In its latest report, the Intergovernmental Panel on Climate Change highlights the irreversible consequences of climate change unless humans manage to keep the rise of the Earth’s temperature below 1.5 degrees Celsius above pre-industrial levels. Despite global environmental challenges, high-carbon energy sources like oil, natural gas, and coal have continued to dominate the global energy market, and renewable sources are still a small share of global energy production. According to the World Economic Forum Global Risks Perception Survey 2021-22, the top three most severe global risks are all related to the environment, such as climate action failure, extreme weather, and biodiversity loss.

A holistic and joint response is needed to tackle these climate challenges. On one hand, governments need to take decisive climate actions in imposing policies through enacting regulations and laws to encourage or deter businesses in terms of shaping their climate policies. On the other hand, there is growing urgency for green transformation and higher environmental, social, and governance, or ESG, performance in business by stakeholders, particularly customers and investors, which drives the private sector to prioritize sustainability issues.

Gulf States Target Net Zero

Net-zero pledges from governments and businesses are vital to mitigating climate-related risks. More governments, finance organizations, international bodies, energy companies, and businesses are engaging in ESG strategies. Before the United Nations Climate Change Conference, COP26, was held in Glasgow in late 2021, there were some positive developments. For instance, three major Gulf oil-producing countries released net-zero roadmaps in October. The United Arab Emirates was the first Gulf country to make a net-zero commitment, setting the target for 2050. Saudi Arabia followed, pledging to be net zero by 2060, as did Bahrain. Considering that the Gulf Cooperation Council countries account for over 25% and 10% of world oil and gas production, respectively, it is crucial to involve them in tackling climate change challenges to achieve environmental goals.

Climate Targets of GCC Countries

According to the World Bank, five of the GCC countries rank among the top 10 countries globally for carbon dioxide emissions per capita, averaging approximately 22 metric tons per capita, five times more than the world average. Due to the extent of their carbon emissions, the GCC countries have an important role to play in pursuing low-carbon energy transitions. In addition to GCC countries being net exporters of hydrocarbons, their domestic energy demand has been rising due to high consumption fueled by economic growth. Nonetheless, there has been action to address this second-order challenge to Gulf progress on net-zero and emissions efforts. With substantial and increasing investments in renewable energy generation and electric vehicles, there is likely to be a decline in domestic fossil fuel demand in GCC countries in the future. For example, the UAE allocated over $40 billion in the last 15 years to increase its clean energy capacity in line with the 2015 Paris Agreement. As a result, the capacity of renewables increased from 100 megawatts to 2.4 gigawatts between 2015 and 2020, and the UAE aims to hit 14 GW by 2030.

The Russian invasion of Ukraine has highlighted the fragility of energy markets and put at risk short-term sustainable energy goals. One-quarter of European oil imports and 38% of gas imports come from Russia, making it the largest energy supplier to the bloc. In 2020, only 4.1% of EU gas imports were from Qatar, however this is expected to grow soon as the largest European economy, Germany, has already taken immediate action to build its first liquefied natural gas terminal as part of its efforts to diversify its energy mix. International economic sanctions imposed on Russia and the United States’ move to ban imports of Russian oil and gas have put pressure on other suppliers to produce more in the short term, particularly Gulf hydrocarbon producers with greater spare capacity. This challenge to energy markets is putting Gulf leaders in the uncomfortable position of having to make crucial choices between their net-zero related sustainability goals, such as sustainable development goal 13 climate action, and global energy needs.

Despite the oil-producing Gulf countries’ ambitious climate targets, questions remain in terms of the achievability and sincerity of their net-zero pledges. First, the growing global energy demand and the recent sanctions on the Russian oil and gas sectors could drive the Gulf countries to increase their hydrocarbon production capacities. Second, as net-zero pledges are still fresh, Gulf governments and energy companies have yet to develop a clear roadmap for decarbonization. Transparent communication and monitoring, based on key performance indicators regarding net-zero progress, are needed. Last, the net-zero pledges of Gulf governments and energy companies focus on decarbonizing upstream and downstream emissions, however indirect emissions are not factored in, which means that exported Gulf oil and gas will continue to generate emissions in other countries. The U.N. Global Compact emphasizes that actions in reducing these “scope 3” emissions are integral to achieving net-zero targets, suggesting Gulf governments and energy companies need to take more action to scale up their climate ambitions.

Outsourcing Emissions

In line with the Paris Agreement, countries commit to reduce their national greenhouse gas emissions as parties account for their nationally determined contributions, however exported fossil fuels continue to generate emissions in other countries. Gulf oil-producing states export approximately 60% of their annual production – nearly 12.4 billion barrels per day.

