Japan’s need for energy security has long driven relations with the Gulf states, but, under the banner of economic diplomacy, Gulf-Japan ties are diversifying.
A difficult year for climate action in the Gulf region closed with a dose of optimism, with the appointment of climate envoys and announcements on emission reduction programs and targets. In November 2020, Saudi King Salman bin Abdulaziz announced the launch of a Circular Carbon Economy National Program, marking the culmination of a 1-year campaign to promote the concept as a new approach to managing emissions through the Saudi presidency of the G-20. The same month, the nomination of former Secretary of State John Kerry as the climate envoy for the incoming U.S. administration of President-elect Joseph R. Biden Jr. prompted two Gulf governments to appoint new special climate envoys: former climate envoy and CEO of the Abu Dhabi National Oil Company Sultan Ahmed Al Jaber in the United Arab Emirates and Mohammed Mubarak Bin Daina, a senior environmental official, in Bahrain. Iraq announced in December 2020 it was finally joining the Paris Agreement on climate change. The UAE topped the year by submitting its second Paris Agreement contribution to the United Nations Framework Convention on Climate Change, making it the first Gulf country to commit internationally to a de facto peaking of its domestic greenhouse gas emissions in the next decade.
These announcements follow a familiar pattern in the region of major advances in climate policy generally being linked to external events. Over the past decade, Gulf countries have sought to lift their reputation in global climate governance by hosting U.N. climate conferences and international clean energy organizations without making major changes to their domestic energy use patterns. They have experimented with monetizing carbon offsets through the Kyoto Clean Development Mechanism but have shied away from domestic carbon pricing. All Gulf Cooperation Council countries have submitted their initial plans to the Paris Agreement on climate change, but external evaluators have ranked these insufficient in relation to its goals.
In 2020, the coronavirus pandemic dealt a significant blow to global climate diplomacy, which had already been suffering from an absence of strong leadership. It paralyzed all multilateral climate negotiations, as no face-to-face meetings could take place, and marginalized the issue of climate change in many other international discussions. “Green recoveries” or “building back better,” which became the new climate agenda in various parts of the world, were absent from the Gulf’s policy discourse – with the exception of some business groups and environmental authorities. The region’s hydrocarbon sector continued to expand, with ADNOC announcing a $122 billion 5-year investment plan and Saudi Arabia’s crude oil production reaching a record 12.1 million barrels per day. Also, changes in government in Oman and the UAE indicated an attempt to ride out the storm by tightening government finances rather than shifting investments toward energy or economic transformations.
At the same time, there was a strengthening of a number of trends in 2020, both outside and within the region, that might signal more momentous changes to come.
Shifting Investor Sentiment
The CEO of the world’s largest asset manager, BlackRock, affirmed in January 2020 that the world was on “the edge of a fundamental reshaping of finance” as investors increasingly recognize that “climate risk is investment risk” and reallocate capital. While Gulf oil exporters may not be facing stranded assets in the medium term due to their lower-cost and relatively less carbon-intense reserves, their national oil companies’ actions indicate awareness of mounting pressures to consider environmental, social, and governance factors.
Oil Industry Setting Climate Targets
In July 2020, the industry coalition Oil and Gas Climate Initiative, of which Saudi ARAMCO is a member, committed to collectively reduce the carbon intensity of upstream operations by 2025, and half of the group’s dozen members have announced net-zero emission targets. Faced with growing pressure from governments, investors, asset managers, and consumers, some European oil majors took this a step further, putting forward targets for their scope 3 emissions (those associated with the end use of their product, namely burning of fossil fuel). Similar domestic pressure is unlikely to materialize in the near future within the Gulf, but it may come from outside the region: In November 2020 a group of 500 international investors added ARAMCO to its focus list of companies to deliver Paris Agreement-aligned emission reductions.
Major Economies Adopting Net-Zero Targets
In 2020, there was also a significant increase in countries committing to “net-zero emissions” (a balance between emissions ending up in, and removed from, the atmosphere) by mid-century. After a 4-year hiatus, momentum among major emitters picked up in the autumn of 2020, with China announcing a 2060 carbon neutrality target and the European Union confirming a more ambitious mitigation target for 2030 to achieve its own 2050 climate neutrality pledge. With the incoming U.S. administration similarly committed to net-zero emissions by 2050, over 70% of the global economy could soon be targeting climate neutrality, placing the Paris Agreement’s 1.5 degree Celsius warming limit within reach. So far, there are no Gulf countries among the 127 countries committed to, or considering, mid-century targets, but 2021 may bring changes in this regard.
