Kazakhstan’s Path to Carbon Neutrality Could Run Through the Gulf

The Gulf states hold a unique position among Kazakhstan's international partners, as demonstrated by Kazakhstan's involvement in the 2023 Central Asia-Gulf Cooperation Council (GCC) Summit. Addressing the summit in Jeddah, Kazakh President Kassym-Jomart Tokayev highlighted the potential for synergy between Central Asia’s resources and the Gulf states’ economic innovation. He emphasised the vast opportunities in this relationship and their collective capacity to elevate their multifaceted partnership.

At the summit, discussions centred around expanding energy collaboration, with a focus on advancements in green energy and the modernisation of power generation infrastructure. President Tokayev reaffirmed Kazakhstan's willingness to engage in close partnerships with Persian Gulf energy companies.

Decarbonisation policy is an emerging development priority for Kazakhstan, reflecting global trends in sustainability and climate action. The transition to a low-carbon economy presents a significant challenge, requiring comprehensive measures for the technological modernisation of the national economy, especially in the extractive industries.

At the Climate Ambition Summit in December 2020, Kazakhstan announced its goal of achieving carbon neutrality by 2060. This commitment was formalised in February 2023 with the adoption of the Strategy for Achieving Carbon Neutrality by 2060.The strategy seeks to balance carbon dioxide emissions with removals from the atmosphere, with an interim target to decrease greenhouse gas emissions by 15 percent by 2030 compared to 1990 levels. This reduction could be increased to 25 percent, provided international assistance is secured for the decarbonisation efforts. 

Transitioning to a decarbonised future requires a fundamental shift away from Kazakhstan’s coal-dependent energy system. The strategy estimates a total investment of $610 billion, with over half of this funding reallocated from conventional industries to more sustainable sectors. The remaining portion will be sourced from newly established investment channels.

Prominent financial organisations, including the European Bank for Reconstruction and Development (EBRD), remain committed to backing decarbonisation projects. Simultaneously, Kazakhstan is actively enacting reforms to encourage private sector investment in renewable energy sources.

Recognising the financial and technological commitments needed for decarbonisation, Kazakhstan is diligently fostering international partnerships. This approach is yielding support from key partners such as the EU, China, the World Bank, and the EBRD, thereby attracting further investment and the adoption of cutting-edge technologies. But additional sources of climate financing are needed—the Gulf is stepping up its commitments.

In December 2023, the sixth session of the Kazakh-Saudi intergovernmental commission convened in Riyadh to explore new opportunities for collaboration. During the meeting, ACWA Power, a Saudi company, announced plans to invest approximately $10 billion in Kazakhstan's green energy sector. This investment would support the growth of wind and hydrogen energy, thereby aiding Kazakhstan's broader decarbonisation efforts.

In March 2024, Kazakhstan and Saudi Arabia formalised this partnership for the ACWA Power project through an intergovernmental agreement, outlining their commitment to build wind power plants with a combined capacity of 1 GW, equipped with an integrated energy storage system. The project's initial investment is expected to exceed $1.8 billion. Additionally, both nations have partnered to establish a shared innovation hub in Riyadh, designed to promote Kazakhstan's IT solutions and burgeoning startups in the Middle Eastern market.

Kazakhstan is also working on its collaborations with the UAE on solar and wind initiatives. A significant milestone in this partnership was the signing of an investment deal with Masdar in 2022, aimed at building a 1 GW wind farm in the Zhambyl region. This project incorporates advanced energy storage solutions, enhancing the reliability and stability of Kazakhstan's power grid while increasing the share of renewables in the nation's energy mix and reducing carbon emissions.

Kazakhstan's regional prominence stems from its position as Central Asia’s largest economy and a leading hydrocarbon exporter, attracting roughly 60 percent of FDI inflows into Central Asia. Recognising its responsibility to curb greenhouse gas emissions, the country has pioneered the region’s first carbon trading system, creating economic incentives for businesses to decrease their emissions.

With an estimated renewable energy capacity of 1 trillion kilowatt-hours, Kazakhstan also shares its expertise with neighbouring countries, contributing to broader regional environmental improvements.

Kazakhstan is also strengthening green cooperation with Central Asian neighbors through initiatives like the International Fund for Saving the Aral Sea, which addresses environmental degradation, and the Central Asian Regional Environmental Center, which supports cross-border water and biodiversity projects. In 2024, The Presidents of Kazakhstan, Azerbaijan and Uzbekistan signed a strategic agreement on the intersystem integration of the energy systems of the three countries. Collaborative efforts are also emerging through the Central Asian Regional Environmental Center (CAREC), facilitating cross-border projects focused on water resource management and safeguarding biodiversity.

Concurrently, Gulf countries are also deepening green partnerships in the region. Masdar of the United Arab Emirates is leading major projects in Uzbekistan, including the 100-megawatt Nur Navoi solar power plant. Masdar has also signed an agreement with the Kyrgyz Republic’s Ministry of Energy to develop a pipeline of renewable projects in the Central Asian nation, with a capacity of up to 1 gigawatt, starting with a 200-megawatt solar photovoltaic plant. Tajikistan is partnering with the Abu Dhabi Development Fund and is being considered as a potential investor in the Rogun project. These collaborations drive regional energy transformation and deepen links between Central Asia and the Gulf through sustainable development and shared climate objectives.

In correspondence with the shift towards climate action worldwide, Kazakhstan is not only aligning with global sustainability trends but is also crafting its own unique model for a green economy, setting a precedent for the entire region. Through a combination of national strategies and active regional partnerships, Kazakhstan is positioning itself as a hub for clean energy innovation and sustainable development in Central Asia.

