Source: Unsplash
Written by Holly Teeters
The recent COP26 in Glasgow has turned international attention towards climate change mitigation and the promise of cooperation. While many were hopeful that Glasgow would enforce stricter policies to have a fighting chance at remaining under 1.5 degrees celsius higher than pre-industrial levels, various political interests have once again thwarted a strong international push toward emission regulation (Schraer, 2021). This raises the question, will anything incentivize the swift energy reform necessary to reduce future climate instability?
China, India, and Saudi Arabia, among others, voiced less than enthusiastic opinions on transitioning towards renewable energy. This is not unusual—Saudi Arabia similarly protested limits on fossil fuels in Paris (2016). In Glasgow, these concerns prompted edits in the language of the agreement until the final text became vague and easy to subvert in action. This is great news in the short term for oil-reliant countries, of course.
The COP26 outcome is hardly surprising as many countries at the conference have economies that rely on non-renewable energy and other environmentally exhaustive markets. A transition towards renewable energy would threaten the entire fabric of their economies and potentially their larger political stability. One of the countries with the most to lose is OPEC leader Saudi Arabia. The oil and natural gas industry in Saudi Arabia accounts for around 50% of its GDP and oil alone makes up 85% of the kingdom’s international exports (OPEC, 2021). How could one expect Saudi Arabia to willingly curb its largest and most profitable industry? The answer may lie in pressure from shifting energy markets.
As the world begins to shift toward renewable energy, Saudi Arabia and others will be forced to switch energy industries in order to stay relevant in the international market. For Saudi Arabia, losing the international market would be a significant cost to the kingdom’s GDP and provides an incentive to (begrudgingly) plan its energy shift towards solar. As COP26 demonstrates, this shift will not occur at the speed necessary to meet the 1.5 degree celsius benchmark. However, countries with oil economies are beginning to address the reality that a shift away from fossil fuels will be inevitable.
In 2016, Crown Prince Mohhamad bin Salman announced Saudi Arabia’s “Vision 2030” net zero plan to transition towards renewables (“A Sustainable Saudi Vision”, n.d.). The plan has since made no measurable headway and was recently “rescheduled” to the year 2060. This implies Saudi Arabia feels no urgency to shift their economy and will market renewable plans to the public without any follow through.
Current roadblocks to a swift energy transition include conflicting interests and international trade relationships. For example, the U.S. recently pressured OPEC countries to release more oil onto the market to lower international prices (Turak, 2021). International pressure to produce more oil from nations like the United States is hardly an incentive to switch gears to renewable energy. Similarly, China accounts for nearly a quarter of Saudi Arabia’s crude oil exports and is the kingdom’s largest trading partner. As there is no pressure from China to move away from oil, countries like Saudi Arabia can sit comfortably in their oil trade relationships for the foreseeable future (“Saudi Arabian Exports by Country”, n.d.).
On the other hand, Saudi Arabia’s relationship with China could be a catalyst for solar energy infrastructure projects in the region. China is the world’s leader in solar energy, accounting for 35% of the world market (Bajpai, 2021). Considering Saudi Arabia’s current energy relationship with China, it’s plausible that China would invest in a Saudi solar program to help build the infrastructure needed to transition away from fossil fuels.
Saudi Arabia’s climate is perfect for solar installations and could become a large contributor of energy for domestic consumption. By consuming renewable energy domestically, Saudi Arabia could redirect their oil solely to the international market and theoretically make a larger profit while still reducing their own fossil fuel consumption. This would of course come with its own challenges, but could be environmentally and economically worthwhile. In fact, scholars have modeled the impact of shifting domestic consumption to renewable energy and found immense economic benefits to a 30% transition towards renewable energy (Balzquez, 2017). Unfortunately, such a drastic transition is highly unlikely given the kingdom’s current political climate; Saudi Vision 2030 only plans to implement around a 5% transition towards renewables for domestic consumption.
So what does the future energy market look like? There is potential for a collaboration between the European Union and the Gulf States with the European Green Deal. This would involve Gulf State hydrocarbons to help power Europe, but Gulf States have been hesitant to solidify any deals. With oil market leaders like Saudi Arabia pushing back on international cooperation, there is little hope for a speedy transition towards renewable energy. Perhaps our best hope is to stir up enough international pressure to make a convincing threat: oil economies will be left in the dust if they resist a new green energy age.
Schraer, R. and Devlin, K., 2021. COP26: The truth behind the new climate change denial. [online] BBC News. Available at: <https://www.bbc.com/news/science-environment-59251912>
Turak, N., 2021. OPEC+ agrees to stick to oil production plan, defying U.S. pressure. [online] CNBC. Available at: <https://www.cnbc.com/2021/11/04/opec-agrees-to-stick-to-oil-production-plan-defying-us-pressure.html>
Opec.org. 2021. OPEC : Saudi Arabia. [online] Available at: <https://www.opec.org/opec_web/en/about_us/169.htm>
Vision 2030. n.d. A Sustainable Saudi Vision. [online] Available at: <https://www.vision2030.gov.sa/v2030/a-sustainable-saudi-vision/>
Bajpai, P., 2021. The Top Five Nations Leading in Solar Energy Generation. [online] Nasdaq. Available at: <https://www.nasdaq.com/articles/the-top-five-nations-leading-in-solar-energy-generation-2021-08-17>
“Saudi Arabia Exports by Country.” Trading Economics. https://tradingeconomics.com/saudi-arabia/exports-by-country
Blazquez, J., Hunt, L. C., & Manzano, B. (2017). Oil Subsidies and Renewable Energy in Saudi Arabia: A General Equilibrium Approach. The Energy Journal, 38, 29–45. http://www.jstor.org/stable/26294148