What should Saudi Arabia do?

1

Enhance NDC to be 1.5 degree aligned by COP26:

  • Communicate the BAU range of the NDC targets
  • Clarify the contribution of exported oil to local KSA’s GHG emissions
  • Transform KSA’s energy mix through more ambitious targets for renewables despite lower incentive to do so because of low oil prices and strengthen implementation
  • Optimize the water cycle including desalination
  • Optimize cooling and district cooling through a green building code and building retrofits as well as using recycled water for district cooling instead of desalinated water
  • Complete plan to cut all fossil fuel subsidies
  • Saudi Arabia wants to market its vast LNG reserves as the “bridging fuel” for decarbonizing China, despite growing opposition to gas due to high methane leakage
  • Strive to formulate and communicate long-term low greenhouse gas emission development strategies as a matter of priority before COP26
2

Build a just and resilient recovery plan:

  • The main recovery ask for Gulf Countries is very straightforward and should be to lift fossil fuel subsidies
  • Saudi Arabia did not jump on the green recovery bandwagon with its 2020 stimulus packages. Most renewable energy projects continued as planned, but total installed capacity still amounts to a fraction of the total energy mix, leaving most emissions unaddressed

What you need to know about Saudi Arabia?

  • KSA’s NDC aims to annually abate up to 130 MtCO2e by 2030 through contributions that have co-benefits in diversifying the economy and mitigate greenhouse gas (GHG) emissions
  • However, KSA has not yet communicated the BAU range for its NDC, as it is unclear whether to allocate the production of oil to domestic consumption or export. It is difficult to assess whether current policies meet the NDC without this
  • The target outlined in the NDC is contingent on the high export scenario, and KSA reserves the right to adjust its NDC between 2016 and 2020 if the proceeds from oil exports were to decrease
  • The NDC specifically mentions that in a scenario with high oil exports, GHG emissions would be lower, and the economy would grow faster, compared to a scenario where oil is consumed locally
  • The “Saudi Vision 2030” was unveiled in 2016. It called for raising the share of non-oil exports from 16% to 50% of export value by 2030, as well as expanding the role of renewable energy in the Saudi energy system and localizing the renewable energy and industrial equipment sectors
  • In July 2020, the industry coalition Oil and Gas Climate Initiative, of which Saudi ARAMCO is a member, committed to collectively reduce the carbon intensity of upstream operations by 2025, and half of the group’s dozen members have announced net-zero emission targets
  • Net zero can be attractive to Gulf oil exporters precisely because it implicitly accommodates hydrocarbons in future global energy trajectories – as long as related carbon is stored away or converted into “durable carbon”. With this in mind, in 2021, Saudi Arabia made the concept of a circular carbon economy one of the main themes of its G-20 presidency

Recent developments, threats and levers for action

Recent developments

  • It is unlikely that KSA’s stance against climate action will change because of its reliance on oil revenues
  • KSA is OPEC’s swing producer, cutting oil production to balance markets when needed. It also keeps oil production capacity in reserve to call upon in times of shortage
  • Increased oil and gas production in the US and growing concern about climate change (with peak oil demand forecasted sometime in the 2030s) are perceived by KSA as the main challenges to their hydrocarbon revenues
  • However, given that production costs in KSA are among the world’s lowest, oil markets are likely to become more dependent on them in a world of declining oil demand
  • KSA also faces the challenge of providing meaningful employment for a significant youth bulge – 40% of its population is under 25
  • The existential urge for a genuine economic diversification in KSA can be the right lever to push for a low carbon transition. The main driver of this transition is the opportunity cost of selling oil onto the global market instead of burning it locally for domestic purposes. The disadvantage of this approach is that the improvement of Saudi’s NDCs will be done at the expense of global climate action
  • Saudi Arabia did not jump on the green recovery bandwagon with its 2020 stimulus packages. Most renewable energy projects continued as planned, but total installed capacity still amounts to a fraction of the total energy mix, leaving most emissions unaddressed
  • In July 2020, the industry coalition Oil and Gas Climate Initiative, of which Saudi ARAMCO is a member, committed to collectively reduce the carbon intensity of upstream operations by 2025, and half of the group’s dozen members have announced net-zero emission targets. (ASK: ARAMCO to support the commitment of the coalition.)
  • Net zero, can be attractive to Gulf oil exporters precisely because it implicitly accommodates hydrocarbons in future global energy trajectories – as long as related carbon is stored away or converted into “durable carbon”. With this in mind, in 2020, Saudi Arabia made the concept of a circular carbon economy one of the main themes of its G20 presidency

Strengths

  • Strong potential for renewables
  • Willingness to lift subsidies as part of an austerity plan

Opportunities

  • KSA’s existential urge for economic diversification away from oil revenues should be leveraged to improve the countries NDCs
  • Post COVID-19 low oil prices increase pressures towards economic diversification

Weaknesses

  • Historical reliance on oil revenues
  • Lack of freedom of expression and democratic institution; absence of grassroot climate movements

Threats

  • Failure of economic diversification strategies (KSA following the non-oil model of Dubai which cannot yet be considered a diversification success)
  • Current low oil prices disincentive the tightening of renewables targets
  • Regional conflicts and geopolitical instability

About Climate Diplomacy Snapshots

The data is clear. Accelerated and enhanced action is needed now to build resilience and avoid the worst impacts of climate change. As they seek to address the ongoing health, economic and social impacts of COVID-19, governments should seize opportunities to invest in a recovery that will build social, economic and climate resilience on the long-term. The Climate Diplomacy Snapshots aim to provide the climate community with a clear overview of what each country should do, on climate and recovery, to pursue these joint objectives and keep the global average temperature increase to 1.5°C. Each has been prepared with the help of national experts, and will be regularly updated. The snapshots aim to support climate advocacy in the lead up to COP26.

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