Photo: Eni

Uzbekistan's Energy Transition Depends on Systematic Reforms

In the realm of global and energy security, 2024 was a year of unprecedented uncertainty. With issues ranging from ongoing conflicts in Ukraine and Gaza, tensions around Taiwan, and escalating populism and nationalism in the US and Europe, there were heightened concerns over energy security and the control of supply chains. US President Donald Trump’s first month in office has further fuelled the sense of an impending crisis, particularly with regards to his rhetoric around the conflicts in Ukraine and Gaza, the adoption of tariffs, and the abandonment of green policy.

Any discussion of energy transition trends must therefore be visualised in the form of a triangle, ensuring that the competing and often contradictory goals of energy security, minimising climate impact, and ensuring energy affordability are in tension. Each country, sector, and policy crystallise a set of trade-offs between different points on this triangle.

To achieve net zero by 2050, unprecedented changes in industrial structures and infrastructure are needed. The transmission and storage systems required to support a greater and faster reliance on renewable power generation may not yet exist. While energy efficiency is acceptable politically, it is a complex challenge that requires action in disparate area—not least in consumer behaviour.

Whilst the government of Uzbekistan has adopted ambitious plans to double GDP by 2030, it has underlined its aim to achieve this sustainably, scaling up its commitments to mitigate climate change and reduce the emissions intensity of GDP. In its Nationally Determined Contribution to 2030, Uzbekistan aims to generate at least 40 percent of its electricity from renewable sources and cut greenhouse gas emissions by 30 percent per unit GDP from 2010 levels. The challenge of reforming the energy sector and achieving such goals is inflated, however, by the predominance of outdated infrastructure, the continuation of unsustainable subsidies, and significant fluctuations in energy demand.

It should be noted that the decision as to when to promote what energy source is not binary; the process involves numerous trade-offs and, on occasion, political messaging, in order to achieve energy security. On a practical level, however, these resources cannot be deployed in an expedient and uniform manner that substitutes fossil fuels. In an inflationary cycle combined with facing the prospect of a global recession, the price of energy remains as important as energy security and climate change mitigation. An affordable energy transition is taking precedence and governments are opting towards the natural inclination of regulating prices and softening the price impacts for customers.

Yet with fluctuations in energy demand significant, the ability of a power system to cope with peak demand is crucial. The introduction of pricing that corresponds with demand is an unavoidable element in attracting investment in energy capacity. Power shortages have also triggered sectoral reforms and tariff increases. Electricity tariffs for businesses were increased in October 2023, and tariffs for households increased in May 2024, allowing the government to partially cut subsidies, as well as their plans to establish a unified platform for electricity trading by the end of 2024 and a liberalized wholesale power market by 2026.

That being said, Uzbekistan is making progress toward diversifying its power generation with the use of renewable sources. For example, in terms  of the economy, over 80 percent of total energy use is still generated by gas; as far as power generation goes, its genesis remains equally dominant.

Although significant attention has been given to Saudi Arabia’s ACWA Power securing agreements to invest $15 billion in expanding power generation capacity, and the United Arab Emirates’ Masdar sponsoring both conventional and renewable power plants, Uzbekistan’s reliance on Russian gas continues to grow. Following a dramatic decline in domestic gas production, Uzbekistan started importing Russian natural gas in October 2023, annual gas imports of 2.8 billion cubic metres (bcm) agreed for a period of two years, with a potential increase up to 10bcm per year by 2030. 

The economy’s heavy reliance on natural gas is a risk to the country’s decarbonisation, with gas consumption having to decline by 40 percent in order to achieve net zero in 2060. By minimising reliance on gas imports and pursuing the decarbonization of its economy, Uzbekistan can strengthen its energy security. Uzbekistan’s decarbonization efforts depend on strengthening cross-border energy flows, particularly through enhanced power transmission and a more flexible regional electricity trade. By optimising the use of regional energy resources, Uzbekistan can not only prevent power shortages but also contribute to greater regional stability and security.

It has been estimated that over $200 billion of investment is needed in the Uzbek energy system to achieve net zero by 2060. Given the scale of resources required and limitations within government finances, the private sector must be the primary investor for the green transition. In turn, accelerating the development of the country’s private sector is critical to absorb the costs and take advantage of the opportunities of the transition. The focus on decarbonisation and adaptation to climate change functions as a catalyst for the continuation of economic reforms and further support for investment.

The government has repeatedly expressed its intentions to create a better environment for private investment, using public-private partnerships (PPPs) in the energy and infrastructure sectors. Private capital can be secured to fund projects through the active participation of other stakeholders, including the use of blended finance. The strategic use of public money and development finance reduces the risk for private capital by allocating certain risks to governments or development financial institutions (DFIs). DFIs can play other roles beyond direct funding to incentivise the flow of private capital. They do this by developing new products and mechanisms that extend beyond political risk insurance to cover technology. Moreover, they ramp up risk for new technology, trade and foreign exchange risks, such as insurance products or co-lending mechanisms with the private sector through which a DFI provides subordinated debt.

What is necessary in the context of energy transition, however, goes beyond a project-by-project approach. Instead, a systematic approach and large-scale commitments by governments are required to encourage the development of a stable pipeline of investible and bankable projects, rather than a series of one-off projects in an uncertain regulatory environment. Global experience demonstrates that the key to attracting private capital for energy transition projects is assuring potential investors that political leadership remains committed to net-zero targets and will not change course. It also requires creating strong market demand through policies and regulations that encourage growth and establishing a competitive, stable tax regime that incentivises investment.

