July 9, 2018

Implications of Climate Policies for Gulf States’ Economic Diversification Strategies

A man walks through a valley in Oman's al-Hajjar mountains. (AP Photo/Sam McNeil)
Deep in the al-Hajjar Mountains of Oman, geologists from the Oman Drilling Project search for an efficient and cheap way to remove carbon dioxide from the air and oceans, March 6, 2017. They are coring samples from one of the world's only exposed sections of the Earth’s mantle to uncover how a spontaneous natural process millions of years ago transformed carbon dioxide into limestone and marble. (AP Photo/Sam McNeil)

The Intergovernmental Panel on Climate Change’s Fifth Assessment Report indicates that each of the last three decades has been successively warmer at the Earth’s surface than any preceding decade since 1850. According to the report, fossil fuels (coal, oil, and gas), which account for over 85 percent of global energy consumption, have contributed significantly to the historic increase in anthropogenic greenhouse gas emissions and, thus, the observed increase in the global average temperature. Therefore, future access to fossil fuel-based energy must be constrained to limit climate changes to (relatively) safe levels and keep the increase in global mean surface temperatures well below 2 degrees Celsius. These are the objectives of the Paris climate accord, which entered into force in 2016. To this date, of 197 Parties to the U.N. Framework Convention on Climate Change, 178 have ratified the Paris Agreement. The Gulf Arab states are all signatories to the Paris Agreement, and all except Oman have ratified the agreement and submitted Nationally Determined Contribution reports ahead of the Conference of Parties in Paris in December 2015.

Climate change poses serious threats to the Gulf Arab states because of their patterns of energy consumption and reliance on oil and gas export revenue, combined with their fragile natural environment.

The commodity found in abundance in the Gulf Arab states – oil – is in high demand domestically, thereby stressing the countries’ energy supplies. Easy access to energy supplies via fossil fuel subsidies or low taxation has encouraged resource-intensive activities in areas like industrialization, urbanization, and transportation, which have led to signs of unsustainable energy use in the Gulf states. During the 2000s, for example, regional energy consumption grew at an average 5 percent per annum, faster than any other region in the world. Further, per capita energy use in the Gulf Arab states is among the highest in the world, and in 2014 six of the top 15 energy-consuming countries in the world were in the Gulf Arab states.

The increasing domestic consumption of fossil fuel resources in the Gulf states has been associated with dramatic increases in their per capita carbon emissions. The World Resources Institute reported that the Gulf states’ per capita emissions of carbon dioxide were the highest in the world in 2014. This is partly due to the states’ small populations and high levels of energy consumption. In 2014, Qatar topped the ranking emitting 40 metric tons per capita, followed by Kuwait ranked fourth, Bahrain fifth, the United Arab Emirates eighth, Saudi Arabia 10th, and Oman 13th.

In the long term, should climate change mitigation policies, or climate action, post-2020 advance further, the region’s economic reliance on oil and gas export revenue may be jeopardized by declining demand for fossil fuel exports, due to global initiatives to cut carbon emissions. For instance, a recent study by Oil Change International suggests that holding 68 percent of fossil fuel reserves underground is likely to limit global warming to below 2 degrees Celsius and holding 85 percent of them underground is likely to limit global warming to below 1.5 degrees Celsius. In this context, the Middle East would need to leave about 40 percent of its oil and 60 percent of its gas underground. Given that the Gulf states host around 30 percent of the world’s proven oil reserves and 15 percent of the world’s proven gas reserves, leaving the main source of income underground would be – economically and politically – a very difficult decarbonization option. While other decarbonization solutions exist, such as carbon capture and storage, their technical, economic, and regulatory barriers are yet to be addressed in the Gulf states.

Also, efforts to reduce carbon emissions and improve energy efficiency are underway not only in many developed countries but also in emerging economies such as those of China, Brazil, South Africa, and India. This has major implications for the Gulf Arab states, whose

top trade partners in 2015, according to the European Commission, were the European Union with 14.7 percent of the trade balance; China with 13 percent; Japan with 11.5 percent; and India with 10.4 percent, all of which are major importers of the Gulf states’ oil and gas exports.

In addition, international constraints on the use of fossil fuel energy (e.g., fossil fuel taxes and carbon pricing) could increase production costs and hence prices of exported goods and services. This would also have a major effect, since the Gulf countries remain highly dependent on imported goods, especially food. Since the 1960s, imports of goods and services as a percentage of gross domestic product have continued to increase in the Gulf countries, except Bahrain. In 2015, imported goods and services accounted for more than 83 percent of GDP in the UAE, 45 percent in Kuwait, 52 percent in Oman, 37 percent in Saudi Arabia, 36 percent in Qatar, and 35 percent in Bahrain.

Efforts by the Gulf Arab states to overcome their dependence on imports face the challenge of a fragile desert environment. Non-oil economic sectors, such as agriculture, fisheries, infrastructure, and tourism, are vulnerable to climate change impacts – namely, an increase in average temperatures, a sea-level rise, a decrease in annual precipitation, and recurrent droughts leading to water scarcity.

Addressing the impacts of climate change in line with economic diversification strategies will not only help minimize their negative effects but also maximize broad potential economic and social benefits such as energy security, food security, employment, and public health.

In their Nationally Determined Contribution reports, the Gulf states (except Oman) have indicated their intention to engage in climate actions that align with their economic diversification plans. Meanwhile, all economic diversification plans incorporate different aspects of climate-related matters. For example, Saudi Arabia’s Vision 2030 plan aims to increase the role of private sector and government funds to achieve environmental sustainability in waste management, recycling projects, natural reserves, and water resource management. Oman’s Tanfeedh program includes three environment-related goals – environmental protection, crisis risk management, and science, technology, and innovation – which could be the main gateways for climate policy incorporation. And the UAE has stated its intention to achieve consistency between its Nationally Determined Contribution report and national development plan (Vision 2021), especially with the establishment of the Green Growth Strategy, National Innovation Strategy, and Dubai Integrated Energy Strategy 2030. The challenge that remains is how to translate these ambitions into action on the ground.

Aisha Al-Sarihi is a visiting scholar at the Arab Gulf States Institute in Washington.