Global Corporations and Economy
Why Are the GCC Countries Trying to Go Green?

As perceptible evidence of climate change mounts, there is increasing pressure on all countries to adopt greener policies. The six countries of the Gulf Cooperation Council (GCC) are making an effort to be greener, but in response to a different set of factors than those operating in advanced economies. The push toward greener policies is likely to continue for the foreseeable future.

In the advanced economies of the OECD, the primary driver behind greener policies has been public opinion, especially among the younger generation. This is partly an ideological shift, as the youth segment has a value set that emphasizes sustainability; but there is also an element of self-preservation, as the youngest members of society worry about the state of the planet that they will be left with in the middle of the 21st century.

This latter tendency has been institutionalized at the global level in the form of the sustainable development goals (SDGs). Governments – including those of the GCC countries – must now demonstrate to their peers that their policies are compatible with the protection of the environment, so that future generations are able to live dignified lives.

While the political pressure applied by the young has contributed to a greener outlook in the GCC, its role is arguably secondary, as a series of other factors have combined to reinforce the drive toward environmental protection.

Before describing these factors, it is worth noting that the GCC countries’ economic visions, several of which were launched years before the SDGs, all emphasize sustainability of economic development policies. This is because independently of any environmental concerns, the GCC economies have historically been dependent upon finite and depleting resources in the form of oil and gas, and so they were looking to establish a new development model that would not expire.

In fact, part of the drive toward renewable energies in the GCC has been a desire to decrease the rate at which they deplete their hydrocarbons, as burning domestically produced oil or natural gas has been the primary source of electricity in the GCC. Switching to solar or wind energy offers the governments the option of either securing greater revenues by exporting more of their oil and gas, or simply slowing down the extraction rate so that future generations can enjoy a larger share of the fruits. Oman in particular perceives its limited natural gas reserves as an important input into their heavy manufacturing sector, and as a source of funds for general investments, as opposed to a mere source of electricity.

Beyond this, all the GCC visions seek to attract foreign direct investment (FDI) as a central component of their economic strategies, especially the capital that the technologically advanced multinationals of the OECD can bring to the Gulf. Historically, policymakers wooing foreign investors would focus on a combination of fiscal incentives and regulatory reforms, with the Kingdom of Bahrain and the UAE (especially Dubai) exemplifying this approach.

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The European Union has officially declared its goal to have net-zero greenhouse gas emissions by 2050. In the next few years it will implement a large-scale programme under which companies that use green technology will be entitled to billions in subsidies whereas those that do not comply with toughening environmental demands will have to sustain both financial and market losses. The second part of the Valdai Club’s project “Climate and Politics” will discuss the impact of the green agenda on businesses.

However, in the sustainability era, many investment funds have adopted green investment codes, meaning that any project they wish to contribute to must demonstrate that it promotes the protection of the environment. Therefore, GCC governments looking to maintain the attractiveness of their economies to foreign investors have had to exert extra effort on exhibiting sustainability. This is part of the reason why Saudi Arabia has been keen to market the greenness of their new Red Sea megacity, Neom.

One factor that has been common to both the GCC and OECD economies in the push toward greener energy sources has been the opportunities for technological progress and job creation that renewable energies offer. In many traditional sectors, productivity growth has stagnated during the last 20 years, but the renewable energy sector continues to allow for large improvements in productivity, and this is reflected in the sharp declines in generation cost witnessed by solar energy during the last decade. In this regard, there is a hope that investing in renewable energies can boost economic growth via its impact on productive efficiency. Moreover, while artificial intelligence has begun to threaten many traditional blue-collar jobs, generating fears of structural unemployment, there is some evidence that renewable energy creates a considerable number of attractive jobs.

In the GCC, these considerations carry additional weight compared to the OECD because the GCC countries have struggled with homegrown technological progress, and with it job creation.

They perceive renewable energies as a way of killing three birds with one stone: protect the environment, boost innovation, and decrease unemployment.

This accounts for large projects such as MASDAR in the UAE and the King Abdulaziz City for Science and Technology in Saudi Arabia, both of which target creating international renewable energy clusters within the GCC.

These narrowly economic factors are complemented by a series of political factors pushing the GCC countries further toward green energies. The large natural resource wealth of the Gulf countries, as well as their geo-strategically important location, means that they face persistent threats to their security. These threats are particularly acute in the case of countries such as Bahrain and Kuwait, which have small land areas and populations. Consequently, the GCC countries have a strong predisposition toward international multilateralism and rule of law, as these contribute to their long-term security.

In this regard, the GCC countries try to cultivate a reputation as constructive members of the international community, and they are keen for international initiatives such as the SDGs to be adopted widely, as that enhances the credibility of the global order. The GCC countries have much to lose from a breakdown of multilateralism and a reversion to the sort of power politics that caused the world wars.

They perceive being green as a way of demonstrating their commitment to global multilateralism, which is especially important when engaging the European Union.

Related to this, protecting the environment is also a way for the GCC countries to curry favor with the left-leaning political parties that have gained power in the Western world, most notably the Democrat party in the USA. The GCC countries have traditionally exhibited some of the highest rates of per capita energy consumption and carbon emissions in the world, drawing the ire of Western political parties that have an affinity of the environment. As these parties begin to exert a larger influence on policymaking in the West, the GCC countries have used green programs as a way of demonstrating their continuing desirability as partners, thereby improving their likelihood of securing military and security assistance from countries such as the US, France, and Germany.

Finally, Saudi Arabia has perceived green electricity exports as a way of developing its partnership with Middle Eastern energy importers. The GCC countries already have an effective electricity grid that has allowed them to trade energy among the six members for over a decade, and that grid is slowly being integrated with that of neighboring countries such as Iraq and Jordan. By offering them a supply of reliable green electricity via its rapidly expanding solar farms, Saudi Arabia hopes to improve its relationship with these countries, helping the Kingdom to realize its regional foreign policy goals.

The first year of Democrat Joe Biden’s term as president of the US has witnessed a sharp increase in the greenness of the US’ domestic and foreign economic policies, underlined by a large infrastructure bill that encourages environmentally-friendly activities. For this reason alone, we can expect the GCC countries to accelerate their transition to more sustainable economic models; but the reality is that all of the aforementioned factors remain present.

The only exception is the worrying trend toward international unilateralism, which tends to undermine the global sustainability compact. Nevertheless, on balance, the GCC countries seem to have accepted that the future will be a lot greener than the past, and that their interests are best served by being green, and by being perceived to be green.

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Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.