In Uzbekistan, structural reforms are needed to encourage foreign direct investment as a capital flow. The government must implement a comprehensive package of reforms, including strengthening market competition, eliminating preferential treatment, increasing energy prices, and removing subsidies. Stronger financial regulations should be adopted, and trade should be facilitated through measures such as accession to the World Trade Organisation. Additionally, climate concerns must be at the core of public investment decisions.

On this foundation, local demand and market signals can be created through incentive programs. These may include standards and tradable certificates, tax credits, and feed-in tariffs or contracts for different structures. As is already the case in Uzbekistan, PPPs can also play a role, with governments supporting market development by acting as quasi-private offtakers or by creating markets for ancillary services.

Crucially, only by reforming state-owned enterprises (SOEs) and subsequently providing attractive investment opportunities can an accelerated privatization process and a decarbonised economy be achieved. Whilst the government has recognised the need to improve energy efficiency and reduce carbon emissions for effective policy adoption, several challenges remain. There is a need for greater transparency and information on the activities and impact of SOEs, which are the largest carbon emitters. Additionally, an inventory of fossil fuel subsidies must be created to establish energy pricing, reduce subsidies, and introduce price incentives.

This remains a significant challenge due to ongoing concerns about the corporate governance and financial reporting of SOEs. Yet, only by addressing these issues can the government begin to implement a policy aligned with the country’s Nationally Determined Contribution and develop a realistic roadmap for the green transition. It will also enable better project prioritisation for climate change mitigation.

The Uzbek government must gain credibility through the implementation of consistent medium-term fiscal policies and by providing the predictability that is a prerequisite for medium-term economic growth. Indeed, the quality of government expenditure is increasingly important, with policy trade-offs required in response to the reduction of the fiscal space available. This also extends to the need to manage the inevitable tensions arising from price increases.

Not only does the unbundling of utilities require consumer prices to rise to offset the cost of their modernization, there also needs to be a demand for the green transition. Goods and services with a higher environmental impact need to be made more expensive. With regards to the social aspect of the green transition, such price increases must be well-conceived and gradual. The raising of energy prices should not lead to the impoverishment of parts of the population: a just transition should be ensured through the protection of vulnerable households.

Finally, policies need to be adopted to promote and support regional connectivity—an important catalyst for regional economic growth in the face of global uncertainty, economic fragmentation, and increased costs. Regional policy dialogue and coordination can provide a foundation for the structural reform in trade, a process realised through the harmonisation of technical regulations and standards and their revision with international green standards and practices.

The development of cross-border connections and regional power trading platforms can facilitate the expansion of renewable energy generation while improving coordination in water resource management to prevent shortages and their consequences. Given the region’s diverse energy mixes, establishing a balanced system for regional trade is essential to ensuring its energy security and economic growth.

Photo: ACWA Power

Accelerating the Gulf's Energy Transition in the Wake of Russia's War

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

The 2022 Russian war against Ukraine has been both a gift and a curse for oil producers in the Persian Gulf. In the short term, the war has created restraint for the development of renewables, contributed to the high oil demand, and in doing so demonstrated the need for more international investment in oil exploration and drilling. High oil prices and the resulting profits enabled the member states of the Gulf Cooperation Council (GCC) to partially offset financial losses from previous years—and also benefitted the economies of these member states. However, the transition to a new model of global energy consumption has not been cancelled—it has only been delayed.

This conflict clearly demonstrated the economic risk of excessive dependence on hydrocarbon-based resources, and as a result the leading GCC countries began to develop clear action plans for speeding up the energy transition. For the Gulf’s traditional oil producers, this is a huge challenge: after the short hiatus forced by the war, the race to switch to renewable energy will restart and force the Gulf states to once again work against time to prepare the oil sector for the “post-oil” era.

In general, most GCC states base their current strategy on an understanding of two contradictory but coexisting trends in the global energy market—trends created by the war in Ukraine. The first relates to national security issues: individual countries may find it necessary to extend their hydrocarbon use. The second and conflicting trend is that some players may accelerate their transition to renewables for the same security considerations and to reduce their dependence on fluctuating hydrocarbon prices.

Economic Development and Political Considerations

If the GCC countries are to reduce their current economic dependence on hydrocarbon exports, they need to diversify on a large scale into renewable energies. Alongside this, there is a need to maximise income from oil exports—something which can be achieved by simultaneously reducing domestic consumption and increasing oil output. However, GCC members will need to avoid increasing the volume of CO2 emissions, as these damage the health of the population and cause environmental damage.

But the political considerations are tied to the rentier social contract model of the states in the GCC. This model is now becoming too costly; budgets are uncertain against a backdrop of fluctuating oil prices. The fourth energy transition—and related processes, such as decarbonisation, digitalisation, and the development of renewable and alternative energy sources—will enable Gulf states to generate additional sources of income to finance government subsidies and social programmes. The development of the renewables sector will additionally contribute to preserving the social contract, provided that  its growth will also lead to the provision of new and high-paying jobs for the citizens in the public sector.

 External Influences

Other countries are placing increasing pressure on GCC states to accelerate their energy transition—and to make the oil they export more environmentally friendly (a marketing requirement formulated by the global push for energy transition). To maintain the competitiveness of their oil in the global market, Gulf producers are forced to take steps to reduce the environmental harm that can be caused by the production and transportation of hydrocarbons. The active spread beyond the United States and the European Union (including in Asian countries, who have been the traditional sales market for the GCC countries) of what some term the “green agenda” further increases the importance of presenting hydrocarbon products as green and minimising the negative impact on the environment.

