Sustainable growth in the Middle East


2016 saw the international community finally reach agreement for collective action on climate change with the rapid ratification and entry into force of the Paris Agreement. Micael Johnstone and Maher Ghanma assess the impacts and opportunities that the transition to a low carbon future presents to businesses and policy-makers in the Middle East.

International action and legal force

The Annual United Nations Climate Change Conference (COP 22) took place in Morocco at the end of 2016 against a backdrop of optimism and international agreement to move forward towards a low carbon economy – a significant shift from previous conferences where differences of opinion and uncertainty often appeared to be insurmountable.

Following the momentous conference in Paris, progress towards ratification of the Paris Agreement has been far swifter than those gathered in France in December 2015 had envisaged. The timeframe agreed in Paris mapped a pathway to ratification and entry-into-force in 2020. Given that international treaties have historically taken a long time to ratify (the Kyoto Protocol was agreed in 1997 and came into effect in 2005) and the UN climate talks have been largely unsuccessful for the past decade, the rapid ratification of the Paris Agreement is almost unprecedented.

The Paris Agreement legally took effect on November 4, following a concerted push by national governments to ratify through 2016, with the world's two largest emitters – the US and China – playing a leadership role. Political uncertainty in the US was one of the drivers for rapid ratification, to ensure that any potential backsliding wouldn't derail the international agreement and President-elect Donald Trump's victory creates substantial uncertainty as to what role the US will (or won't) play in the UN process in the next four years. Other major players, including the EU and India also ratified in December 2016 and it now seems that, notwithstanding the not insignificant question mark hanging over the US, there is international consensus that acting on climate change is now imperative.

The UAE ratified in September last year, with Jordan and Saudi Arabia following suit in November. Saudi Arabia's swift ratification was seen as particularly significant given that the country had historically held reservations about the UN Framework Convention on Climate Change (UNFCCC) process.

The success in Paris was based on obtaining a high level agreement to a framework of national commitments to action, and discussion in Marrakech was focused on implementation, namely how countries honour their commitments and enhance them to ensure the agreed threshold of 1.5-2 degrees of warming is met. Countries have now agreed to finalise the global transparency framework for signatories by 2018.

Two other recent landmark international agreements also reinforce the view that climate change regulation is increasingly coming to the fore. The Kigali Amendment – a successor to the Montreal Protocol – saw the international community finalise a deal to phase out HFCs (potent greenhouse gases largely used in refrigerants) and the aviation sector also agreed to an international commitment to zero carbon growth beyond 2020.

The Kigali Amendment contains flexibility to cater for the differing capacities of the 170 national signatories, with three separate pathways. Developed countries must reduce HFC use by 10 percent by 2019 from 2011-2013 levels, and 85 percent by 2036. A second group of developing countries, including China and African nations, is committed to launching the transition in 2024. A reduction of 10 percent compared with 2020-2022 levels should be achieved by 2029, and 80 percent by 2045. A third group of developing countries, including Arab Gulf states, India and Pakistan, must begin the process in 2028 and reduce emissions by 10 percent by 2032 from 2024-2026 levels, and then by 85 percent by 2047.

Resilient infrastructure and investment

Over the coming years we will need huge changes to business processes, infrastructure, energy generation and transportation and these changes can drive positive and sustainable growth for innovators who unlock new market opportunities. The low-carbon economy is already worth $5.5 trillion a year and $90 trillion will be invested in infrastructure in the world's cities, agriculture and energy systems by 2030, creating an unprecedented opportunity to drive investment and sustainable growth in low-carbon growth and generate innovative, agile and resilient organisations. Businesses will increasingly be required to disclose climate change impacts and risk exposure and sustainability, and climate change credentials are coming under greater scrutiny from governments, consumers, employees and investors.

Environmental degradation and climate change impacts are an increasing global risk, and the Middle East is no different. These challenges include air pollution land degradation, inadequate waste management, water scarcity and coastal and marine environment degradation. A study by the Global Footprint Network for the Arab Forum for Environment and Development (AFED) found that the Arab region has been in a state of ecosystems deficit since 1979 and that gap has been progressively widening. The drop in Arab biocapacity (life-supporting resources such as water) has been accompanied by a doubling in its ecological footprint, and a decrease in freshwater availability to one-fourth during the same period. The AFED has estimated that the cost of environmental degradation in the Arab region is approximately 5 per cent of GDP and leading economic analyses of the impacts of climate change demonstrate that the costs of inaction far outweigh the costs associated with a transition towards a lower carbon economy.

There is already strong evidence of commitment by nations in the Middle East to including sustainable development goals in central strategy and planning. The UAE Vision 2021 aims to build an "innovative, inclusive and resilient economy that raises standards of living and ensures environmental sustainability". The Government of Jordan is developing a National Green Growth Plan that is in line with national objectives of economic, social and environmental performance. The ministry of environment and other government agencies, businesses, financial institutions (including the Association of Banks in Jordan) and civil society representatives have convened to produce a shortlist of key strategies in conjunction with development agencies such as the UN Environment Programme and Agence Française de Développement, and solar and wind energy capacity is being developed across the country.

Energy Futures

A low carbon energy system is an important element of a sustainable economy and the global growth in renewable energy generation, and increasing cost parity with established fuels, is far exceeding most expert forecasts and the International Energy Agency has significantly revised its forecasts to reflect accelerated renewables deployment. The corporate sector in particular is increasingly shifting to renewable electricity. Smarter grid networks, demand side activity and rapid advances in battery technology offer encouragement that energy generation can be largely decarbonised.

Former National Oil Minister Ali al-Naimi has said that there is no other country more ideal for renewables than Saudi Arabia given its sunshine, open-spaces and plentiful sand (a key raw material needed for making solar panels). Alternative energy studies by the kingdom are looking at ways to shift from oil and gas to renewables and the country plans to be a major exporter of renewable electricity in the coming decades. Deputy crown prince Mohammed bin Salman is leading economic reforms that could see the country survive without oil as early as 2020. Energy minister Khalid al-Falih has just announced that the kingdom will invite bids for renewable energy projects (including wind and solar) in April as part of a programme of investment estimated to cost between $30 billion and $50 billion.

In the UAE, 70 per cent of GDP comes from non-oil sectors, according to his Excellency Prime Minister Sheikh Mohammed Bin Rashid Al Maktoum, and the country is also investing in low-carbon energy generation for the domestic market. A $20 billion nuclear power plant is currently under construction and is projected to meet 25 per cent of UAE electricity needs by 2020. The world's biggest solar farm is under construction in Dubai and rooftop solar will be installed on every home in the emirate by 2030.

Oil-rich countries have the opportunity to invest funds in research and development, the knowledge-economy and resilient, low carbon infrastructure as well as ensuring that resources are extracted and utilised in the most efficient way possible. The King Abdullah University of Science and Technology in Saudi Arabia and the Masdar City and Institute in Abu Dhabi are further examples of a shift towards a sustainable economy and systems of the future, and the Paris Agreement should ensure that low-carbon investment increasingly becomes the norm.

Key considerations for businesses in the Middle East

The ratification of the Paris Agreement means that national governments are now legally committed to decarbonising their economies and infrastructure and must report on progress every two years. Governments in the Middle East are already making progress by developing green growth strategies, which will require significant changes to business as usual. These growth strategies will impact a wide range of activities, from energy generation and consumption to infrastructure and product development standards and resource consumption.

It is proactive businesses that have a unique opportunity to mitigate against future compliance risks and contribute to shaping positive, effective policy and regulation to support sustainable, efficient business growth.

A version of this article was originally published by "Energy Industry Times" and is reproduced with permission.