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To meet climate goals, Gulf countries face Herculean tasks

DUBAI, United Arab Emirates (BLOOMVERG) – Across the United Arab Emirates, water is so cheap that some people run the shower just to listen to it. In Dubai, it’s normal to leave your air conditioning running at all times, even if you go away for weeks. Qatar has the largest air-conditioned outdoor jogging tracks in the world.

The monarchies that make up the Gulf Cooperation Council – Saudi Arabia, Kuwait, the UAE, Qatar, Bahrain and Oman – built their cities on hot, arid lands, including the world’s largest continuous sand desert. In summer months, temperatures top 50C, contributing to some of the highest levels of per-capita energy use in the world: Qatar ranks first, Bahrain fourth, the UAE fifth and Saudi Arabia 14th. That footprint will grow as the population of GCC countries, including foreign workers, swells from 59 million today to an estimated 84 million by 2100.

The extra people are key to economic growth in a region that has long relied on state-owned oil for income. But to accommodate them while meeting stated climate goals, Gulf countries would have to make major adjustments. Governments and companies will need to dramatically increase renewable energy capacity, while winding down reliance on fossil fuels. Environments will have to be adapted for more people and more intense heat, without increasing emissions or leaving the poor behind. The average resident will have to acclimate to higher energy prices and, for the first time, lower consumption.

None of this needs to happen overnight: The UAE and Oman have committed to net-zero emissions by 2050, and Bahrain, Kuwait and Saudi Arabia by 2060. (Qatar has no net-zero goal.) But when Dubai kicks off the COP28 climate conference later this month, the yawning gap between Gulf countries’ stated goals and present reality is sure to come up.

“Dubai is a microcosm of the predicament we’re in globally, whereby the economy runs on extracting, burning and dumping,” says Glada Lahn, a senior research fellow at the UK think tank Chatham House. “It’s tremendously successful along one key measure – standards of living – yet extremely unsustainable. The social contract depends on continuous consumption.”

When Dubai hosts COP28, Gulf countries may have to answer for the gap between their energy consumption and climate goals. PHOTO: BLOOMBERG

When Eman Alseyabi, 23, wants to let off steam during hot summers in Abu Dhabi, she heads to the mall. Outdoor temperatures in the UAE capital routinely reach 43C, but the website for Snow Abu Dhabi, which opened in Reem Mall in June, promises “a temperature of -2 degrees C and a snow depth of 500 mm”. Its 20 attractions, spread across 9,700 square metres, include a sledding hill and a toboggan ride.

Put two Snow Abu Dhabis together and you’ll get Ski Dubai, a 22,500-square-metre indoor ski resort in the Mall of the Emirates, featuring a faux mountain roughly 25 stories high. Oman also has a giant ski resort, and Saudi Arabia is racing to build its own.

Fossil fuels make the GCC’s penchant for malls with ski slopes possible. Gulf countries have some of the cheapest oil production in the world, and – thanks to government subsidies – some of the cheapest gasoline domestically. Electricity, also subsidised by the government, costs consumers in GCC countries roughly 6 cents per kilowatt hour, compared to around 30 cents in Europe and 20 cents in the US. One IMF paper estimates that Saudi Arabia’s energy subsidies were worth about USD7,000 per person last year, equivalent to 27 per cent of the country’s economic output.

Gulf economies are likewise heavily dependent on oil and gas, which is responsible for 30 per cent of GDP in the UAE and 40 per cent in Saudi Arabia (and which heavily finances other sectors in both countries). By 2027, four regional energy companies – Saudi Aramco, Abu Dhabi National Oil Company (Adnoc), Kuwait Petroleum Corp. and Qatar Energy – are set to boost hydrocarbon production capacity by another 21 per cent over 2021 output. That should allow them to book a collective USD981 billion in profit, according to Bloomberg NEF, compared with USD689 billion for the eight largest oil majors across the US and European Union.