Moreover, GCC countries will inevitably be pressured by the international community to implement international climate agreements. In 2022, the Arab states took an active part in the COP 27 climate summit in Egypt, and again in 2023, when they held the COP 28 summit in the UAE. The latter was a major milestone: its final document not only summed up what the international community had done within the framework of the Paris Agreement, but also recognised the need to phase out energy derived from fossil fuels. In light of these developments, by early 2024, almost all GCC states had put forward their own net-zero emissions targets.

Circular Carbon Economy

It is important to note that the final COP 28 document calls for a gradual phase-out of the use of oil in energy systems but emphasises that this process should be carried out without prejudice to hydrocarbon producers. This duality fully meets the needs of the Persian Gulf countries. They are ready to provide consumers with hydrocarbons for as long as they are needed—for example, the European Union, which seeks greater independence from Russian supplies—and cooperate with the international community in preparing for a “post-oil” world. Under these circumstances,  most GCC states now speak not only about the need to increase the proportion of energy generated by renewables, but also about the goal of creating a special form of the Gulf’s circular economy that could still be built on the base of the region’s hydrocarbon riches.

Thus, the so-called circular carbon economy concept promoted by Saudi Arabia does not reject the further development of oil and petrochemical industries of the Kingdom but implies the introduction of obligatory compensation measures for emissions through the active use of carbon capture technologies (CCUS). It also argues about the increased role of renewable energy sources in the production and transportation of hydrocarbons. Alongside these plans, the Gulf countries are also developing a strategy to become world-leading hydrogen producers.

Options for Cooperation

In Iran, deteriorating climatic conditions and attendant ecological problems are creating extra incentives for the government to increase its efforts to make the energy transition and restructure its economy. In a sense, the country started investigating ways to develop its own renewable sector long before the idea became popular among its neighbours. Possessing substantial hydro, wind, and solar energy-producing potential, Iran achieved substantial progress in developing these in 2000–2010. Unfortunately, any further progress was substantially slowed and in some areas even prevented by the sanctions placed on the country from 2010 onwards, although by 2022 Iran was still among the top five countries in the Middle East in terms of how much electricity is generated by renewables. Its experience in the renewables development field can still be of interest to other Gulf countries, and Tehran itself can learn a lot from the GCC member states about the use of CCUS technologies and renewables in the production and transportation of hydrocarbons.

The current situation might intensify levels of cooperation among the Gulf countries, and also between these countries and international partners. There is a good incentive to cooperate—between both the Gulf players within OPEC and those on the bilateral track—as the GCC economies and oil sectors will have a lot of challenges in common that they need to prepare for. Meanwhile, the Gulf states need to ensure a stable and long-term demand for Gulf hydrocarbons, which means regional players must invest more in Asian economies and attract Asian investments. Moreover, an important element of the Gulf countries’ economic strategies is now to attract and allocate in-house and international investments in both the traditional and renewable energy sectors.

Alongside other developments, the war in Ukraine has led to a clear intensification of European diplomacy in the Gulf and a revision of some past practices. Traditionally, European concerns about Gulf domestic policies limited the interaction between EU countries and GCC states in the energy field, but many of these concerns have been pushed aside. Instead, the European Union has demonstrated its readiness to help the GCC countries in their own transition to renewable energy sources, making it clear that it expects the Gulf to help the EU move away from its dependence on Russia’s oil and gas and ease the influence of geopolitical factors on oil prices.

 Road Ahead

It is worth noting that the GCC countries do not intend to entirely replace the hydrocarbon sector with renewable energy production or to phase out oil usage or the development of petrochemicals. Instead, the Gulf states see the sustainable energy sector (as well as those industries accompanying the fourth energy transition) as a complement and addition to their hydrocarbon-based economies. The wealth they have accrued through hydrocarbons will allow them to accelerate diversification and make the “old” oil industry look eco-friendly. None of the Gulf states has abandoned plans to develop petrochemical production, seeing in it an opportunity to conveniently and easily diversify GCC economies and as a response to the question of what to do when oil is not in demand as feedstock for fuel production. As oil market analyst Tsvetana Paraskova puts it: “Renewable energy could replace more and more fossil fuels in power generation and transportation, but these are not the only industries using oil and gas. From medicines to cosmetics, clothing, and technology, the world will still need oil.” This is well understood in the Persian Gulf, and the various crises have shown that fluctuations in demand for hydrocarbons have not always depended on the demand for fuel.

In the medium and long term, adaptation to a new energy order would require Persian Gulf oil producers to restructure their economies and revise their social contracts to withstand a decline in demand and a reduction in prices for oil resources. They would need to rebuild their energy systems for a lower-carbon future while simultaneously ensuring the survival of their oil industries. Moreover, the Gulf states clearly understand the need to adapt to the growth of competition in traditional markets, particularly in Asia, and will need to consider multilateral cooperation to offset some challenges.

Looking into the future, the hydrocarbon production and petrochemical sectors will remain the backbone of the Gulf countries’ economic structure. The main motivations that shape the development plans in the region are twofold: to increase sources of income through diversification, including the development of hydrogen exports; and to ensure the profitability of the traditional oil sector for as long as possible. The likely success factors in this quest will be the reduction of the cost of producing both hydrocarbon-based and sustainable energy, the reduction of harmful emissions from traditional industries, and the maintenance of the necessary level of investment in both the oil sector and the new energy sources. As UAE Minister of Energy and Industry Suhail Mohammed Almazroui succinctly put it, “drop the cost, drop the carbon, maintain the investment.”

