Gulf can defy doubters and lead way to net zero

04 November 2022
Tackling climate change represents an important opportunity for the Gulf economies as they build their economic futures on diversification, efficiency and connectivity, says economist Jarmo Kotilaine

Climate change is reshaping political discourse around the world and shifting the priorities of institutional investors. This, in turn, is spurring businesses to prioritise the climate agenda.

The issue is of particular significance to the Gulf. The region is characterised by an extreme climate and multiple vulnerabilities in the face of climate change. Its status as a leading hydrocarbons producer means the evolving climate is acutely relevant.

If the global discourse is shifting, so is the Gulf's policy agenda. The UAE has committed to a net-zero deadline of 2050, while Bahrain and Saudi Arabia are targeting 2060.

The new commitments are reflected in a growing array of formal policies, revealing a heightened sense of purpose behind the climate change agenda. For instance, Saudi Aramco recently announced a $1.5bn sustainability fund. The Saudi Green Initiative is expected to facilitate some $190bn-worth of sustainable investments by 2030. Saudi Aramco has pledged carbon neutrality by 2050.

Despite persistent scepticism, this promises to open up multiple opportunities for the Gulf region to show global leadership in this area

Leadership potential

The true strategic potential of addressing climate change comes not just from increased environmental sustainability, but also from the fact that investments in this area are powerful drivers of economic diversification. Despite persistent scepticism, this promises to open up multiple opportunities for the Gulf region to show global leadership in this area. 

Fiscal reforms and more stringent standards region-wide are reducing waste, curbing consumption, and incentivising investments in energy efficiency and alternatives. This has fuelled the popularity of district cooling and distributed solar power, while incentivising consumers to track their consumption and seek savings.

A rapidly growing range of energy-efficiency solutions is appearing in the markets. The region’s brisk population growth, economic diversification drive and continued infrastructure development create an opportunity to introduce smart buildings and energy-efficient urban planning.

Initiatives such as Abu Dhabi's Masdar City and Saudi Arabia's Neom are harbingers of a different future. Green taxes can play a role in the fiscal overhaul of regional economies. Apart from generating revenues and expanding the tax base, they can be used to incentivise sustainability and reduce waste. 

The Gulf is exceptionally well suited for photovoltaic (PV) generation. It is estimated that covering just 1 per cent of the region with solar installations could deliver almost 500GW of capacity.

Regional solar farms have broken one efficiency record after another, and a growing range of funding solutions is fuelling further progress.

All regional governments have formal targets for renewable power generation. Saudi Arabia, for example, plans to generate half of its electricity from renewable sources by 2030.

Solar energy is also central to the production of green hydrogen – increasingly viewed as necessary to achieve global decarbonisation targets. The Gulf is well-positioned to assume a position of global leadership and excellence in this area, which serves as an important driver of investment and export diversification.

Similarly, plans to connect the GCC power grid to neighbouring countries and potentially beyond create a real prospect of being able to sell power to countries with different consumption profiles. 

Regional countries face a complex set of challenges linked to temperatures, water, population and adaptive capacity. Read more here
Plentiful prospects

Other opportunities abound. For years, Saudi Arabia has led in exploring and developing new ways to create value out of hydrocarbons by turning them into chemicals. Fertiliser production is likely to require hydrocarbons for a long time to come.

Substantial future opportunities for innovation exist in this area, and could open up new opportunities for future-proofing the region’s most important natural resource endowments.

Innovation is also needed to develop materials and other solutions for a warmer world, an area of immediate importance for the Gulf. These realities entail multiple opportunities for innovation that can allow the Gulf to build excellence in know-how and localised production. 

Even as the Gulf countries channel more capital into sustainability, they also have a broader responsibility to help the world navigate the ongoing energy transition.

Oil and gas will be consumed for decades to come, which entails a growing premium on extracting them efficiently and with as little adverse environmental impact as possible. Natural gas adoption will, in many cases, be an important step toward reducing emissions and is likely to be instrumental in reducing the world’s reliance on more polluting energy sources.

The Gulf countries can drive the process thanks to their low cost of extraction, efficient infrastructure and strategic location. A growing number of circular carbon economy initiatives can help counter the negative effects of hydrocarbon production through carbon capture and sequestration by pumping it into oil fields or using it in chemicals production. 

Taking climate change seriously represents an important opportunity for the Gulf economies as they build their economic futures on diversification, efficiency and connectivity.

This is an area with plentiful opportunities for investment and diversification and offers numerous avenues for localising productive capacity and supporting the region’s ambitions to develop knowledge-based economies.


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