How is the Middle East gearing up to combat climate change? How is the Middle East gearing up to combat climate change?
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How is the Middle East gearing up to combat climate change?

How is the Middle East gearing up to combat climate change?

Dharmendra Hiranandani, senior manager, Bain & Company tells us what steps are being taken by the private sector for enhancing the region’s solar energy and sustainable fuel initiatives

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Dharmendra Hiranandani, senior manager, Bain & Company

How do you think COP27 has helped countries, particularly in the Middle East, align with UN Sustainable Development Goals and Net-Zero 2050 targets? 

The Middle East and North Africa (MENA) region is one of the most vulnerable places to the impacts of climate change. The region is warming at twice the global average and is projected to be up to 4°C warmer by 2050. This would also have a compound effect on food and water security of the region. To mitigate this, some of the largest economies in the region have announced net-zero ambitions (UAE and Oman by 2050, Saudi Arabia and Bahrain by 2060), and have mobilised significant resources towards the effort. 

The 2022 United Nations Climate Change Conference or Conference of the Parties of the UNFCCC, more commonly referred to as COP27 and associated events have been instrumental in driving climate awareness and action from governments in the MENA region. For example, during COP27, the UAE unveiled its pathway to net zero, which sets the timeframe, targets and mechanisms for achieving it by 2050. It envisages the scale up of various technology-based solutions (TbS) such as renewables, industrial carbon capture, utilisation, and storage (CCUS) systems, direct air capture (DAC) alongside nature-based solutions to travel the net zero journey. Similarly, Egypt announced an agreement for clean hydrogen production with Europe and launched the ENACT initiative with Germany to protect land and ecosystem degradation, and biodiversity loss through nature-based solutions (NbS). 

During the Saudi Green Initiative in Sharm Al Sheikh, Saudi Arabia announced 840MW of solar PV projects would be completed by 2023, with an additional 13 renewables projects with 11 GW capacity under development. It also announced the creation of one of the largest carbon capture and storage (CCS) hubs in the world in Jubail, expected to be operationalised by 2027. 

With climate change looming large, scientists have been warning that the Middle East is warming at twice the global average. Do you see countries in the region accelerating their net-zero initiatives to mitigate this? 

Countries in the MENA region have taken the concrete steps towards announcing climate commitments by launching and recently updating their nationally determined commitments (NDCs). Some of the largest economies such as Saudi Arabia and UAE have announced 26 per cent and 31 per cent reduction in their emissions by 2030 from the “business-as-usual” level. As next year’s COP28 is going to implement the first global stocktaking process (GSP), it is a great opportunity for countries across Middle East to showcase their efforts and achievements.  

One of the challenges is to translate this government ambition to action on ground by businesses. We, at Bain, in partnership with World Economic Forum, recently analysed that only 12 per cent of MENA’s 200 largest publicly listed and private companies have identified a net-zero target, and only six per cent of them have established a roadmap to reach there (which is a 50 per cent funnel drop). Another challenge is the capability gap in the region with human resources trained on sustainability topics, with understanding of globally accepted frameworks, methodologies and best practices. And finally, there is a challenge with low consumer awareness and willingness to pay a premium for some of the cleaner and greener options, what we call consumer-backed decarbonisation.  

How can countries work together today in new, innovative ways to secure a cleaner, fairer future for everyone? 

There are several avenues where global or regional collaboration can lead to fruitful outcomes. Some of these areas are: 

Harmonisation of disclosure requirements, frameworks, and methodologies: Regulators across the region could sync up their emissions regulations including frameworks and methodologies and align them with global best practices to simplify reporting for businesses.

Collaboration on breakthrough technologies: Some of the breakthrough pathways such as green hydrogen, or direct air capture are at different levels of technology readiness and need significant resources for their scale up. Therefore, a joint collaborative effort to scale these technologies will reduce the fragmented efforts and improve technology feasibility. For instance, there could be a regional collaboration on transport infrastructure of clean hydrogen.  

