We are deluding ourselves about energy transition - we must act faster

We, in the industry, keep talking about the looming threat of climate change and stress the importance of urgency in the energy transition. This is something that we see and hear every day in the news, social media and daily interactions. What was surprising to see is that many of us in the industry have a skewed view of what was actually achieved in terms of decarbonization. This was an alarming discovery to me that I believe needs to be addressed. From now on we need to ‘Walk the Talk’.

Our recent Middle East and Africa (MEA) Energy Week virtual conference brought together industry, political, and societal leaders from around the world to discuss how the region could accelerate the energy transition.

During the event we surveyed around 400 session participants, in partnership with leading international consultancy 罗兰贝格 , to get their expert perspective on 11 top energy priorities - including exit strategies for coal, renewables acceleration, carbon capture and storage, digitalized grids, energy storage, decarbonization, and carbon markets. From the responses, the 2022 MEA Energy Transition Readiness Index was developed.?

Somewhat disappointingly, the index revealed that most of the survey participants significantly overestimated how ready their countries and industries were for the energy transition or how much progress they had made so far.?If these energy industry experts are this wrong, we really need a reality check. We are still very far away from where we need to be to combat climate change.

The findings of the survey have been a mixture of surprising, encouraging, as well as disappointing. But what is clear is that we’re not making enough progress. According to our data, the MEA region ranks at 26% in the Energy Transition Readiness Index, which describes a region’s perceived readiness with regard to the energy transition toward net zero.

Today I would like to share my key takeaways and particularly what it means for the Middle East, as well as the actions that I believe need to be taken immediately to accelerate the regional energy transition:?

1. Green hydrogen is key: While countries across the MEA region are at different stages of the energy transition, the expedited export of green hydrogen and related products to Europe - now facing a grave energy crisis - presents a massive opportunity for the entire region to gain global geopolitical significance. We need to move fast in establishing and reinforcing long-term supply chains. To this end, the United Arab Emirates is aiming for 25% of the global market share and Saudi Arabia the number one spot for global hydrogen supply. Apart from its export benefits, green hydrogen also has the potential to decarbonize the region's fossil-fuel-dependent economies. Regional governments are rightly aiming to develop policies that encourage the expansion and boost the competitiveness of local green hydrogen ecosystems.
2. Regulatory and financial frameworks must be enhanced in the region: Greater funding support and pricing certainty are needed across the MEA region. Access to financing is a prerequisite for all decarbonization efforts. We need to adapt financial instruments to suit local conditions. Stable carbon pricing is also becoming vital for establishing carbon markets. Introducing a carbon price will be a key future policy pillar for the Middle East. With COP27 taking place in Egypt and COP28 in the United Arab Emirates, policy development is expected to speed up, with key regional governments looking to claim the first carbon market within the Gulf Cooperation Council (GCC). Saudi Arabia and the United Arab Emirates are already racing to establish carbon markets. A stable regulatory environment is necessary for enabling more funding and long-term investment in sustainable energy in the region.
3. MEA may be low on emissions but is setting a high decarbonization bar: While the region is disproportionately affected by climate change, only 7% of global CO2 emissions stem from the Middle East (and only 4% from Africa). While the survey participants agreed that decarbonization was vital, 23% incorrectly believed that emissions had dropped in the region since 2005 - not the case at all. Participants realized decarbonization efforts need to be stepped up, especially in construction, industry, and transportation. Key economies have set themselves ambitious targets for clean, renewable capacity. Saudi Arabia is set to scale up both gas and renewable energy by 50% by 2030 and the UAE wants to improve energy efficiency by 40%, reduce emissions from the power sector by 70%, and increase renewables’ share in the energy mix to 44% by 2050.

By working to meaningfully decarbonize industry we could transform the economies and the geopolitical standing of the Middle East in the next decade - especially as we face a global energy crisis, rising global inflation, and a possible global recession.?

There are some regional bright spots, but the message from the survey respondents is clear – there is not enough investment being directed towards decarbonization. Expansion of renewables is viewed as key to success so we must leverage the region’s abundant access to low cost solar and wind energy, strategic location, market access, and well-developed infrastructure.

This year’s COP27 in Egypt and next year’s COP28 in the UAE have the potential to provide defining moments for the region in the energy transition. We are already witnessing regional countries and companies step forward with aggressive decarbonization targets and renewable investment.

The Middle East and Africa requires major capital investments into more giga-scale projects, which rely on the establishment of clear policy, regulatory and carbon pricing frameworks. This cannot be achieved without vastly increased collaboration along the entire value chain, from green hydrogen developers and financial institutions to suppliers and governments.

Let’s stop deluding ourselves about our progress and really start focusing on creating the right environment to accelerate the energy transition in the Middle East.??