Photo: Dubai Protocol Department

Fostering a New Energy System for the Gulf, the Red Sea, and the Mediterranean

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Through investments in solar and wind power, grid connections, and hydrogen, energy transition in the Middle East is well under way. This transition is urgent for large countries such as Saudi Arabia and Egypt, since their rapidly growing economies and populations have vastly increased their consumption of domestic energy. Continuing to burn oil and gas for domestic energy could lead to Saudi Arabia struggling to export oil by as early as 2030, and therefore the Saudi transition to renewables alongside cutting fossil fuel subsidies has been a significant milestone in the economic development of the Arab region as a whole. The story is similar in Egypt; alongside its transition away from fossil fuel subsidies, the country has cut its energy import bill by investing in renewables.

The neighbouring regions of the Gulf and Europe have shown a strong interest in cooperating with North Africa on energy transition. Both regions see economic opportunities here, as well as the potential to advance their own transition from fossil fuels to renewables. With renewables now more economically feasible, this type of energy is no longer simply about electricity and is penetrating other sectors, for example desalination, agriculture and hydrogen production. Interregional cooperation on renewable energy is complex and embedded within visions for the wider economic development of the Middle East. However, cooperation is in its early stages and faces challenges.

Cooperation between Egypt and the Gulf states will also benefit Europe, which is promoting increased grid connections with Africa and the development of green hydrogen in Egypt. Looking at the parallel pushes for energy transition in the Gulf and Mediterranean regions, one can envision cooperation between the Gulf, the Red Sea, and the Mediterranean in the field of renewable energy.

The North African countries have announced ambitious renewable energy targets. By 2030, Morocco, Tunisia and Algeria aim, respectively, for 52% (of power capacity), 35% (of power generation), and 27% (of electricity) to come from renewable sources, while Egypt is aiming for 42% (of electricity) by 2035. The Gulf countries have similar ambitions, and Saudi Arabia’s target of 50% of electricity by 2030 seems significant considering its status as both the largest economy and heaviest energy user in the region.

Motivations for energy transition in the two regions are similar—lowering emissions and meeting increasing domestic demand. However, in carbon-rich countries such as the Gulf states or Algeria, energy transition is also seen as a vehicle for economic diversification. Many of these countries still depend on carbon revenues and the public sector. Renewable energy can free up resources in North Africa by importing less fossil fuels and in the Gulf by decreasing domestic consumption and expanding exports. These resources can be invested in modernising industries or giving financial incentives to encourage innovation.

For concurrent energy transitions to work, cooperation among neighbouring states is necessary. For example, grid connections are essential in improving energy efficiency and grid stability once renewables are deployed. The $1.8 billion grid connection project between Egypt and Saudi Arabia will start trial operations in 2024, linking the two major economies in the region and two different continents. Another key project is the ongoing Euro-Africa interconnector, joining Egypt to Cyprus and Greece. Alongside the existing connections between Morocco and Spain, this project creates further connections between North Africa and Europe.

Regional partners are also involved in the Middle East’s transition to renewable energy, and European interests are particularly important as the continent explores clean hydrogen importers and energy suppliers in the wake of the war on Ukraine. However, there are also valid concerns that allowing big European corporations (such as Italy’s Eni, Germany’s Siemens, Denmark’s Maersk, Norway’s Equinor, or Netherland’s Vitol) to invest in green hydrogen projects in North Africa may lead to resource grabs and exploitation of the region. The Gulf states are also investing in blue and green hydrogen for export to Europe and Asia. Asian companies—for example, Japan—have long industrial legacies in the Gulf Cooperation Council, whether in building desalination plants or in energy projects such as the Saudi–Egypt grid connection mentioned above, which is being built by Hitachi Energy.

The relationship between Egypt and the Gulf states is nowadays embedded within a broader vision for redefining the regional economy of the Middle East through new cities, and improving the water energy infrastructure. While Egypt is building its New Administrative Capital (a city with a population of 6.5 million) eastwards of Cairo, Saudi Arabia is investing $500 billion in constructing the world’s largest urban megaproject, NEOM, on the Red Sea, which will eventually accommodate 10 million people. NEOM uses the most advanced sustainability technologies and already involves companies from all over the world, including European countries such as Germany. The region from NEOM to Egypt’s New Administrative Capital, and perhaps northwards to Jordan and Israel, will constitute a new regional economic centre—alongside the region of Riyadh and the surrounding Gulf cities—which requires major new desalination, renewable energy, and hydrogen projects.

Cooperation between Egypt and the Gulf on clean energy is set to increase. Saudi Arabia is investing in renewable energies that will provide for NEOM’s entire energy and desalination needs. At the same time, it is building the world’s largest green hydrogen plant in NEOM, at a cost of $8.4 billion. Saudi companies have also committed billions of dollars to investments in Egypt in the areas of desalination, renewable energy, and, increasingly, green hydrogen. Similarly, the UAE is using its strong experience in desalination and renewables to profit from the highly attractive Egyptian market. One example of this is the Masdar-led consortium which is set to build a $10 billion wind project in Sohag, Egypt. During COP27 in 2022, Egypt’s Suez Canal Economic Zone signed $83 billion in green energy deals with investors from Saudi Arabia, UAE, Norway, and the UK.

The Red Sea, particularly the Ain Sokhna port area, is touted to host many of Egypt’s green hydrogen projects, adding to this region’s importance. However, as the country’s economy has been unstable in recent years, Gulf investors have been reluctant to invest in Egypt before a deal is reached with the International Monetary Fund. However, since this deal has been formalized in in early 2024, this could be an opportunity to to realise the projects that have already been announced. It is worth noting, though, that as of January 2024, European-Gulf consortia, India, and China have all expressed interest in investing in renewable energy projects in Egypt. The country has set an ambitious goal of becoming a regional energy hub, and plans to achieve this by investing in clean energy and gas, improving transport, and refining its infrastructure. One of its key infrastructure projects is the $23 billion high-speed train connecting the Ain Sokhna port to the Mediterranean, which is being delivered in collaboration with Germany’s Siemens and has been dubbed a “Suez Canal on rails.”

