Leading by Example

The UAE is already proving a petro-state can transition toward net zero, says Luma Saqqaf, CEO of Ajyal Sustainability Consulting, but tough challenges remain.

The Middle East and North Africa (MENA) region, includes 21 countries and accounts for approximately 6% of the world’s population. Despite some unifying factors, it is characterised by remarkable levels of diversity. It is also home to one-third of global oil producers and 50% of global gas reserves. 

Unlike Europe, the region stands out due to significant disparities in living standards, with MENA encompassing countries with the highest GDP per capita (Qatar, United Arab Emirates (UAE), Bahrain and Saudi Arabia) at circa US$50,000+. These coexist with some of the least developed nations in the world that subsist on an annual GDP per capita as low as US$3,000 (Sudan, Mauritania and Yemen).  

This positions MENA as a microcosm of the broader world, mirroring global disparities in both wealth and development, according to Luma Saqqaf, CEO of Ajyal Sustainability Consulting, drawing on three decades at the forefront of finance, Islamic finance, sustainability and entrepreneurship in MENA and Europe to advise corporates, financial institutions, funds and asset managers.   

Notwithstanding these economic differences and the ongoing conflicts in the region, there are notable similarities between nations, particularly in the context of climate change, explains Saqqaf.  

The region faces challenges such as extreme heat impacts from a potential four-degree temperature increase and widespread water stress and scarcity, as well as food security concerns, rising sea levels, and additional climate risks associated with oil and gas exports that serve to further compound environmental issues. 

“In light of these challenges, addressing climate change and achieving net zero emissions becomes a complex task for the MENA countries,” Saqqaf tells ESG Investor, who also counsels regulators and financial markets in MENA on sustainable finance issues and regulations. 

“Despite all countries in the region submitting their climate action plans, the diverse economic backgrounds significantly influence the commitments each country can make.”  

Availability and cost of finance naturally plays a vital role, determining the feasibility of transitioning within the desired time frame. As such, COP28 host country UAE stands out with an ambitious net zero commitment by 2050, while others, like Egypt, last year’s host, have made more conditional and sector-specific pledges, contingent on substantial financial support, often reaching the magnitude of hundreds of billions of dollars. 

This financial dependency shapes the ability of these countries to fully commit to their climate goals, says Saqqaf.   

“Even wealthier oil-producing nations like Oman find themselves reliant on grants and concessional loans for a portion of their commitments,” she says, noting that the challenges faced by MENA in grappling with climate change and transitioning to net zero present a “complex and multifaceted picture”, reflective of broader global struggles in the face of environmental crises. 

In March 2023, the UAE confirmed its net zero target as a domestic policy objective by signing the ‘UAE Governments Net Zero 2050 Charter’. According to independent scientific project Climate Action Tracker, this announcement does not provide any further details on the UAE’s strategy towards reaching net zero. But it signals its “intensifying commitment” to net zero in the run up to its COP presidency at COP28 in Dubai. 

A tale of two transitions  

The shift toward renewable energy sources is reshaping the region’s energy landscape, prompting state-owned and publicly owned oil and gas companies to recalibrate their strategies.  

“The transition to clean energy is happening worldwide and it’s unstoppable. It’s not a question of ‘if’, it’s just a matter of ‘how soon’ – and the sooner the better for all of us,” said IEA Executive Director Fatih Birol recently.  

“Taking into account the ongoing strains and volatility in traditional energy markets today, claims that oil and gas represent safe or secure choices for the world’s energy and climate future look weaker than ever.” 

According to data from the International Energy Agency (IEA), global investment in clean energy surpassed that in traditional oil and gas in 2022 and has continued its upward trajectory through 2023.  

This shift reflects a broad global transition driven by technological advancements and a growing emphasis on climate-conscious policies and energy stability. 

Further, the IEA’s latest projections indicate a significant decline in future demand for oil and gas, forecasting a peak in global demand within this decade, posing a major concern for petro-states in the MENA region.  

“With demand expected to peak this decade before falling from the late 2020s onwards, producers must adapt, and prepare for falling long-term prices,” Mike Coffin, Head of Oil & Gas and Mining as Carbon Tracker, said, commenting in the release of the think tank’s latest research into ‘Navigating Peak Oil’.  

“Pursuing strategies of managed investment focused on short-cycle projects or natural depletion that we outline will reduce investor risk exposure.” 

While the “ultimate goal” for all nations in the region is to achieve net zero, says Saqqaf, serious challenges lie in how countries approach it and the speed at which each nation can make progress based on the unique characteristics of their respective economies. 

Take Egypt, says Saqqaf, a relatively poor country with GDP per capita of around US$3,500, which requires approximately US$250 billion to achieve net zero greenhouse gas (GHG) emissions across three core sectors – agriculture, energy and industrials. However, the country faces uncertainty about its ability to secure the level of investment it needs.  

Egypt is currently facing a significant economic crisis, with the Egyptian Pound losing more than 50% of its value since March last year, prompting the Moody’s to downgrade the country’s credit rating into junk territory, limiting the borrowing power amid record inflation and sky-high government debt. 

