The Kingdom of Saudi Arabia will play an increasingly important climate role
Saudi Arabia, and other GCC countries are stepping up their role in curbing carbon emission while building a more resilient global economy. This is evidenced by new decarbonization commitment announced at the COP26, including the UAE goal to achieve net-zero carbon emissions by 2050, and by Saudi Arabia and Bahrain to achieve the same by 2060.
-Saudi is becoming a powerful climate resiliency engine bringing other OPEC countries into the mix for a more proactive transformation and investment towards a cleaner energy future
-I anticipated ESG will be factored in more systematically as a metric for investment decisions in Saudi Arabia, and I expect this trend to further accelerate on the back of the environmentally and socially conscious younger generations which represents 80% of the Saudi people take hold
-More positive climate friendly investment will materialize in the Kingdom of Saudi Arabia in 2022
Climate Resilience Efforts in the Kingdom are not new, but they are not well known. Back in 2011 while I was heading the Resilience Department at the World Bank in the Middle East, and following two intense floods in Jeddah, Kingdom of Saudi Arabia (in 2009 and 2011), I visited the Kingdom for the first time. The trip objective was to partner with the Saudi authorities to assess the damage and losses caused by the storms and help devise a strategy to “Build Back Better and Smarter”. The Saudi saw in this climate induced crisis (which caused over 3 billion dollars in damages), the opportunity to proactively move towards a resilience approach to managing risk. This is where all stakeholder from private, public sectors the academia was engaged to share data and their expertise to make the Kingdom more competitive and able to “bounce back” when a shock hit the country. Ultimately, the Saudi leaders, with the support of the World Bank embarked in the first Middle East led risk profiling. The Saudi themselves took the lead and start sharing data among themselves, working towards a more compressive and systematic assessment of risk and vulnerability in the country. The overall strategic objective was to shift from an ex-post approach to manage disasters to an ex-antes approach leading to a stronger culture of prevention. Droughts, sandstorms, and flash floods were prioritized, given their negative impacts in the Coastal Cities of Jeddah, and the Holy Sites of Mecca and Medina. Just as a matter of reference, the Middle East and North Africa, loses between 10–18 US$ billion per year due to sand and dust storm. This figure is most likely very conservative given the lack of systematic data collection.
The Kingdom of Saudi Arabia Global Climate Ambition: When you are one of the largest oil producers in the world (with a daily crude Oil Production of 9474 barrel in June of 2021) people in the environmental space, point the finger at you. The Saudi leadership know this, and they are comfortable with the emerging criticism. As part of its national effort to change its economic lever and move towards a decarbonized economy, the Kingdom of Saudi Arabia, under the leadership of the Crown Prince, Mohammed Bin Salman (MBS), is leading the transformation of the Kingdom of Saudi Arabia (KSA) across the board. This would have not been imaginable in the KSA I first visited in 2011. These efforts are anchored in the KSA Vision 2030, but more specifically are part of the transformational MBS leadership brought forward as a priority to make the Kingdom more competitive, more resilient and economically diverse.
Part of the Crown Prince strategy its anchored in global initiatives such as the President Biden’s climate summit that took place in April of 2021 where the 5 leading oil producers, including the US, Canada, Norway, Saudi Arabia and Qatar, (accounting for 40% of global oil and gas production) established a forum to spearhead “net-zero” emission actions. This prioritizes, stopping methane leaks and gas flaring, deploy of carbon capture and storage technologies, and diversifying away from hydrocarbon revenues towards more renewable sources. While some of the pledgees of the forum discussed last week are not achievable in the short term, these five countries together, will have an immediate decarbonization impact by tackling emissions of methane, a more potent warming gas than carbon dioxide. Reducing oil and gas methane is by far the simplest and biggest thing we could do in the next few years to dramatically reduce global warming. Just as a matter of reference, Methane is the second most abundant anthropogenic Green House Gases (GHG after carbon dioxide (CO2), accounting for about 20 percent of global emissions. Carbon dioxide is the biggest driver of climate change, but methane is more potent in the shorter term, warming the atmosphere more than 80 times as much as the same amount of carbon dioxide does over a 20-year period. This is why, we should celebrate the positive momentum around the Methane Pledge Agreement which was further solidified at the COP26 and which was endorsed by over 100 countries in Glasgow last week. A 30% cut in methane emissions would reduce global warming by 0.2 degrees Celsius (0.36 F), giving the international community more time to work on the more ambitious goals.