Due to differing interests and expectations, it is difficult to predict the outcomes of cooperation between the Gulf, North Africa, and Europe on sustainable development issues. While the Gulf is seeking economic diversification via investments, Europe is mainly driven by its energy and climatic goals. Some North African countries suffer from weakened institutions and political instability. Therefore, for some countries, a cautious green hydrogen approach might be necessary. Such an approach should aim to create local value, prioritise domestic energy transition, and address social, human, and sustainability requirements. North African countries might have weaker negotiating positions compared to Europe or the Gulf due to inequities in finance, capacity for negotiation, or geopolitical power. The competition between the Gulf and Europe for renewable energy projects can mobilise funds and offer more choice for North Africa, but it is important to also consider ownership of clean energy projects in the destination country.

Interregional cooperation between the Gulf, the Red Sea, and the Mediterranean is complex, and it is reasonable to assume that legacies and outcomes of joint investment in clean energy will be mixed. In the case of Egypt, cooperation on renewables has some distinctive characteristics. Egypt’s renewables projects are embedded within an economic vision by Saudi Arabia and Egypt to create a new regional center in the north of the Red Sea connecting the Gulf to Europe. In addition, relative political stability is likely to further the energy transition of the Arab region’s largest country which can serve as gateway for investors into the Arab region. While this transition will solicit both local and foreign investments, the domestic will to decarbonise and create job opportunities is essential if energy cooperation is to succeed.

Photo: Stuart Rankin

The Case for Cooperation on the Energy Transition in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Regional security and economic development among the Gulf states—Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE)—can improve if cooperation is fostered in the energy, minerals, and water industries, by encouraging joint exploitation of resources, establishing neutral regional zones, and creating energy sources that are interconnected. The positive diplomatic environment of 2023, particularly after the rapprochement between Iran and Saudi Arabia after seven years, holds the key to unlocking a new era of cooperation in the region across the resource mix.

Fostering Renewable Energy Cooperation

The region’s geographic location means it receives some of the highest annual amounts of solar energy in the world—more than 2,100 kilowatt-hours (kWh)—and a wind speed that can reach about 10 meters per second (m/s). These natural clean energy resources could be exploited regionally and also exported beyond the region, benefitting the economy both directly and indirectly and encompassing many sectors of industry, including energy, manufacturing, and information technology.

The Gulf Cooperation Council Interconnection Authority (GCCIA) envisions establishing a robust interconnected power grid. This would leverage the region’s abundant solar and wind resources and further position the are to become a hub for producing and exporting clean energy. As of early 2024, part of the region is already interconnected through this grid—from Oman in the south through the UAE, Saudi Arabia, Qatar, and Bahrain, and then to Kuwait in the north. In addition, Iraq recently signed an agreement with the GCCIA to join the grid. GCCIA has an ambitious plan to extend to Eurasia and East Africa. Iran is also part of this planned grid, as is Turkey. Such interconnection would give domestic power grids more reliability and stability in the face of increasing challenges, such as unexpected electric load rise, as well as blackouts due to natural disasters or equipment failures.

Envisioning a Gas Network

Expanding the gas sector across the Gulf is a potential solution to some of these problems. Doing so would pave the way for a joint gas pipeline network that could facilitate hydrogen transmission—which is key to achieving net zero carbon emissions. Several Gulf countries have either not fully developed their gas production sectors or have insufficient resources. Iraq, Kuwait, and the UAE are net gas importers, and in 2022 imported 50%, 40%, and 20% of their gas demand respectively (see chart below). For example, Iraq imports most of its gas from Iran, and the UAE sources much of its gas from Qatar through the Dolphin pipeline.

Kuwait is the only Gulf country to source a large percentage of its imported gas (46%) from non-Gulf regions, such as Africa, Europe, and North and South America. This sourcing of around 4 billion cubic meters of natural gas annually from faraway countries is deemed to be a lost economic opportunity for Gulf countries, including Iran and Qatar.

Expansion of the gas sector in the Gulf would play a key role in the region’s energy transition. Having a joint pipeline network capable of carrying hydrogen products could also pave the way for the region to become a world hub in the production and export of carbon-neutral (blue and green) hydrogen.

Gulf Minerals Powering the Future

The Gulf region’s mineral wealth, essential for energy transition, has come to the forefront. Recent discoveries of lithium, cobalt, nickel, copper, and other minerals mark a turning point in the global race to secure mineral supply chains. These minerals are essential components of renewable energy technologies and energy storage systems.

Recently, Iran announced the discovery of a huge lithium deposit—an estimated 8.5 million metric tonnes—on its territory. This makes the country the fifth lithium reserve resource holder after Bolivia, Argentina, Chile, and the United States. Moreover, Iran also revealed the discovery of additional vital minerals, among them manganese, nickel, and cobalt.

Saudi Arabia also recently announced the discovery of mineral reserves with an estimated market value of US $64 billion. Among the discovered minerals related to energy transition are copper, iron, and nickel. Oman, too, has announced an ongoing project to update its national geographical and geological minerals database with more discoveries of copper and iron reserves.

The envisioned regional collaboration would include joint investments in developing the infrastructure needed in the region for extraction, preliminary mineral processing, and export logistics. Joint efforts to invest in the management of mineral resources could position the Gulf as a key influencer in the global transition to clean energy. This could be pursued by establishing joint venture companies where investors include the Gulf states’ public and private sectors.

