Sustainable growth in the Middle East

• 7 years ago (2017-02-10)
• Junior Isles

Renewables 751 Solar 242 Wind 239

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By DLA Piper's Maher Ghanma and Micael Johnstone

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. DLA Piper's Maher Ghanma and Micael Johnstone assess the impacts and opportunities that the transition to a low carbon future presents to businesses and policy-makers in the Middle East.

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.

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.  Other major players including the EU and India also ratified  in December 2016 and it now seems that 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 do countries honour their commitments and enhance them to ensure the agreed threshold of 1.5-2 degrees of warming is met.

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 risk globally 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. The Arab Forum for Environment and Development (AFED) has estimated that the cost of environmental degradation in the Arab region is approximately 5% 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.

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.

Deputy crown prince Mohammed bin Salman is leading economic reforms that could see Saudi Arabia  survive without oil as early as 2020 and become a major exporter of renewable energy. 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% 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% 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.

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 region 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.