Economic Update

Published 10 Nov 2021

– UAE and Saudi Arabia release net-zero carbon emissions plans

– Plans include renewables investment and offsetting measures like carbon capture

– Countries will continue to produce hydrocarbons as part of strategy

– Reaching net zero has a number of particular difficulties for the Gulf

As global leaders in politics and business continue to meet in Glasgow to discuss environmental issues as part of UN Climate Change Conference (COP26), some of the world’s most fossil fuel-dependent countries have launched plans to reach net-zero carbon emissions.

On October 7 the UAE became the first country in the Gulf to commit to achieving net-zero. At Expo 2020 in Dubai, the government announced that it would aim to reach the target by 2050, in line with major industrialised markets like the EU and the UK.

Although the country has not yet released a detailed plan, officials said they would invest Dh600bn ($163.4bn) in renewables to help achieve the goal. This will build on the more than $40bn the UAE has invested in the sector over the past 15 years.

The government predicts that renewable energy production capacity, including solar and nuclear, will reach 14 GW by 2030, up from about 100 MW in 2015 and 2.4 GW in 2020. If successful, officials say the rollout should increase the percentage of electricity sourced from renewables, taking it from current levels of 7% to 20% in 2030, and 44% by 2050.

In addition, the country is looking to develop hydrogen as a low-carbon energy source, reduce consumption and increase carbon capture capacity.

Saudi Arabia’s net-zero plan

This development was followed on October 23 by the launch of Saudi Arabia’s own net-zero plan – announced at the first-ever Saudi Green Initiative Forum – which it hopes to achieve by 2060.

In a similar vein to the UAE, Saudi officials have highlighted significant investment in renewables as being key to meeting the goal. The country aims to generate 30% of electricity from renewable sources by 2030, up from current levels of less than 1%.

Saudi Arabia said it will invest a total of SR700bn ($186.7bn) as part of its “carbon circular economy” approach, which includes strategies such as planting 450m trees and rehabilitating large swathes of land by 2030, in addition to increasing investment in carbon-capture technology.

The measures are expected to slash carbon emissions by 270m tonnes annually, more than double the country’s previous goal of 130m tonnes. The plan was also accompanied by a pledge to cut 30% of methane emissions by 2030.

Following the lead of the UAE and Saudi Arabia, on October 24 Bahrain’s cabinet announced plans to bring carbon emissions to net zero by 2060, while days later Qatar launched a national climate change plan that aims to reduce greenhouse gas emissions by 25% by 2030.

Oil and gas to remain in future plans

While making significant efforts to reduce net carbon emissions, Saudi Arabia and the UAE both see a continued role for oil and gas in their respective net-zero futures.

Although not finalised, their plans did not include information on scaling down investment in oil and gas, or reducing fossil fuel production.

This has attracted concern from some environmental activists, who fear that the continuation of hydrocarbons production and reliance on carbon-capture technology may not be as effective in reducing carbon emissions as many suggest.

Others were more optimistic, highlighting the significance of one of the world’s largest oil producers committing to a net-zero plan.

“I welcome Saudi Arabia’s announcement of a net-zero target. Countries will get to Net Zero via different paths, but the threat of climate change is universal. Pledges from major fossil-fuel producers, and their implementation, are vital to reach international climate goals,” Fatih Birol, the executive director of the International Energy Agency, wrote on Twitter.

Meanwhile, in releasing its plan, Saudi officials said that too rapid a shift away from fossil fuels would leave many emerging markets without reliable sources of energy, and that the transition to net zero carbon emissions “will be delivered in a manner that preserves the Kingdom’s leading role in enhancing the security and stability of global energy markets”.

Net-zero challenges for the Gulf

The path to net zero is a particularly complex matter for the Gulf, where many countries still rely heavily on the hydrocarbons industry.

For example, Saudi Arabia is the second-largest oil producer in the world, supplying around 10% of the world’s oil, while Iraq, the UAE and Kuwait are all in the top 10.

Although most countries in the Gulf have launched long-term programmes aimed at economic diversification, hydrocarbons nevertheless still make up significant portions of economic activity and are crucial to the overall economy.

Despite falling from 65% in 1991, oil’s share of total GDP in Saudi Arabia was still 42% in 2019. The relative figure is around 50% in Oman, 40% in Kuwait and approximately 20% in Bahrain, despite the latter being one of the more diversified economies in the region.

Given that many countries in the region are to some extent still recovering from last year’s twin challenges of the coronavirus and fall in oil prices, the hydrocarbons sector remains key to economic security.