Working together, the Gulf states could pool resources, share costs, and achieve economies of scale. By doing so, the region would be able to collectively manage and mitigate risks associated with volatile commodity prices, environmental challenges, and geopolitical uncertainties. As a result, such collaborative ventures would contribute to political stability in the region. The Gulf countries would have broader access to markets and assert their role as key players in the energy transition agenda.

It is worth noting that Iran’s current economic sanctions may discourage other states from establishing joint ventures. However, these restrictions do not prevent discussion of joint strategies for making the most of the Gulf’s mineral reserves and developing regional value chains.

Developing Shared Fields

The collective strength of Gulf countries lies in their vast natural resources, accounting for approximately 48% and 40%, respectively, of the world’s proven oil and natural gas reserves. Shared oil and gas fields, as illustrated in the table below, are poised for active development, offering potential solutions to regional energy challenges. 

In early 2022, Kuwait signed a memorandum of understanding with Saudi Arabia to develop the joint offshore Arash/Durra gas field in the partitioned neutral zone. However, Iran has objected to the agreement and demanded its share. Most likely the Arash/Durra field will not be exploited in the short term until an agreement is reached on the demarcation of maritime borders between Iran, Kuwait, and Saudi Arabia. However, joint exploitation of Arash/Durra could be achieved without compromising the territorial sovereignty of the three countries; Iran is already jointly exploiting oil and gas fields with neighboring Gulf states, including the South Pars/North Dome gas field with Qatar and the Esfandyar/Lulu oil field with Saudi Arabia. These joint models can provide lessons and open the door for pragmatic and logical negotiations to enable cooperation in exploiting other joint fields, including Arash/Durra.

Establishing a Regional Water Network

A region is labelled as water-scarce when the availability of natural renewable water (waterfalls, rivers, freshwater lakes, and aquifers) is below 1,000 cubic meters per person per year. This definition implies that all Gulf countries except Iran are under the natural water poverty line. Consequently, these countries depend on energy-intensive seawater desalination to meet their potable water demand. The power stations in these countries are mostly cogeneration systems that produce electricity and heat.

Addressing water scarcity is paramount for Gulf countries, especially those heavily reliant on desalination. Despite challenges including geopolitical tensions, a strategic imperative is to establish a regional water interconnection network. With this in mind, GCC leaders decided to carry out a water interconnection study in the year 2000. The proposed network would supply fresh water to all GCC states from desalination plants that would be built on the shores of certain states. Three desalination plants were proposed—to be built in Sohar, Oman; Al-Sila in the UAE; and Al-Khafji in Saudi Arabia. Unfortunately, there has been no tangible action on the project since 2013.

There is an urgent need for increased cooperation in the areas of seawater desalination, water treatment, water resource management, and water transmission across the Gulf region if its future is to be more sustainable. The latter of these in particular is a key survival strategy, and such a water network would make the region resilient to natural and changing environmental conditions challenges. The feasibility of a regional water grid should not therefore purely be based on financial profits—it also needs to consider the grave water scarcity challenges the region is poised to face in the years ahead.

Moving Towards Sustainable Horizons

While it may take time to achieve regional cooperation in energy, water, and environmental sustainability, diplomatic rapprochement between Iran and Saudi Arabia could pave the way for positive outcomes. Policies should focus on establishing interconnected regional infrastructures, including gas and water networks, and implementing a joint financing system to support balanced development across the Gulf region. It is essential to overcome political differences and address challenges through dialogue for these policies to succeed.

As we chart the course toward sustainable horizons in the Gulf, the call for cooperation echoes loudly. Embracing shared objectives, drawing on collective strengths, and navigating challenges with a collaborative spirit will propel the region towards a future defined by sustainability, resilience, and mutual prosperity.

Photo: Shams Power

Solar Power’s Water Problem in the Gulf

This article is part of a series exploring regional energy cooperation in the Gulf and is published in cooperation with Istituto Affari Internazionali.

Since the inauguration of the Mohammed Bin Rashid Al Maktoum Solar Park in Dubai in 2013, the Gulf Cooperation Council (GCC) has become home to an increasing number of solar power installations. Emirati leaders have so far invested the most in large utility-scale solar in the region, but their peers in Saudi Arabia, Qatar, Oman, Kuwait, and Bahrain have also begun to set up new solar parks in recent years.

The Arabian Peninsula’s desert landscapes might seem to be perfect for large solar power facilities like those being developed in the GCC states. Vast and largely uninhabited, the Arabian Desert gets plentiful sunshine: it receives around 3400 hours of sunshine per year, compared with averages of around 1600 hours in Germany or 2900 hours in Spain.

But solar power needs much more than desert sunshine to work. Arid landscapes present various infrastructure challenges, including high temperatures that can damage solar arrays and remoteness from established energy transmission lines. And where sunshine is most abundant, water is not.

Indeed, water scarcity is the most important limit on the grand promises of GCC governments to overhaul and decarbonise the region’s energy system. The Arabian Desert is one of the most arid places on earth, typically receiving under 4 inches (100 mm) of rain per year, and already facing near total depletion of its groundwater.

Unfortunately, today’s solar technology requires substantial amounts of water. Celebratory discussions about solar power are often illustrated with photographs of sparkling PV arrays. These solar panels are always pristine, recently cleaned arrays. Unfortunately, such a scene is a rare encounter in the Arabian Desert, where dust and blowing sand is quick to cover the solar panels and mirrors of both PV (photovoltaic) systems and CSP (concentrated solar power) systems.

Aware of desert solar’s dust problem, companies like Arizona’s First Solar and Luxembourg’s SolarCleano have promoted waterless cleaning systems. Yet these technologies are still not advanced enough to employ on a large, industrial scale. Solar technology companies based in the Gulf are also aware of this problem and have tried to engineer their own solutions. For example, Saudi Arabia’s NOMADD has designed its namesake “NO Water ​Mechanical ​Automated Dusting Device” to address the challenge of cleaning of solar panels in the Arabian Peninsula.