Mobilisation of sustainable finance: While there have been significant efforts in this direction, more collaboration is possible to mobilise innovative sustainable finance products (green sukuks). One possible example of this collaboration would be to scale up the common carbon market for MENA region where buyers and sellers can trade carbon credits. The carbon markets could be a tool to mobilise project finance for carbon removal or avoidance projects that generate carbon credits in the region. 

Capability building: Governments across the region can introduce a common education curriculum and vocational training to bridge the capability gap in the sustainability ecosystem. This would also generate green jobs for the local population.

 Who are the key players taking the lead in decarbonisation? 

There are several instances of companies from hard-to-abate sectors taking lead in scaling up various decarbonisation pathways. For example, from power and utilities, ACWA power has 37 per cent of its generation capacity from renewables. It is also involved in building one of the largest green hydrogen plants globally at NEOM. Similarly, Abu Dhabi National Energy Company (TAQA)  and Egyptian Electricity Holding Company have targeted 30 per cent and 42 per cent renewables by 2030 and 2035 respectively. 

When it comes to aviation, another hard-to abate sector, Etihad has been actively involved in scaling up sustainable aviation fuel (SAF) and recently flew its first flight with a 40 per cent blend of SAF from Tokyo. Saudi Aramco has plans to establish 11 Mtpa capacity of blue ammonia production facilities by 2030 and operationalise 11 Mt CO2 CCUS capacity by 2035. Similarly, Ma’aden and SABIC have also announced blue ammonia plans. Apart from hard to abate sectors, companies from other sectors such as telecom are also taking strides in the decarbonisation journey. For instance, e& (formerly Etisalat) has recently announced a net-zero ambition by 2030. 

How do you see the Middle East harnessing cleaner energy sources? 

The Middle East has tremendous renewables resources. The region is blessed with high levels of solar irradiance or the power per unit area received from the sun. Coupled with clear sunny days, this results in high-capacity factors and lower cost. The cost of electricity has dropped to almost 1 cent per kWh in Saudi Arabia, compared to global average of 5 cents per kWh as per IRENA. Same is true for other MENA countries too, given similar geographic conditions. Further, low solar energy costs enable the advancement of another breakthrough pathway – green hydrogen. 

Similarly, the region is also blessed with natural geological formations for developing CO2 sequestration facilities. Having CCS potential is critical for development of blue hydrogen, which is an essential transitional fuel as the greener version scales up.

How do you see the private sector supporting climate action? 

The private sector needs to shoulder its responsibility and be the vehicle for delivering climate action. As per our analysis of the largest 200 companies, green shoots are definitely visible. For example, 41 per cent of the companies have started disclosing their scope 1 and scope 2 emissions. However, there is opportunity to increase transparent and consistent disclosures. For instance, globally over 13,000 corporates disclosed their emissions to the Carbon Disclosure Project (CDP) in 2021, up from close to 6,000 companies just five years back. However, in the MENA region, only 7 per cent of the companies (of over 200 analysed) have CDP disclosures. Similarly, only four businesses have aligned their targets with SBTi, a global standard for reduction targets, compared to over 3,400 businesses globally. 

The UAE is preparing to host COP28 in 2023. How do you see the country meeting its 2050 net-zero targets?

As the host for next year’s COP, UAE has led the target-setting effort on two specific dimensions. First, it has announced a roadmap to achieve net zero by 2050, which clearly determines the reduction targets by each decade as well as the mechanism to fulfill them. Second, it has upgraded its NDC and pledged to cut 31 per cent emissions by 2030, compared to business-as-usual emissions, up from 23.5 per cent announced in 2020. Beyond target setting, the business ecosystem in the UAE is also demonstrating greater awareness and action. Of the subset of the 35 largest UAE companies from our database, approximately 80 per cent have started measuring scope 1 and scope 2 emissions and around 30 per cent have set net-zero targets, which are starkly higher than regional averages. 

As  Dubai prepares to host COP28 in 2023, the region’s businesses will be expected to demonstrate a greater commitment than usual. Likewise, action is expected to increase from all the stakeholders, including governments and regulators. All ecosystem players, including policymakers, businesses and financiers, would need to move in lock-step to achieve the net-zero transition for the region. 

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