Beyond these pressures, the country, home to the river Nile, which provides the majority of water to its citizens, is constantly polluted with large quantities of sewage, harmful chemicals and fertiliser runoff. The situation poses significant water security risks to Egypt that threaten its agriculture sector – a major component in its national economy that provides 28% of all jobs.  

Against this backdrop, says Saqqaf, despite the need to transition to renewables, the associated costs pose a challenge. Despite these challenges, however, Egypt played a pivotal role in COP27 discussions in Sharm el-Sheikh, acting as the voice of Africa, and putting climate adaptation firmly on the global agenda.  

Egypt also did much to promote the concept of just finance, via a collaborative effort between organisations addressing concerns of global entities wanting to invest in Africa. Further, even with the economic crisis it is weathering, the country successfully secured two loans with the support of the European Bank for Reconstruction and Development (EBRD), setting an example for other countries in the region to follow, notes Saqqaf. 

In April, the EBRD and Green Climate Fund (GCF) supported Egypt’s energy transition by issuing a senior secured loan of up to US$100 million to Red Sea Wind Energy, a collaborative venture involving French utilities company ENGIE, Japan-based Toyota Tsusho Corporation & Eurus Energy, and Egypt-based Orascom Construction. The loan will fund the development, construction and operation of a new 500 megawatt (MW) onshore wind farm located in the Gulf of Suez area. 

“Egypt’s perspective offers valuable insights into the challenges and successes on the path towards achieving environmental goals,” says Saqqaf, noting that the UAE presents the “other side of the coin”.  

Complex challenges  

In contrast, the UAE is an oil-producing country with GDP per capita of approximately US$36,000, almost 10 times that of Egypt. Its economy has been diversifying away from fossil fuels for some time, with the government keen to continue investing in non-oil sectors, particularly industrials, while establishing bilateral trade agreements with the aim of boosting non-oil exports to global markets.  

“This diversification is a strategic move to reduce reliance on oil, not only for economic reasons but also for environmental purposes,” says Saqqaf.  

“The commitment of the UAE to achieve net zero emissions aligns with efforts to push for diversification and a focus on less emitting types of energy.” 

The shift towards renewables is evident in projects undertaken by companies like Masdar, one of the largest renewable energy companies globally, which us targeting deals in Europe and the US to double gross generating capacity to 100 gigawatts (GW) by 2030. It is no coincidence that Masdar’s CEO is COP28 President-designate Sultan al Jaber. 

The recently sanctioned National Energy Strategy by the UAE government outlines an ambitious plan to triple renewable power-generation capacity. It aims to elevate the proportion of clean energy sources, encompassing nuclear energy, to constitute 30% of the energy mix by 2030. Further, the installation of solar panels on residential and commercial property is incentivised, and advanced grid systems allow excess energy to be fed back into the grid, says Saqqaf.  

“Despite these advancements, challenges persist, including the water scarcity issue in the desert environment and the need for food security,” she says, adding that policies to address water usage reduction are in place, with monitoring mechanisms in households to track consumption and address potential leaks.  

However, achieving the UAE’s net zero ambitions requires substantial financial investment, with an estimated cost of around US$163 billion, she says, noting that the government’s ability to borrow funds, due to its financial stability, is seen as an advantage in overcoming these financial challenges.  

“Overall, while the UAE is making significant progress in environmental sustainability, it faces complex challenges that necessitate continued efforts and substantial financial investments.” 

The economic outlook of Egypt and other poorer nations in the region poses challenges for finding financing, says Saqqaf, while richer nations like the UAE and Saudi Arabia, where economies are booming, provide an opportune time for transition.  

“The dilemma lies in the global perspective, with the region not receiving the expected ‘greenium’, and investors still prioritise underlying credit.” 

In October, the United Nations Framework Convention on Climate Change (UNFCCC) published a new synthesis report to support governments in their decision-making process for the Global Stocktake. This synthesis report follows the release of a technical report on the global stocktake in September, which outlined actionable climate solutions ready for implementation.   

Based on the UNFCCC report, says Saqqaf, the world is already aware that global emissions must fall drastically over the next 10 years, falling by 43% by 2030, and 60% by 2035 compared to 2019 levels, ultimately reaching net zero by 2050. 

As such, one of the UAE’s main objectives is to try and get more commitments on the table from countries following a third update to nationally determined contributions (NDCs) in July.  

“At COP28 the UAE wants to showcase how an oil country can actually transition,” says Saqqaf, noting how the country boasts two of the largest solar farms in the world, and investing heavily in new technologies such as carbon capture and storage (CCUS).  

“The UAE is already showing that it can be done. While it requires money, the country exemplifies what can be achieved, and they are taking steps to demonstrate it at COP28.”  

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

Copyright © 2023 ESG Investor Ltd. Company No. 12893343. ESG Investor Ltd, Fox Court, 14 Grays Inn Road, London, WC1X 8HN

To Top
Share via
Copy link
Powered by Social Snap