COP26: GCC Members Walk the Talk

Historically, member countries of Gulf Cooperation Council (GCC) have long been scrutinised for absence of policy and lack of positive transformation with regards to climate change.

Tainted with accusations of disproportionately high per capita emissions and marked amongst the largest exporters of fossil fuels, they have risen to the challenge.

Today, GCC countries are taking monumental steps, adapting national strategies to advocate change and drive tangible results on a global scale.

We look at GCC climate agenda, perceptions around climate change, and potential impact on businesses in the region.

COP has underachieved through the years in terms of garnering commitment from major emitters to embrace climate goals. This year hopes for COP26 are high. Governing factors include:

• Over 100 countries have committed to achieving net-zero greenhouse gas (GHG) emissions, most of them aiming for neutrality by 2050.
• Consensus is building around climate change action from the most influential world leaders, including heads of state from the US, UK, France, and Germany. This is mirrored by thousands of global companies declaring carbon neutrality goals.
• Extreme climate conditions intensify around the world and closer to home. GCC is increasingly experiencing cyclones, sandstorms, droughts, flash flooding, and extreme temperatures exceeding 53 Celsius. These risks are set to worsen, as the Middle East is warming at twice the global average which means it will be 4 degrees Celsius warmer by 2050 compared to the 1.5-degree mark. Coupled with water scarcity and food security issues, and “wet-bulb” temperature in coastal cities, large tracts of land will become uninhabitable.
• A promising precedent of global consensus and cooperation exists in the face of dire circumstances such as the COVID-19 pandemic.

With economies mostly reliant on export of fossil fuels, GCC countries’ have been reluctant to commit to climate goals. Attitudes have shifted recently in the face of mounting international pressure, Kingdom of Saudi Arabia’s (KSA) G20 presidency in 2020, and a US president with a keenness for climate action. Emission reduction goals vary across member states, but the overarching GCC strategy is built on a framework of sustaining and increasing fossil fuel investments and output for export as demonstrated by Saudi Aramco, Abu Dhabi’s ADNOC and Qatar Energy. There is also a focus on deploying the Circular Carbon Economy (CCE) aimed at reducing, reusing, recycling, and removing GHG emissions from the ecosystem. This rests on diversifying energy sources to renewables, nuclear energy, and hydrogen, enhancing energy efficiency, developing carbon capture and storage (CCUS) and direct air capture (DAC) technologies for carbon sequestration, and leveraging hydrocarbon knowledge and capabilities to develop petrochemical industries.

• In 2017, United Arab Emirates (UAE) announced its Energy Strategy 2050 to achieve net-zero, reducing carbon footprint of power generation by 70%, reducing its emissions to 23.5% by 2030, and generating 50% of its electricity from renewables and nuclear each by 2050. It also seeks to increase energy efficiency by 40% and invest $163 billion in “clean and renewable” energy until 2050, including hydrogen production.
• UAE showcased its commitment by bidding to host the COP28 climate talks in 2023. Moreover, UAE’s National Food Security Strategy 2051 aims to enhance local production, diversify food import sources, facilitate global food trade, manage food waste, and position UAE at the top of the Global Food Security Index by 2051 using advanced technologies and techniques, data, and AI in agriculture.
• In its recently organised Saudi Green Initiative (SGI) and Middle East Green Initiative (MGI) ahead of COP26, Saudi Arabia announced that it aims to reach net-zero emissions of GHG by 2060, remove 278 million tonnes of CO2 equivalent a year by 2030, and joined the Global Methane Pledge. Crown Prince Mohammad bin Salman announced he would invest $187 billion in climate action this decade, in methods such as CCUS technology and hydrogen production among others. These targets apply to domestic emissions and are conditional on KSA’s ability to maintain fossil fuel exports. KSA’s energy mix by 2030 will include 50% renewable energy. SGI and MGI also aim to plant 10 billion trees in KSA and 40 billion in the region respectively, raise vegetation cover, combat land degradation, and preserve marine life. Recent initiatives depict a move towards water and food security through investment in and use of data, technology, AI and revolutionary techniques for water and food security.

• The largest exporter of liquified natural gas (LNG), Qatar recently launched a national climate change action plan that envisions achieving a 25% reduction in GHG emissions and reducing carbon intensity of its liquefied natural gas facilities by 25%, both by 2030. Qatar’s Food Security Strategy 2018-2023 focuses on limiting food waste, building reserve capacity, enhancing local production for self-sufficiency, diversification of supply, and focus on growing commodities that make sense from a cost-competitive standpoint.

