Gulf Cooperation Council countries, such as Saudi Arabia, the United Arab Emirates and Qatar, are increasingly positioning themselves as leaders in the global energy transition.
Leading this shift, however, is Saudi Arabia. The Kingdom’s Vision 2030 aims to invest heavily in renewable energy sources like solar, wind and green hydrogen, thereby majorly reducing its dependence on oil.
One element of the Saudi government’s commitment to Vision 2030 is the Neom project, a futuristic city housing a green hydrogen plant to produce clean energy. The plant is a key component of Saudi Arabia’s long-term vision of becoming a leader in green hydrogen production as well as its push towards carbon neutrality.
Similarly, the UAE’s Net Zero by 2050 initiative sets a clear goal of reducing carbon emissions while ensuring continued economic growth. The UAE’s renewable energy efforts, such as with Masdar (also known as the Abu Dhabi Future Energy Company), showcases its progress in solar energy, as well as its increasing investments in nuclear energy.
Qatar, too, is focusing on clean energy while modernising its energy sector and balancing its oil legacy with sustainability goals. For instance, the Barzan Gas Project aims to meet domestic energy demand and reduce carbon emissions. Qatar is also increasing its investment in solar power, such as the Al Khobar solar project, to diversify its energy mix. Additionally, the country is exploring carbon capture and storage technologies to enhance sustainability while maintaining its role as a major natural gas exporter.
Rise of green finance in the GCC
Still, a key driver of the GCC’s energy transition is the region’s growing role in green finance. Gulf nations are tapping into green bonds, Islamic sukuk bonds and sustainability-linked financing to fund climate projects, which is drawing substantial international attention.
The UAE has pulled ahead, issuing one of the first green bonds in the region. These bonds align with the nation’s Net Zero by 2050 ambitions by financing solar, wind and energy-efficient projects.
Meanwhile, Saudi Arabia and Qatar are exploring new and innovative financing models, such as green sukuks, to raise capital for their renewable energy portfolios. However, while these green bonds and sukuk instruments are increasingly attractive, the GCC’s market for green bonds remains small compared to that of G7 nations, and the global financing gap is still vast. By tapping into global capital markets, GCC countries are helping to build a more resilient and diverse green finance ecosystem that can meet the region’s growing climate ambitions.
Sovereign funds shaping green growth
GCC’s sovereign funds are also playing a crucial role in the global green transition. Saudi Arabia’s Public Investment Fund and UAE’s Mubadala Investment Company are investing heavily in green technologies, both locally and globally. These funds are not only a source of capital for green projects in the region but also global investors in clean energy. For instance, the PIF has allocated substantial capital to renewable energy, including investments in wind and solar energy companies, and it aims to invest $40bn annually in green technologies by 2030.
Mubadala, similarly, is backing clean energy initiatives, focusing on sectors such as electric vehicles, solar power and energy storage solutions. These sovereign funds are central to reshaping global energy supply chains by directing vast financial resources into clean energy solutions. Their strategic investments in renewable energy projects abroad are also helping to accelerate the global transition towards low-carbon economies. This dual focus on local and international markets allows GCC sovereign funds to have a broad and lasting impact on the green energy landscape.
US climate pledge failures
While GCC countries are advancing their climate ambitions, the US has fallen behind on fulfilling its climate pledges. US withdrawal from the Paris Agreement under the Donald Trump administration undermined global climate efforts, and despite former US President Joe Biden’s rejoining in 2021, political polarisation continues to hinder meaningful progress. In contrast, GCC countries have shown more consistency in their energy transition.
As the US struggles, the GCC is well-positioned to fill the emerging climate financing gap – especially as financial uncertainty in the US raises concerns about funding for developing nations. With substantial reserves, the GCC is already stepping in through green bonds, sukuk and sovereign fund investments which are financing sustainable infrastructure globally. However, while GCC nations are well-placed to bridge the gap, the scale of global financing required remains immense, and further expansion of these green finance initiatives will be essential for realising long-term goals.
Leveraging their geographical advantages, the GCC is also positioning itself as a leader in the green energy market. Vast deserts provide ideal conditions for solar energy, while wind corridors in countries like Saudi Arabia and Oman offer significant wind energy potential. However, environmental factors such as high humidity and sand particles can reduce the efficiency of solar panels, and only a few solar plants in the region are among the world’s largest. Additionally, while electricity generation from renewable sources has increased, it remains a small fraction of total energy production. As of 2023, only 2-3% of electricity generated in the GCC comes from renewable sources, indicating that energy and economic reliance on fossil fuels remains significant.
With growing demand for clean energy in Europe and Asia, the GCC is well-placed to meet this need, particularly through its focus on green hydrogen, solar power and wind energy. However, it will take time to ramp up renewable energy production to the scale necessary to significantly alter the region’s fossil fuel reliance. The days when the Gulf was defined by oil wealth are not over yet, but the region is taking decisive steps to transition towards a greener future.
Yara Aziz is Economist, Economic and Monetary Policy Institute at OMFIF.
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