As the United Arab Emirates seeks to navigate a pathway through the energy transition, it is placing a clear emphasis on reducing emissions from hard-to-abate sectors, such as heavy industry. In unveiling its updated UAE Energy Strategy 2050 and accompanying National Hydrogen Strategy July 4, the UAE announced plans to reduce energy consumption from energy-intensive sectors by 40% by the middle of the century.

During the announcement, UAE Energy and Infrastructure Minister Suhail Mohamed Faraj al-Mazrouei said, “We took on the task of updating the UAE Energy Strategy 2050 to accelerate the energy transition and increase the share of clean energy in our energy mix to become climate neutral by 2050 and help achieve our vision of a sustainable development.” But for any observers who might believe these investments are being made purely out of environmental concerns, Mazrouei made clear that the UAE sees this as an economically pragmatic step, saying that it aims to “achieve a robust energy transition as a lever for national economy and a key contributor to the country’s GDP.”

The energy transition is undeniably a paradigm shift for the globe, and the UAE is seeking to capitalize on the opportunities presented by these radical changes rather than merely avoiding pitfalls along the way. The UAE’s objectives are far more ambitious than merely “future-proofing” its economy.

Tariq al-Hashimi, the head of technology adoption and development at the UAE’s Ministry of Industry and Advanced Technology, told the Middle East Economic Survey in May that the UAE is “planning to lead in the green industries of the future. We have made it very clear that economic growth and decarbonization and climate action are not mutually exclusive – we can have both at the same time.”

UAE Minister of Industry and Advanced Technology Sultan Ahmed Al Jaber – who also serves as CEO of the Abu Dhabi National Oil Company and is president-designate of November’s United Nations Climate Change Conference, COP28, in Dubai – has described the energy transition as “a multi-trillion dollar opportunity.” Given the scale of the potential economic benefits on offer, it is unsurprising that the UAE is pushing to secure a first-mover advantage.

What may be surprising is that ADNOC itself has been the test bed for some of the core pillars of the UAE’s green-industrial strategy. With the UAE, and Abu Dhabi in particular, having invested heavily in low-carbon power generation through solar and nuclear power facilities, Abu Dhabi’s Emirates Water and Electricity Company announced in October 2021 that it had signed a strategic clean energy partnership with ADNOC to supply clean energy sources for up to 100% of ADNOC’s grid power. As Abu Dhabi’s state offtaker, EWEC is the sole buyer of electricity from the emirate’s power plants before supplying it to end users.

Nearly 25% of the electricity on Abu Dhabi’s grid came from nuclear and solar facilities in 2022. With the start of commercial operations at the third 1.4-gigawatt unit of the Barakah nuclear power plant in February, that figure is set to be substantially higher for 2023. Solar power plants generated more than 8% of Dubai’s electricity in 2022, and that figure is set to rise this year due to new capacity being brought online in recent months.

The EWEC-ADNOC agreement is symbolically powerful given that Abu Dhabi’s economy has been built on the back of abundant, low-cost energy derived from ADNOC’s oil and gas production. The agreement allows ADNOC to emphasize the comparatively low scope 1 and 2 emissions from its operations, although the market for such “cleaner” oil and gas products is currently undeveloped. Key to developing such markets will be the development of independently verifiable emission standards, and ADNOC has announced plans to partner with Siemens Energy to pilot blockchain technology to certify the carbon intensity (coming from the extraction and refining processes) of a range of its products.

Decarbonizing the Industrial Base

In his May interview, Hashimi said, “We realized that it’s really important to work on decarbonizing these industries, especially the high emitters or the high-emitting industries and the hard to abate sectors, such as steel, aluminum, cement, and we believe that these need to be decarbonized for us to stay on track and to reach our 2030 and 2050 goals. This is why we are engaging with the industry; we are putting in place the right incentives and the right policy interventions to ensure that they are moving in the right direction.”

Here, the EWEC-ADNOC agreement is serving as proof of concept for decarbonizing heavy industries in the UAE. Negotiations are ongoing for EWEC to supply Emirates Global Aluminum’s plants in Abu Dhabi and Dubai (which have a combined smelting capacity of 2.5 million tons per year) with clean energy. Once implemented, this arrangement would enable Emirates Global Aluminum to market “green aluminum” to buyers keen to demonstrate their environmental credentials.

Already, the UAE has sold a consignment of “green steel” to BMW, using carbon offsets to meet the requisite emission standards, as it seeks to construct markets for low-carbon offerings. As it examines this emerging market opportunity, Emirates Steel plans to develop a green steel plant. Moreover, Emirates Steel signed an agreement in 2021 with Abu Dhabi’s TAQA Group to explore developing a green hydrogen facility to “enable green and low carbon steel manufacturing, saving energy while creating a sustainable and clean manufacturing process.”

There has been considerable industry buzz around the potential role of green hydrogen as a low-carbon energy source in recent years, but efficiently transporting hydrogen remains a major impediment. Using green hydrogen to decarbonize local industrial facilities avoids such issues and is a more efficient use.

The BMW green steel deal demonstrates that there is a growing demand for low-carbon industrial products, with buyers willing to pay a premium. There is optimism among industrial figures and bankers that there is a market emerging for such products and that the UAE is on the right track to tap into it despite its traditional reputation as a high per capita emissions state.

IMF Provides Cautious Backing

The UAE’s strategy has secured a cautious endorsement from the International Monetary Fund, which in its latest Article IV assessment of the UAE encouraged it to “continue implementing reforms necessary to achieve the UAE’s ambitious green transition goals.” The IMF stated: “Recent efforts to expand non-hydrocarbon revenue and promote sustainable finance will also help reduce fiscal reliance on hydrocarbons over time, while the build-up of green investments under the reform program will mitigate longer-term vulnerabilities to climate change and deliver substantial economic gains.”

But while the UAE’s updated Energy Strategy 2050 is another welcome development, the strategy itself presents little detail on the concrete steps that the UAE will take to achieve its goals. With the report designating 2023-26 as phase one, during which the government will complete “a study of the main potentials for the transformation of the energy sector,” more details should be forthcoming sooner rather than later. The UAE certainly has the potential to further expand core industrial sectors, such as aluminum and steel production; its high levels of solar irradiation make it well suited for solar power and eventually green hydrogen generation; and its political leadership is clearly prioritizing the development of green industrial facilities.

Nevertheless, the UAE will have to overcome reputational challenges as an energy-intensive petrostate if it is to bring in the foreign investment and partners required to expand and decarbonize its industrial base. Independent verification will be key, and the European Union is proposing a Green Claims Directive to enable this. Regulatory alignment with large emerging markets for low-carbon products, whether in Europe or Asia, will also be essential.