OPEC appears to be stuck in a vicious cycle of cutting production only to see its share of the market filled by the United States and other, higher-cost producers that are not bound by the production restraints of the OPEC+ agreement.
The recent admission by the United Arab Emirates’ minister of energy, Suhail Mohamed Faraj Al Mazrouei, that the UAE will miss its 2021 clean energy target is a stark reminder of the challenges faced by energy leaders in a period of rapid transition.
The UAE had pledged in 2015 to meet 27 percent of its energy requirements with renewable sources. Mazrouei, addressing the Federal National Council, said the reason the UAE would not meet its target was the delay in bringing online the Barakah Nuclear Power Station, which had been due to be partly operational in 2017. The UAE’s clean climate goals rely heavily on nuclear power to deliver 25 percent of the clean energy component; solar energy, where the UAE has taken a regional lead, would make up the remaining 2 percent.
The World Energy Council, the United Nations-accredited global energy body, has developed the Issues Monitor – a useful tool to identify the key challenges for energy leaders as they consider pathways to a sustainable energy future. Its findings, based on insights provided by nearly 2,300 energy leaders and experts in nearly 90 countries, include visual snapshots of the uncertainties and key priorities that energy leaders need to consider to design a cleaner, lower-carbon energy landscape. The UAE, with a reputation for delivering on declared policies, is an example of how even with the best of intentions, policy objectives can be frustrated if the roadmap is faulty. The Issues Monitor highlights four strategic priorities for energy leaders to consider in 2019:
- Market design, where existing models will have to be updated to incorporate the growing trend toward decentralized power systems;
- Decarbonizing the electricity system and adapting it to accommodate a higher percentage of renewable energy sources like wind and solar (this will require storage solutions, without which variable energy sources are not sustainable);
- Global strategic competition and the rise of nationalism and their impact on the pace of the energy transition;
- The role of lithium and cobalt, used in making batteries, as key commodities in the clean energy transition and risk of price volatility as demand grows.
The areas requiring urgent action in the global perspective are: energy efficiency coupled very closely with renewable energy, and energy subsidies and electricity pricing. These, however, differ from the Middle East and Gulf-state scenario, where commodity prices, economic growth, and energy subsidies are targeted for urgent action. While renewable energy and energy efficiency are considered priorities, they are not as closely coupled as in the global scenario.
The International Energy Agency stresses energy efficiency as a “fuel of choice” in the effort to reduce carbon emissions. According to the IEA’s “Energy Efficiency 2018” report, energy efficiency alone can limit the increase in primary energy demand to levels only marginally higher than they are today even if global gross domestic product were to double by 2040. It is indeed a powerful tool, but in many countries of the Middle East less effort is being made to conserve energy despite growth in renewable energy, particularly in the UAE, Morocco, and Egypt. One problem faced by many Middle Eastern oil producing and consuming countries is energy subsidies, which have been eased gradually but remain a heavy burden on state budgets since the cost of generating electricity remains higher than the retail price.
The UAE has not given a reason for the delay in the startup of the Barakah power plant, which will eventually provide 25 percent of the UAE’s total energy needs. Mazrouei, in revealing the delay, said that while the UAE remained open to foreign investment in solar power, the low per unit cost meant it was not an attractive prospect. The UAE depends heavily on natural gas for power generation and has had to resort to importing pipeline gas from Qatar as well as liquefied natural gas to meet rising demand for electricity. When operational, the Barakah plant will help to reduce the country’s carbon footprint and result in savings equivalent to removing 3.2 million cars from the roads. The scrapping of remaining subsidies on energy in the UAE and elsewhere in the Middle East will go a long way toward reducing consumption and helping these countries attain their climate goals. However, such a move would have to be considered in the light of domestic politics and social conditions, particularly in the way they might impact the lower income strata of society.
