Burning coal produces almost double the amount of carbon dioxide than other fossil fuels such as diesel or natural gas. In 2015, coal accounted for 45 percent of global carbon dioxide emissions. The release of carbon dioxide from the combustion of fossil fuels is directly linked to climate change. In fact, carbon dioxide has been identified as the largest source of anthropogenic greenhouse gas emissions, representing 77 percent of global output, making it a key driver of climate change.

Home to nearly a third of proven world crude oil and around a fifth of global natural gas reserves, some of the hydrocarbon-rich Gulf Arab states are switching to coal to fuel power plants. The construction of the 2,400-megawatt Hassyan project, the Gulf states’ first coal-fired power plant, started in 2016 in Saih Shuaib, Dubai, in support of the Dubai Clean Energy Strategy 2050. The United Arab Emirates is now considering the development of a second coal-fired power plant. Similarly, as part of its new fuel-mix diversification strategy, Oman has already launched a competitive bid process for the development of the country’s first coal-based power plant with a capacity of 1,200 megawatts to be located in the newly established special economic zone, Duqm.

Why are Gulf Arab states deciding to switch to coal, and why now?

Coal-Fired Generation Capacity In and Around the Gulf Arab States (as of May 2018)

Source: U.S. Energy Information Administration.

Securing enough energy to meet surging domestic demand and maintaining energy export levels over the long term while also pursuing ambitious economic diversification strategies present a triple policy challenge to the hydrocarbon-dependent economies of the Gulf states, especially with the drop in oil prices since mid-2014.

The Gulf Arab states are experiencing an extraordinary surge in energy consumption, with their overall energy demand rising on average some 5 percent per annum during the 2000s. Between 2003 and 2013, regional electricity consumption increased at an average rate of 6-7 percent per annum – faster than anywhere else in the world. Nearly 50 percent of all electricity produced in the Gulf states goes to the residential sector, with air conditioning accounting for a considerable portion of demand. Given the highly subsidized power sector, per capita electricity consumption in the Gulf countries is also substantial: more than 10,000 kilowatt-hours per person in 2014. This exceeded the world average (3,127 kWh per capita) but also surpassed the level of the major industrial countries such as the United Kingdom (5,129 kWh per capita) and dwarfed the level of other developing countries such as India (805 kWh per capita) and China (3,927 kWh per capita). Consequently, gas demand across the Gulf states has grown two-and-a-half fold since 2000, with almost two-thirds of this growth coming from power generation alone.

Annual Electricity Consumption Growth by User Group (2003-13)

Source: International Renewable Energy Agency, “Renewable Energy Market Analysis: The GCC Region,” 2016.

The increasing demand for gas at the domestic level affects the ability of some hydrocarbon-dependent economies of Gulf states to maintain export levels over the long term. In fact, importing natural gas has become a phenomenon for some Gulf countries, which used to be net exporters of natural gas; imported natural gas accounts for 19.2 percent of natural gas consumption in the United Arab Emirates, 37.7 percent in Kuwait, and 10.8 percent in Oman. While the majority of gas imports are used to meet domestic demand, especially for electricity and water desalination, they are also allocated partially to Liquefied Natural Gas processing in order to meet long-term export commitments and maintain market share.

In addition, increasing gas demand at the domestic level jeopardizes the states’ ambitions to pursue economic diversification, particularly initiatives focused on industrial expansion. Owing to the post-2014 decline in oil prices – from as high as $100 per barrel to as low as $40 per barrel – economic diversification efforts have been increasingly directed toward developing downstream energy-intensive industries such as petrochemicals, which are 100 percent reliant on oil and gas for their operation.

Against this background, it makes sense for the Gulf states to free up natural gas either for export or industrial expansion. Therefore, the provision of additional energy becomes ever more important. Indeed, considering this triple energy-policy challenge, all of the Gulf Arab states are now pursuing fuel-mix diversification strategies, including the development of renewable energy, nuclear power, and most recently coal. But why coal, which is directly linked to climate change?

Coal holds appeal in some Gulf states over the alternatives because:

1. Natural gas is better to be freed up for other purposes such as export or industrial expansion.
2. Nuclear power is expensive to build, takes longer to construct, and has safety concerns.
3. Renewable wind and solar energy still face the issue of intermittency, and are not yet ready to sufficiently support industry and large-scale economic growth.

Coal is competitive against other power sources in terms of cost. The average Levelized Cost of Electricity (LCOE), which is an instrument used to measure the competitiveness of different generating technologies, sourced from coal ($0.05 per kWh) is significantly lower than the average LCOE for alternative options such as gas-based power plants ($0.02-0.05 per kWh); solar ($0.11-0.47 per kWh); wind ($0.06-0.12 per kWh); or nuclear (around $0.15 per kWh). It is even cheaper than the lowest recorded cost of utility-scale solar photovoltaic (PV), which was $0.06 per kWh in Dubai in 2014. Further, it takes less time to construct coal-fired plants, which means that gas or diesel can be freed up and used very quickly for other purposes such as industrial expansion or sales in the international market.

Estimated LCOE of Coal Power Technology Compared to Renewable Energy, Natural Gas, and Nuclear Power in the Gulf States

Sources: Data aggregated from International Renewable Energy Agency and U.S. Energy Information Administration reports. Gulf-specific data on nuclear power is not available yet, as plants have not yet been built, so EIA data has been used for comparison purposes.

In addition, the Gulf states seem to be taking advantage of China’s growing economic investment in the region (i.e. the Belt and Road Initiative) to support their interest in coal. The Hassyan project, for instance, is a joint venture between Dubai Electricity and Water Authority (51 percent) and the consortium of ACWA Power, Harbin Electric, and the Silk Road Fund (49 percent).

“Once fully completed by 2023, this clean coal power station will be the first of its kind in the Middle East, a symbol of UAE-China green energy partnership, and a successful joint venture under China’s Belt and Road Initiative,” said Tie Sijia, deputy manager of the Dubai Hassyan Power Plant project.

Furthermore, the Gulf Arab states’ decision to turn to coal has coincided with the efforts by the administration of U.S. President Donald J. Trump to roll back Obama-era coal pollution regulations. Earlier this year, the Trump administration considered forming a “Clean and Advanced Fossil Fuel Alliance” to advocate for natural gas and coal technology and exports, according to a document E&E News obtained from an administration source. Although such information is not disclosed, long-term allies, like the UAE, are expected to benefit from the Trump administration’s recent decision. In fact, the UAE is already considering importing gas from the United States as a way to diversify its Liquefied Natural Gas supply, especially with the uncertain state of relations with Qatar. Coal could be the next import.

However, describing the coal industry as “clean” or “green” is not convincing to everyone. In Oman, young people have strongly reacted against the newly announced coal-based power plant. Some Twitter users have repeatedly described it as a step backward while the world moves forward toward clean energy. The term “clean” has been widely used to promote the entry of coal-based technology, but details on how clean coal can be achieved have not been made available. Even if Carbon Capture and Storage (or utilization) is meant to be the solution, its technology is still not well advanced, and the fact that fossil fuels are finite makes it hard to rely on these technologies to address emerging energy concerns in the medium to long term.

It remains to be seen if other Gulf Arab states will follow the UAE and Oman in developing coal-fired plants. A more practical and “clean” option could be to avoid importing coal by advancing energy efficiency measures and continuing to reform fossil fuel subsidies, thus reducing unnecessary waste of valuable resources such as gas.