A “New Language of Carbon” for Hydrocarbon Producers
The term “net zero” contains an important caveat, as it does not require absolute emission reductions by mid-century as long as any emissions are removed from the atmosphere. Environmental campaigners remain suspicious of the term, arguing it relies on “problematic carbon offsets and unproven technologies,” including carbon capture and storage.
Net zero, however, is attractive to Gulf oil exporters precisely because it implicitly accommodates hydrocarbons in future global energy trajectories – as long as related carbon is stored away or converted into “durable carbon” like construction materials. With this in mind, in 2021, Saudi Arabia made the concept of a circular carbon economy one of the main themes of its G-20 presidency. The kingdom promoted it as a “pragmatic” approach to viewing carbon as a source of economic value rather than an environmental externality. While sceptics saw this as potentially “undermining ambitious climate policy, mitigation targets and carbon pricing mechanisms that seek to incentivize a move away from fossil fuels altogether,” the G-20 eventually endorsed the concept, and Saudi Arabia is now working on its Circular Carbon Economy National Program aimed at “tackling climate change while continuing to create growth in the economy.”
The Rise of Hydrogen
Green and blue hydrogen – produced from renewable electricity and fossil fuels with carbon capture and storage, respectively – continued their prodigious rise in global energy discussions through 2020, with several countries laying out ambitious long-term strategies. In the Gulf, hydrogen could represent both a solution for decarbonizing hard-to-abate sectors like heavy industry and transportation and provide alternative ways to generate fuel export revenue in an increasingly carbon-constrained world. Whether hydrogen takes off, however, will depend on how seriously the region’s leaders decide to bet on it. In July 2020, Saudi Arabia announced plans to build a $5 billion green hydrogen plant, geared toward exports to Europe and elsewhere.
Continued Support to the Paris Agreement
Despite the cancellation of the 2020 U.N. Climate Change Conference, a large number of countries submitted enhanced pledges in support of the Paris Agreement. Among these, the UAE’s second nationally determined contribution represented significant progress: Compared to the first contribution, which had a 27% power sector clean electricity target for 2021, the new contribution sets an economy-wide emission reduction target of 23.5% compared to a business-as-usual scenario for 2030. Existing quantitative targets set by other Gulf countries lack a reference point, such as Saudi Arabia’s, or do not amount to meaningful reductions, such as Oman’s. If implemented, the UAE’s pledge would keep emissions stable for the next decade. Undoubtedly, while the economic slowdown due to the coronavirus pandemic may have made it easier to make such pledges, the thought of curbing emissions growth was considered impossible in the region only a few years earlier.
Building Back Better
Throughout 2020, calls grew for countries to “green” their coronavirus stimulus and recovery financing and end fossil fuel subsidies. A U.N. report estimated that $233 billion in G-20 public funding had been committed to fossil fuels compared to $146 billion to sustainable energy and mobility as of November 2020. The study also concluded that global fossil fuel production should be cut by 6% per year over the next decade to ensure a climate-safe future.
Despite various green growth and green economy initiatives, the Gulf countries did not jump on the green recovery bandwagon with their 2020 stimulus packages. Most renewable energy projects in the region continued as planned, but total installed capacity in the region still amounts to a fraction of the total energy mix, leaving most emissions unaddressed.
While 2020 may not have brought transformative announcements from the Gulf region, it may have set the stage for bigger ones in 2021. The Biden administration has announced plans to convene a global climate summit in its first 100 days, and another key Gulf ally, the United Kingdom, will be presiding over the Glasgow Climate Change Conference in November 2021. Major recovery-related opportunities remain to be seized in job creation around energy efficiency and electrification, which could support the region’s struggling small and medium-sized enterprises. Large-scale hydrogen production and carbon capture and storage, in turn, could receive further momentum from Saudi Arabia’s Circular Carbon Economy Program. More Gulf countries and oil companies could put forward enhanced climate plans, and 2021 might even witness the region’s first net-zero target.
is a thematic expert and writer, focusing on natural resource and environmental policy and politics.
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