• Kuwait’s Vision 2035 targets reduction of energy consumption and raising renewables’ share in the energy mix to 15% from the current 1%, however projections made in the Kuwait Energy Outlook 2019-2022 show this might be difficult to achieve. Their decarbonization strategy rests on investing in enhanced energy efficiency, sensitizing about and incentivising clean energy, and subsidy reduction. Kuwait announced plans for food self-sufficiency by 2040 in 2015, however details remain unclear. Kuwait is also engaged in initiatives to combat desertification, protect wildlife and natural habitat, and uphold biological diversity in natural, artificial, and agricultural ecosystems as per the National Biodiversity Strategy 2011-2020.

• Bahrain is aiming to achieve net-zero emissions by 2060 employing a CCE strategy, developing green sectors, making cities more sustainable, carbon capture and afforestation. The National Initiative for the Development of Agriculture outlines improving food security through research and development in agriculture, and optimising crop productivity and competitive advantages to attain self-sufficiency.
• Oman has developed a National Strategy for Adaptation and Mitigation of Climate Change between 2020 and 2040, committed to reducing GHG emissions by 7% in 2030. Energy from solar and wind resources will account for 20 % of the energy mix in 2030, rising to 35-39 % in 2040, as well as at least three world-scale schemes for green hydrogen. The National Water Resource Management Master Plan and the Oman Food Security Strategy for sustainable solutions to food and water insecurity recently signed RO 1.3 billion worth of projects for smart agriculture to enhance self-sufficiency in agriculture.

Commitments towards reduced GHG emissions and shifts in national energy mixes could spell change for businesses operating in GCC in the following ways:

• Need for investment in infrastructure of fixed assets to improve energy efficiency and ensure compliance with new energy generating technologies and techniques
• Increase/decrease in operating costs as global oil markets shift and supply-demand equilibrium of oil prices changes, which could translate to increased energy bills as well as changes in transportation and logistics costs across the supply chain
• Increase/decrease in operating costs in food commodities as food and water security improves or worsens

Many companies in the region are taking these factors into account and jumping onto the proverbial carbon neutrality bandwagon, with the oil giant Aramco pledging to achieve net-zero carbon emissions by 2050, and Virgin Mobile already having achieved net-zero.

Climate change is affecting visible physical and social changes in the larger MENA region. This is manifest in public outcry and protest over poor access to basic amenities such as water, food and electricity in Iraq, Syria, Lebanon, Yemen, and Iran. GCC countries have bankrolled their economies and shielded residents from these physical and social impacts of climate change so far, but sustainability of ecosystems is increasingly causing these governments concern as they face extreme climate conditions. Although GCC residents are becoming increasingly aware, public sentiment to drive climate action isn’t as strong as in other regions of the world. Whereas findings from a 2019 YouGov poll affirmed 28 countries’ and regions’ acknowledgment of mankind’s role in climate change, it also showed that less than half of respondents from the Middle East believed they or their countries could be doing more to combat climate change. Moreover, results from the G20 People’s Climate Vote 2021 reveals that Saudi Arabia is among the lowest in public support from under-18s and adults for supporting climate policies that necessitate financing climate action, cutting emissions, and adapting to climate change across sectors. Saudi also ranked the lowest for having a perception of climate emergency for under-18s, and among the lowest for climate emergency perception among adults.  For the burgeoning middle and upper socioeconomic classes, food and consumption trends are shifting to incorporate sustainability across the value chain, and it is likely that wider behaviour patterns will reflect this trend in the future. In the absence of political and economic reforms promoting free thought, GCC residents are likely to be less vocal about the need for sustainable plans and practices and follow their governments’ lead.

As climate change becomes an undeniable reality, businesses will increasingly have to comply to national regulations around emissions and sustainable operations and remain attractive to conscientious investors. It is prudent to build climate goals into wider growth strategies and conceptualise holistic ESG frameworks from the get-go to optimise company operations, ratings and standing. This moment in time presents a good opportunity for Saudi-based companies to capitalise on CSR opportunities such as contributing to SGI’s and MGI’s afforestation targets.

Taking into consideration varying climate goals and policies globally, it would be worthwhile for regional companies to align with regulations and requirements in other regions of operation. It is also imperative to have full knowledge of details of origin of components along the value chain to appease investors while maintaining a balance between sustainability concerns and cost-competitiveness.