What’s Next for Saudi Climate Efforts? In spite of the expected climate criticisms, the Kingdom is charting ahead with his climate finance plan and has been hyperactive in the climate change campaign over the past couple of years. Saudi Arabia, as outlined in the Vision 2030 is already diversifying away from oil, Implementing the Circular Carbon Economy framework, an integrating intellectual strategy for tackling emissions while enabling economic growth. The shift away from oil means that the Kingdom targets to supply 50 percent of its domestic energy needs from renewables by 2030. This is a tall order, but the Kingdom has the will and capabilities to make this happen. Furthermore, the Crown Prince has launched the Saudi Green Initiative, to plant 10 billion trees in the country to mitigate CO2 emissions. These projects are already in motion believe it or not. As we take stock of what Saudi Arabia is doing, we identified over 65 large scale projects that are both in the private and public sectors and that range between 15–20 US$ billion in climate resiliency in the short term.
Climate mitigation and resiliency the Kingdom of Saudi Arabia: As recommended by the IMF and the World Bank for a number of years, three years ago, in a politically sensitive move, Riyadh doubled petrol prices and increased utility tariffs, partly to raise revenue but also to improve energy efficiency and reduce its carbon footprint. It has also made numerous commitments on renewable energy projects, including hugely ambitious plans to create the world’s first carbon-zero city, The Line, intended to be powered by hydrogen, in Prince Mohammed’s flagship megaproject Neom. According to data from the IMF and the World Bank, between 2012 and 2021 the hydrocarbon sector in Saudi Arabia went from 45% of GDP to 39%. This is a remarkable step towards the diversification of its economic sector as per Vision 2030. The KSA has also pioneered Carbon Circular Economy (CCE) technologies such as carbon capture usage and storage (CCUS) and hydrogen. CCUS involves capturing carbon dioxide emissions from power stations or industrial processes and pumping it into underground storage. While this practice is expensive, it is an effective way to reduce carbon emissions. In terms of hydrogen investment, Saudi wants to become the number one hydrogen market leader. This is demonstrated by last week announcement that will get Saudi to use the US$ 110 billion Jafurah gas field to start accelerating its transition towards a greener energy future which in the hydrogen sector alone could be worth $700 billion annually by 2050.
On the renewable energy front, the first large scale wind farm, the largest in the Middle East, has become operational in the KSA in 2021, serving 700,000 homes, and reducing the carbon footprint by 988,000 tons of CO₂ per year. Furthermore, ACWA Power, a utility 50 per cent owned by the Saudi Arabia’s Public (PIF), announced the $907m investment in solar project, Sudair, that is expected to generate 1.5GW of electricity. PIF also invested in the $5.4bn TPG Rise Climate fund, chaired by Hank Paulson, a former US Treasury secretary. All confirming that KSA is taking right climate and ESG posture regardless of the massive challenges ahead. Furthermore, with its vast desert lands and hot climate, the KSA is naturally endowed with resources that can transform it in global hub for renewable energy in the word. As a matter of reference, Saudi is currently developing 13 projects that would raise the overall solar energy capacity to 5GW by 2024, positioning Saudi as one of the Solar “heavy weights” in the world.
The KSA has also been very active in the capital markets and is working with banks and financial institutions to help the Kingdom attract more ESG-focused investors. The country’s sovereign is leveraging its wealth fund US$400 billion in assets under management (AUM) to ensure that all resources are tapped for its transformation into a greener market player. For example, developing an ESG framework could help the PIF secure loans as it increases its ESG investments. The loan would service two purposes by diversifying the PIF’s investments while also granting it access to capital it may not have been eligible for otherwise. PIF is aiming to increase it AUM to 1.1 trillion US$ by 2025 and allocate a significant amount to ESG projects. I also anticipate that the KSA will issue several green bonds between Q4 of 2021, and Q1 of 2022 and will likely announce them after the COP26 Climate Conference in Glasgow is completed. This is part of an overall strategy that will result in the establishment of a national ESG framework which will attract new investments to the Kingdom. In 2019 and 2020 several large ESG focused bond and investment funds did not finalize investment into the Kingdom given its low ESG scoring. This is one of the challenges the Saudi authorities are working to resolve.
Final Considerations: The OPEC most recent oil report expects an average daily oil demand of 108 million barrels in 2022, compared to just over 100 million barrels per day in 2019 before the pandemic. This forecast is evidence that the global economy remains heavily dependent on fossil fuels, which are the source of emissions, despite growing concerns about climate change and a sharp decline in oil demand during a pandemic. I am saying this because of the extraordinary role the Kingdom and other OPEC countries allies can play to influence the future policy posture and investment of the largest oil and gas producers. The energy producers are such major players that they can completely transform the game.