, recycle and remove.

Multiple initiatives

Prompted by climate change policies and the need to save gas for export or to reduce gas imports, renewable energy is playing a key role in this transition. Saudi Arabia and the UAE have some of the world’s most ambitious renewable energy programmes, while Morocco, Tunisia, Egypt and Jordan have already implemented solar and wind projects, with plans to further expand future capacity.

“The Mena region encompasses countries at significantly different stages of participation in the global shift towards greater decarbonisation,” says Tony Nicholson, a senior associate at law firm Hogan Lovells Middle East.

Carbon capture and storage (CCS), biowaste and green hydrogen projects are also gathering momentum, and several markets have advanced green building standards, rooftop solar projects, digitalisation and electric vehicle adoption as part of their smart city initiatives.

Policies and legislation

Effective decarbonisation at a regional level will require a policy-led approach that tackles the high energy subsidies for utilities, as well as carbon overconsumption at a consumer level.

Energy subsidies “do not provide the incentives to do the right thing, and they generally benefit the wealthy more than the poor”, says Frank Wouters, director of the EU GCC Clean Energy Technology Network.

While jurisdictions such as the UAE have implemented gradual fuel subsidy reforms, further action may be needed to reduce overall water and electricity consumption.

In terms of production, the Gulf countries all have a single buyer model, which means monetary gains from renewable electricity still go to the state. “For the private sector to invest in captive renewable power, one has to consider energy subsidies, which are still prevalent in many places,” Wouters says.

Setting a carbon price is also an important policy pillar, although it is far from easy. 

“This may introduce too much administrative complexity and challenges in the short to medium term, especially when weighed up against the timeframes and ambitious targets set in the region for energy and infrastructure development,” says Nicholson.

Despite the complications, the region must endeavour to reach an explicit carbon price if CCS and emissions reduction programmes outside of the power sector are to succeed, says Brendan Cronin, management consulting head for the Middle East at engineering, consulting and design company Afry.

In addition to incentivising emissions reductions, an optimal carbon price, which is by definition dynamic, could start low and increase over time, or start high and then taper off as the cost gap between conventional and non-fossil fuel solutions decreases.

A viable alternative to implementing carbon taxation, says Nicholson, is building specific sustainable requirements or incentives into future request for proposal documents, which could encourage better competition and innovation from bidding consortiums in the drive to reduce emissions.

Reporting by Goldman Sachs indicates that a seismic shift in capital allocation, including restrictions on financing for new oil production plants, could lead to an implicit carbon price of $40-80 a ton of CO2 for new hydrocarbon developments.

Achieving a meaningful degree of decarbonisation will also require new legislation to enforce energy-efficient standards for equipment. The refrigeration and cooling industry accounts for 10 per cent of global GHG emissions, which is three times the amount generated by the shipping and aviation industries combined, making them a key target for future carbon-
related legislation.

Robert Bryniak, CEO of Golden Sands Management (Marketing) Consulting, says more district cooling should be encouraged in all new residential developments, especially where high rises are involved.

“While some jurisdictions are already moving in this direction, more of them need to do so,” he notes.

Setting the pace

The UAE’s policy-based approach has propelled it ahead of the region’s decarbonisation curve. Its Vision 2021 and National Climate Change Plan aim to foster a more sustainable economy, with clean energy accounting for 50 per cent of the total fuel mix by 2050.

Demand-side management schemes and increased renewable energy capacity allowed Dubai to surpass its 2021 carbon abatement target by 6 per cent in 2019. Other UAE projects include Dubai Silicon Oasis’ Smart City; Abu Dhabi’s $15bn Masdar City initiative; and the Green Building and Sustainable Building standards, which are expected to save AED10bn ($2.7bn) and cut about 30 per cent of the country’s carbon emissions by 2030. 

Given the growing prominence of these programmes, it is unsurprising that the UAE managed to cut its overall carbon emissions by 0.8 per cent in 2019, the only country in the Mena region to do so bar Egypt.

The push for cleaner and cheaper energy sources is also driving the exploration of clean hydrogen. However, like any new industry, green hydrogen faces challenges, including finding an offtaker willing to sign up for the product and invest in new markets.

Further innovations in seawater and as wastewater treatment could help to accelerate overall decarbonisation, according to Corrado Sommariva, founder and CEO of Abu Dhabi-based Sustainable Water & Power Consultants.

He notes: “The industry could consider moving away from the traditional steady water generation mainly dictated by a lack of storage, and into a more sustainable seawater reverse osmosis by producing more when excess power is available in the grid from a solar photovoltaic system and less when the grid is in peak mode.”

Although this approach will require provisions for more storage and generation capacity, Sommariva argues that it will also create the possibility to relax the pre-treatment criteria and avoid the practice of overprescribing plant design conditions. Moving from oxidation to anaerobic membrane technology for wastewater treatment could also lower carbon emissions within the sector.

Managing demand

While these multibillion-dollar initiatives underpin the region’s low-carbon transition, the most practical decarbonisation route could involve simply improving energy efficiency or applying demand management to lower energy and water consumption. 

As Bryniak explains, the cheapest energy source is the plant that does not have to be built. “If consumers can simply use electricity more efficiently and demand less, then a certain level of decarbonisation will take place.” 

More on the hydrogen market

> Can hydrogen fulfil its potential?
> Firms plan 1GW clean hydrogen plant in Oman
> Region ramps up hydrogen agenda
> Clean hydrogen could compete with fossil fuels by 2030
> Germany supports Saudi hydrogen project
> Gulf nears hydrogen benchmark
Water electrolysis market to reach $10.2bn
Green hydrogen consortium formed
> Annual $1bn green hydrogen investments in 2023

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