GCC Oil Production 2018-20

Total GCC oil production declined from 2018 to 2020, especially in 2020 due to the deep economic effects of the coronavirus pandemic. Nevertheless, oil production in the region is expected to increase by a few million barrels per day in the near future, clear in the business strategy projections of national oil companies like Saudi Aramco and the Abu Dhabi National Oil Company, in line with forecast economic growth, the post-pandemic rebound, and the shift to Gulf hydrocarbons due to Russian sanctions. With the increase in oil production and the likely reduction in domestic oil demand (as a result of efforts to meet net-zero pledges), Gulf states will have more oil available for exportation. This means that even if Gulf states reach net-zero goals at home, the oil they export will continue to contribute to emissions around the world. Additionally, more oil on the global market may drive down its price, making oil a cheaper and more attractive energy source, especially for developing countries that are primarily focused on economic growth and lack adequate financial resources for clean energy and infrastructure investments.

Reaching net-zero goals while increasing fossil fuel production capacity seems contradictory and raises questions about the commitments made by Gulf states to reach net zero. Saudi Arabia’s pledge to become net zero is notable as the kingdom is the world’s second-largest producer of oil, producing about 12 mb/d and exporting approximately three-quarters of its oil. Additionally, Saudi Arabia is the sixth-largest oil consumer in the world, with 3.4% of world oil consumption. With an ambition of being net zero by 2060, Saudi Arabia’s emission reduction target for 2030 was 130 million tons in 2015, but in 2021 the kingdom more than doubled that, setting 278 million tons as its new target. However, at the same time, Saudi Aramco plans to increase its daily oil production capacity to over 13 billion barrels by 2027.

In Qatar, there is no net-zero commitment yet, but Doha announced a climate change action plan in late October 2021 committing to reduce its greenhouse gas emissions by 25% by 2030, through carbon capture, utilization, and storage technology investments. In 2018, Qatar was the world’s top emitter of carbon dioxide per capita, exceeding 32 metric tons, which is nearly eight times the global average. Additionally, Qatar is the world’s largest LNG exporter with a current production volume of 77 million tons and has an ambitious plan to increase production volumes to 126 million tons per year by 2027. LNG is a highly strategic energy source for Qatar due to its near 25 trillion cubic meters of proven reserves, about 13% of the world’s proven reserves of natural gas.

Qatar promotes LNG as a relatively environmentally friendly green fossil fuel that can substitute for oil and coal. LNG’s ability to replace coal’s role as an energy generator could be notable, especially in the giant Asian economies like China and India, where coal dominates the energy mix at 60% and 44% respectively. China set its net-zero target for 2060, and India’s goal is 2070. 

Boosting Hydrocarbon Production and Targeting Carbon Neutrality

OPEC and the International Energy Agency project that global oil demand will remain near 100 mb/d even as late as 2045. The IEA projects oil demand – in the shorter term – will exceed 100 mb/d by 2023 due to factors such as population growth, economic development, and a post-pandemic rebound. While boosting oil production capacity can help meet rising global energy demand and prevent fluctuations in energy prices that might threaten economic stability, an aggressive shift to renewables in tandem with underinvestment in conventional energy sources could create energy supply crises as it did in 2021. An increasingly diversified energy mix reduces such risks. With approximately 65% of the global energy mix, oil and gas are expected to remain the dominant fuels in the near future. Therefore, decarbonization efforts in the oil and gas sectors are important to mitigate their negative environmental impact and aid the transition to a sustainable energy system.

The oil-producing Gulf states plan to achieve their climate goals through massive investments in renewable energy and carbon capture, utilization, and storage technologies, which will allow them to become carbon neutral while still earning revenue from their hydrocarbon resources. The investments are likely to pay off because they will make Gulf oil and gas less carbon intensive and enhance its competitiveness in the market as climate change becomes more prevalent. Gulf oil is already significantly less carbon intensive than that of other major oil suppliers. This gives Gulf countries a competitive advantage since carbon intensity of a commodity will affect its costs due to regulations, such as carbon border adjustment taxes. GCC countries’ climate objectives are also helping shape their economic diversification efforts, through mega-investments like Neom, the smart-sustainable city being built in northwest Saudi Arabia. Saudi Arabia intends to be a leader in green hydrogen production and is allocating billions of dollars to the construction of a plant that will be the largest in the world. Despite its long-term advantages, green hydrogen has not been considered a fuel that is competitive and profitable against natural gas due to the superior infrastructure already in place for natural gas and low price.

Fossil fuels will continue to play an important role in the energy mix of many industrialized countries throughout the next several decades, despite the warnings from climate scientists. Carbon neutrality therefore must be an objective that transcends national boundaries, and governments and energy companies need to transparently communicate how they are adapting their climate agendas. Considering their special position in the global energy market and as the largest emitters of greenhouse gases, GCC countries bear huge responsibility in combating climate change. To meet that responsibility and ensure continued competitiveness for their oil, Gulf states will have to reconcile their plans for increasing oil and gas production and investments in fossil fuels with their ambitious climate targets.