The UAE, like other petroleum-producing economies, has been severely hit by the twin shock of low oil prices and pandemic containment measures, which have also hurt the state’s tourism and hospitality sector. Although 2021 is looking better than 2020 in terms of oil revenues, government spending may remain cautious, impacting future projects and planning. Diversification and sustainability projects have so far been mostly dependent on government funding, and thus attracting foreign direct investment and engaging the private sector is a necessity. The UAE’s 15-year head start as one of the Gulf’s earliest adopters and promoters of sustainability make it an appealing option.
The concept of “economic growth at all costs” emerges in discussions of recovery, where countries may adopt such an approach for quick economic gains at the cost of the environment and air quality. This would especially be of concern among petroleum-producing economies which may continue to place the oil industry at the heart of policy-making.
However, a green sustainable recovery seems the most plausible way moving forward as global risks are highlighted and increasingly factored into operations, strategies and costs, and as there’s a business case for building sustainably. This issue has been discussed at this week’s Abu Dhabi Sustainability Week.
The UAE appears to have cottoned on to this and is listening to the ‘mood for change’ ushered in by the pandemic to accelerate its efforts towards sustainable development. The Covid-19 pandemic has increased the need to account for and mitigate global risks. At the forefront of these risks is climate change. An investment opportunity arises from this, portrayed in the increasing injection of capital into low-carbon technologies and projects leading the way to a more sustainable future.
Sustainability is cross-sectorial and spans over every social, environmental and economic indicator, and investments in innovative technologies across various sectors lead to socio-economic benefits. Among the critical factors in UAE’s sustainability are energy, water and food, each of which presents its own challenges.
The energy sector: a test in political commitment
The UAE’s energy sector contributes the highest share of greenhouse gas emissions with approximately 87 percent of total emissions. These emissions are mostly attributed to natural gas, the dominant source of power generation. As a significant share of natural gas is imported, increases in power demand increase the vulnerability of the sector. These increases in demand are mostly linked to economic activity and growing cooling demand; the latter is further aggravated by climate change. The commercial sector is the highest consumer of electricity, unlike the majority of Gulf States where the residential sector is the highest consumer; yet the pandemic’s triggering of remote working is increasing the residential sector’s load. As this trend is expected to carry-on post-pandemic and since the UAE’s vision includes the knowledge economy, accounting for energy-efficiency in the residential sector and in buildings, and promoting decentralised renewable energy generation, become key.
Despite the aspirations for a more diversified economy and less reliance on oil revenues, it is accepted that oil and gas will need to remain part of the energy mix for some years to come. Abu Dhabi National Oil Company plans to increase oil production to 5m b/d by 2030, expecting global consumption to reach 105m b/d by then. Although this scenario will increase emissions, the NOC has committed to making the UAE’s oil and gas production as low carbon as possible, including investing in carbon capture and storage facilities.
Post pandemic, the oil industry may suffer from under-investment in the medium term, driving oil prices to recover and while consumers may seek more outdoor and travel activities driving increased demand, the benefits for the oil industry may be short-lived. The long-term prospects of the oil industry would be largely influenced by finance institutions and consumers’ behaviour. The first are increasingly divesting away from oil, and the latter seek alternatives when oil prices increase.
Water and virtual water: further pressure on energy and food security
Water: 96 percent of domestic water in the Gulf state is secured through energy-intensive desalination, which has largely been fossil fuel-dependent. The UAE has started investing in reverse osmosis technology which offers energy efficiency advantages over the typical thermal desalination, to be increasingly powered through solar energy. In fact, in 2017, the UAE issued the Water Security Strategy 2036, aiming to reduce total demand for water resources by 21 percent and adopt sustainability practices. Practices in desalination will have large implications for the energy sector and greenhouse gas emissions.
Mitigating the impact of water scarcity on food security creates another challenge. This is especially critical in light of threats of supply chain disruptions, witnessed throughout the pandemic, and as the UAE imports approximately 90 percent of its food. Increasing domestic agriculture compromises energy and water resources. Advanced technologies in agriculture such as vertical farming, and increased reliance on renewable energy enhances agriculture efficiency, yet the virtual water content of each crop should be accounted for in considering what to grow locally. Optimizing this requires a comprehensive water-food-energy strategy, significant reduction of food waste, and strengthening supply chains and food security forums in the region.
Financing institutes are increasingly committed to reducing fossil fuels investments and financing sustainable projects. This presents an opportunity for the United Arab Emirates to attract foreign direct investment and further engage the private sector. Major drivers for achieving this are regulations, reforms and focus on innovation. The energy-water-food nexus is a key focus and a vast opportunity to build better. But it is also a stress-test for the Gulf state’s political commitment to sustainability, but if pledges made during Abu Dhabi Sustainability Week are anything to go by, then the UAE will be well on the way to passing the test.