While robotic PV-cleaning systems are deployed in some sites today, waterless cleaning technologies are expensive and have failed to scale up beyond small, pilot projects. As a result, the GCC’s small-scale solar installations and the large-scale solar parks continue to use water to clear dust and debris from their panels. Most of that water is desalinated sea water, which is produced with a huge energy cost and substantial CO2 emissions. In this case, then, solar energy produced in the Arabian Peninsula’s desert parks is far from green—it is actually incredibly wasteful.

Renewable energy’s water footprint

The water footprint of solar power extends beyond just cleaning. Water is also used in extracting diverse minerals needed to manufacture PV cells and batteries, such as lithium, cobalt, tellurium, and gallium, as well as in the manufacturing process itself. Mining for the renewable energy sector largely takes place outside of the Arabian Peninsula, but Saudi Arabia’s new investments in mining, described as advancing global efforts to “decarbonize,” will invariably expand this water footprint in the region.

Water is integral to all modern forms of electricity generation, including fossil fuels, and nuclear, alongside renewables. Required water inputs vary by the source, in large part because the infrastructures needed to generate, store, and transmit energy all have different geographies. The solar water footprint contrasts to the water demands for coal, for example, where water is first used to extract coal from the earth, and then in power plant cooling operations like all thermoelectric power systems (coal, natural gas, and nuclear).

Proponents suggest that the water demands of renewables are a significantly lower than those of traditional fossil fuels. This is probably true. But even so, estimates from the IEA (International Energy Agency) use absolute numbers that reflect a limited proportion of renewables in the overall global energy supply mix. These estimates also tend to neglect the physical geography of renewable energy installations siting—like whether a proposed solar park is located in a desert where it is liable to dust problems that increase its water needs.

Overpromising solar to hype hydrogen

Encouraged by partners in Europe and Asia, Gulf fossil fuel producers are increasingly keen to promote hydrogen energy and state-backed efforts to develop hydrogen are now found in the UAE, Saudi Arabia, and Oman. In many cases, these projects are framed as key to transforming the region into future “green” hydrogen hubs. Creating hydrogen energy requires vast amounts of energy and for it to be “green,” this energy must come from renewables.

To date, the amount of renewable energy produced in the Arabian Peninsula is so limited that none of the impressive green hydrogen targets in the Gulf are realistic. Local programs that position the Arabian Peninsula as a new green hydrogen hub overpromise their future solar energy capacity. They overpromise solar both in the present, because the production capacity simply is not there, and also in the future, because the region’s water supplies are insufficient to deliver on local renewable energy promises. Instead, the new Gulf hydrogen programs are on track to locally lock in natural-gas generated hydrogen. Meanwhile, the water limits of solar power’s expansion are a fundamental obstacle to any future for “green” hydrogen in the region.

Just like the solar power parks that they depend on, new hydrogen energy schemes can only represent an improvement on the CO2 footprint of traditional fossil fuel energy sources if the production site decisions take water into account. If any renewable energy project’s water footprint is not carefully evaluated, then the most likely outcome will be that it turns into a big “green wash,” a convoluted mess of energy infrastructure that is built in the name of being green, but does not actually result in any CO2 reductions. And perhaps the most tragic outcome of this green theater would be if it only exacerbates local water shortfalls that then exacerbate the climate crisis, as they are met with yet more carbon-emitting desalinated seawater.

Water and energy futures

Although water is one of the most forgotten elements in today’s discussions about energy systems, the water-energy nexus has come into sharper focus recently and has been integrated in the climate talks under the UAE COP28 presidency’s Water4Climate initiative. Yet, similar to how mainstream climate change discussions are defined globally, water is often just reduced to an issue of “water security” for vulnerable populations. This is, of course, an important issue. But it is almost entirely divorced from the problem of water use and planning in the implementation of high-tech energy infrastructure around the world.

Regardless of whether oil and gas is “phased out” or “phased down,” fossil fuels are on their way out. Yet high-tech energy infrastructure, including renewables, will continue to be prioritised by political and economic leaders in the Arabian Peninsula. The question is where those infrastructures will be located.

Since the Gulf’s energy leaders want to remain central to the post-oil energy system, they are already investing in renewable energy abroad. For example, the UAE’s Masdar has stakes in solar parks, wind farms, and geothermal energy operations all across the world, including in neighbouring Gulf states like Iraq. Likewise, UAE-based AMEA Power was set up several years ago with the express purpose of investing in foreign renewable energy projects – and is growing at breakneck speed. Renewables have also been major targets for foreign investment from Saudi Arabia’s ACWA Power, which has also been the most aggressive actor in setting up hydrogen partnerships with foreign partners in Eurasia and the MENA region, including in Morocco, Uzbekistan, Kazakhstan, China, and beyond.

These future energy partnerships are already fostering regional cooperation and they will continue to do so. However, it is essential that water be at the centre of all considerations about how renewable energy infrastructures are located. In particular, if solar parks are located in places that strain water resources in a partner country—such as with growing water problems from Morocco’s Noor solar plant—then they are likely to provoke local opposition and accusations of “water grabbing” and neocolonialism.

No map can answer the question of how renewable energy landscapes should be ideally configured, because all geography is political. But decision-makers in the GCC, in neighbouring countries like Iraq and Iran, and in countries spearheading climate action, must think critically about where to locate renewable energy infrastructures. To take serious, coordinated action toward scaling renewable energy in a way that actually reduces carbon emissions, water usage must be the primary consideration.

Photo: Canva