According to the Climate Action Tracker, which is produced by three independent research organizations that have been tracking climate actions of individual countries since 2009, the UAE has taken a “few small but insufficient first steps on climate change.” It notes that the UAE began to deregulate energy prices in January 2018 and phase out fossil fuel subsidies, but while this may help in reducing the rate of growth in emissions, it is not enough to stop emissions from increasing overall. It notes that despite price increases in recent years, the prices of petrol and diesel remain below the international average. According to the Climate Action Tracker, the UAE is not on track to meet its pledge of cutting emissions by 24 percent by 2021 – the target was raised to 27 percent after the Paris climate accord was signed in December 2015. In November 2018, it noted: “This means that the UAE’s climate commitment in 2021 is not consistent with holding warming to below 2 degrees Celsius, let alone limiting it to 1.5 degrees as required under the Paris Agreement, and is instead consistent with warming between 3 degrees and 4 degrees.” Although the UAE has put in place a climate action plan covering 2017-50, the Climate Action Tracker mentioned the plan does not appear to include clearly defined mitigation actions and is therefore discounted.
The UAE’s economy is somewhat more diversified than its oil-producing neighbors, largely because emirates like Dubai and Fujairah, which do not have the oil resources of Abu Dhabi, have had to develop non-oil generating revenue streams from tourism, banking, shipping, and services. Abu Dhabi is a recent convert to diversification with a focus on arts and culture to draw visitors to the emirate, but oil remains the mainstay of the federal economy and its industries are either oil related or energy intensive. Saudi Arabia with its Vision 2030 economic diversification program underway, has had to scale back its ambitions after delaying the partial privatization of state-owned oil giant Saudi Aramco, which was to have helped finance the diversification effort. The kingdom remains, for now, an oil-based economy.
That is why commodity prices, mainly oil and gas, are of great concern to the Middle East’s policymakers since oil exports still account for the largest portion of their foreign earnings and any volatility in commodities markets can result in a shift in focus by their governments. This in turn may speed up or delay the switch to alternative energy sources, depending on whether oil prices are high or low.
In recent years, however, renewable energy has become competitive with coal and gas without the need for subsidies. This should, theoretically, speed up deployment of solar and wind energy, but the penetration of these greener fuels remains relatively low across the Middle East. Iraq, for example, has only now started thinking about solar photovoltaic panels and wind energy as potential answers to the severe shortage of electricity generating capacity, a legacy of decades of wars and sanctions.
Non-oil commodities, namely lithium and cobalt, are also coming into play as a result of the energy transition since they are used for the manufacture of batteries for storing electricity and in electric vehicles. As demand for these commodities has risen, so have prices. The risk of volatility here is high since the minerals are concentrated in a few countries, not all of them stable democracies. The Democratic Republic of Congo has the world’s largest cobalt deposits and recently announced a threefold increase in tariffs. This could result in higher costs for producers of electric vehicles. Already, the price of cobalt has skyrocketed in the past year, rising from $32,000 per ton in 2017 to $81,000 per ton in 2018.
In an interconnected world, strains in trade relations, such as the recent dispute between the United States and China, can have an adverse effect on global economic growth. That is why it features prominently as a concern for the Middle Eastern states, which rely heavily on the Asian market for the bulk of their crude oil exports.
The UAE plans to invest an estimated $163 billion into renewable energy projects between now and 2050, when it aims to generate roughly half of its power needs from renewable energy sources and improve efficiency by 40 percent. Even so it may not reach its near-term 2021 target. Other countries in the Middle East and North Africa are lagging behind. Saudi Arabia has launched tenders for solar and wind projects but has had to scale back its 2040 targets, which were deemed too ambitious when first announced a decade ago.
The region is extremely vulnerable to climate change and the clock is ticking to keep the lights and air conditioners on without causing harm to their already fragile environment.
The Iranian government has been constantly seeking strategies to circumvent U.S. sanctions, but these efforts have not led to a sustainable and secure solution.
As fiscal constraints increase, tensions in the Gulf rise, and uncertainties surrounding political transition loom, Oman’s role in the Gulf Arab region could come under pressure.
Through its careful examination of the forces shaping the evolution of Gulf societies and the new generation of emerging leaders, AGSIW facilitates a richer understanding of the role the countries in this key geostrategic region can be expected to play in the 21st century.Learn More