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Ending Oil Supremacy: The Case of Green Energy Transition

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The term “green energy” is being used more and more often, but few understand the potential this carries. How is the shift to renewable sources of energy affecting the role of the Gulf states as leaders of the energy sector? And what should policymakers keep in mind when addressing such a delicate issue?

The Green Energy Transition

Green energy has often been perceived as the God-sent answer to the question “where do we go from here?”. Politicians, analysts, and activists have tried for decades to find alternatives to fossil fuels that will allow them to maintain their preferred levels of production while not limiting their potential. The competitiveness of the energy market also implies that a version of “survival of the fittest” will be implemented, in the sense that only those fast and able enough to incorporate such green technologies in their production will be able to maintain their hard-earned spots. A smooth global transition to an energy system that impacts the environment less severely is the desired plan for the future. Will markets and governments be able to make it happen?

When it comes to defining green energy, many perceive it as just the increase in the use or acquisition of more photovoltaic systems and wind turbines. However, narrowing our field to such a restrictive setting prevents us from grasping the full potential of green energy. According to the United Nations Environment Program (UNEP), green energy refers to any type of energy that is “low carbon, resource efficient, and socially inclusive” that is used in an economy that “results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities”. Green energy doesn’t simply refer to the formulation of strategies on technical grounds; they highlight the need for the alignment of the decision-making sector and the technology-oriented sectors in their effort to design innovative and sustainable strategies.

More broadly, the green economy agenda is an international one. It isn’t restricted to the national level, though the adoption of green policies and solutions that are directed to the domestic sphere may be the initial, and most important, step. It affects actors on a global scale, as it reflects their desire to uniformly respond to the climate crisis. It requires the alignment of policy with their respective means of implementation, such as adequate national and international financing and modern technologies.

The change in international perceptions of the topic of green energy was recently heightened in the aftermath of the 2014 oil crisis, after the implications of the 1970s oil crisis had settled quite well in international energy markets. What started as a large boom that began in the early 2000s eventually reached a dramatic drop in crude oil prices in June 2014. The expansion of unconventional supplies of petroleum and the uncoordinated shift in the policies adopted by members of the Organization of Petroleum Exporting Countries (OPEC) after a period of high prices were just some of the destabilizing factors that led many to believe that the end of oil’s supremacy was here. The crisis emphasized a trend and a shift away from the typical – and previously regarded as secure – oil sector. It highlighted the need for less dependence on such a volatile resource, which has the potential to strengthen, but also wreak havoc on, national economies.

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Difficulties: The Role of the Gulf States

Despite the need for movement away from fossil fuels and for the adoption of greener technologies, the process hasn’t been as easy as imagined. The rate of decarbonization of economies depends on an array of factors that dictate the rate of success of this initiative. The institutional background, the available assets that can be devoted to this, the genuine desire to change the status quo, and other national characteristics are just some of the factors that could destabilize the green energy transition.

More often than not, the spotlight falls on the Middle East’s potential to turbocharge the transition away from fossil fuels. In recent years, some of the most central oil states have pivoted away from policies that solely focused on oil. Saudi Arabia and the United Arab Emirates have made notable changes to their domestic decision-making mechanisms as well as to their foreign policy strategies. Since the 1970s, the Gulf Cooperation Council (GCC) has been on a path of pronounced “ecological overshoot”, given that they have been living beyond their ecological means.

There is a strong mismatch between the GCC states’ demand for capital and their ecological capacity on domestic and global contexts, and this is indicated by the ecological footprint, a consumption-based resource accounting tool that is used in ecological economics. The GCC states have some of the world’s largest ecological footprints, which outweigh their national biocapacities and the Earth’s carrying capacity – which refers to the number of people that Earth’s currently available resources can sustain. When population growth, incomes and lifestyle patterns started accelerating beyond projections, the Gulf and wider Middle East and North Africa (MENA) states entered a state of “emergency”, switching their attention to renewable sources of energy to cover their energy demand. Until the early 2000s, environmental sustainability and sustainable energy had ranked low on their priority list. Yet, a generalization of the need for more sustainability encouraged even the states that couldn’t imagine a greener economy to pivot away from strict reliance on petroleum.

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The Case of Saudi Arabia

Saudi Arabia might be the most notable example of a Gulf state that is changing out of sheer necessity. Known as one of the world’s – if not the – leading actors in the petroleum industry, the Saudis have earned the title of “oil kings” for decades now. With the estimated total worth of $34.4 trillion, the Kingdom’s most valued resource is deeply embedded in their mindset and is on top of every policy proposal. And though they have undertaken several initiatives that can pave the way to decarbonize the Saudi economy, the road to net-zero is filled with more obstacles than expected.

Aiming to decrease oil reliance is one thing but implementing the policies and the tools to do so is another. Mohammed Bin Salman, the Saudi crown prince, announced plans to reduce carbon emissions by more than 270 million tons per year, which will eventually allow Saudi Arabia to become a net-zero country by 2060. However, oil giant Aramco seems to have other plans. While not clearly against the pivot towards decarbonization, their willingness to maintain high levels of oil exports and to continue prioritizing the oil sector stems from their desire to prevent destabilization. A future that eliminates oil as a variable from the equation can wreak havoc, not only to the national economy, but also the stability of the Gulf and wider MENA region. In its effort to avoid such outcomes, the Saudi government has focused its attention on a number of company-led efforts, yet their lack of significant coordination has prevented Riyadh from achieving its full potential in the transition from fossils to a more diversified energy market.

The Potential for a Green Energy Transition in the Gulf

Undeniably, the Gulf states have some of the most competitive hydrocarbon reserves in the world. However, the economic advantage they have due to these resources isn’t the only thing giving them an edge in the green energy transition. The natural and renewable sources of energy they have and their capacity for capital investments in low-carbon technologies, like nuclear energy, is what distinguishes them from other regions of the world. Firstly, their enormous and underutilized solar energy potential has allowed the Gulf states to initiate some of the largest solar projects in the world, many of which were achieved at record low purchase prices. The further advancement of solar energy potential and technology will help Gulf states position themselves in the global supply chain for solar power, which hasn’t been enabled so far due to their reliance on oil. Moreover, the large amounts of available capital that is currently being invested in the form of FDIs abroad could be re-channeled and re-directed to boost domestic investments in renewables and green technologies. As the world shifts away from fossil fuels, the Gulf is taking cautious but decisive steps along the same path. Trying to secure their positions as leaders of the energy market, the Gulf states have rapidly shifted their attention towards greener technologies by implementing difference – and sometimes internationally criticized policies. Decision makers and experts need to recognize the potential of the Gulf states, harness it, and help them turn from oil kings to green energy experts. In this initiative, the strengthening of the private sector and its alignment with the governments, the promotion of greater transparency in key government agencies and the adoption of consistent policy response mechanisms are the essential first steps towards the greener transformation of the Gulf.

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