To continue to add people without sacrificing economic security, or the planet, Gulf countries will thus have to accomplish two Herculean tasks: remaking their domestic energy supply to rely more on renewables, and remaking their economies to rely less on earnings from oil.

Gulf countries have some of the cheapest oil production in the world and some of the cheapest gasoline domestically. PHOTO: BLOOMBERG

All six GCC states have some sort of renewable energy target. The UAE, which plans to produce 30 per cent of its power from renewables and nuclear by 2030, switched on the Arab world’s first commercial nuclear plant in 2020 and is investing USD54 billion in research and infrastructure over the next seven years. Saudi Arabia’s goal is to generate 50 per cent of its electricity from renewables by 2030, while Oman plans to be at 30 per cent. Bahrain and Qatar’s goal is 20 per cent; Kuwait’s is 15 per cent. If all of these goals are met, more than 80 GW of solar capacity alone would be added to the region by the end of 2030, just over the total electricity generation capacity of the UK.

Gulf nations also need renewables to help bring down the cost of desalination, an energy- and carbon-intensive process for removing salt from seawater. In the UAE, water consumption is 500 litres per capita per day, one of the highest rates in the world. (The European average is around 150 litres.) More than 40 per cent of that water comes from desalination. Across the Gulf region, desalination capacity is expected to almost double by 2030.

But stacked up against the renewables rush in the developed world, GCC countries are significantly behind. Renewable energy accounts for less than 1 per cent of power generation in Bahrain, Saudi Arabia, Qatar and Oman; it has reached 7 per cent in the UAE. Norway, by contrast, which exported USD177 billion in oil and gas in 2022, derives over 70 per cent of its domestic energy from low-carbon sources.

Gulf country leaders are starting to talk about a future in which they won’t depend on oil revenue. Ahead of COP28, the UAE in particular has begun to shift its rhetoric. Sultan Al Jaber, president of COP28 and head of Adnoc, is asking delegates from the nearly 200 countries attending to set targets for tripling renewables by 2030.

But Gulf countries also very much intend to increase oil and gas capacity, and are banking on carbon capture technology to help them increase output. Saudi Arabia is spending billions to raise its daily oil production capacity to 13 million barrels by 2027, compared with 12 million now, and to boost its gas output by more than 50 per cent this decade. Last year, Adnoc announced a USD150 billion investment over five years in oil and gas projects.

Gulf monarchies are embarking on ambitious projects to become international hubs for aviation, tourism and entertainment. PHOTO: BLOOMBERG

Ironically, increasing oil exports while adding renewable capacity at home will help with GCC countries’ net-zero goals. Like Norway, the Gulf benefits from a quirk in international carbon accounting: Oil and gas it extracts doesn’t count against its own carbon-reduction metrics, but against the country where the oil is burned.

Continuing to sell oil and gas for decades, no matter where it’s ultimately used, will likely be catastrophic for the climate. To reach net zero globally by 2050, and maintain even a chance at limiting warming to 1.5C, International Energy Agency projections call for no new oil and gas beyond projects already approved in 2021.

“The biggest impact that (the UAE) has is through their oil and gas sector,” says Tom Evans, a policy adviser at the UK-based think tank E3G. “Even though they’re aiming domestically for much more renewable energy, the oil and gas expansion plans from Adnoc are still the problem.”

Gulf states are effectively betting on being the last fossil fuel exporters left in the game, a strategy that comes with its own risks. “The export of oil and gas is the absolute foundation of the economies here still, despite some diversification,” says Robin Mills, founder of Qamar Energy, a Dubai-based consultancy. “If oil and gas demand falls or prices fall, then they have a big problem.”

As part of the plan to diversify their economies, Gulf monarchies are embarking on ambitious projects to become international hubs for aviation, tourism and entertainment.

Ski Dubai, a 22,500-square-meter indoor ski resort in the Mall of the Emirates. PHOTO: BLOOMBERG