At present fossil fuel reliant, Saudi Arabia is developing several flagship clean energy and industrial projects but the country is still in the process of converting decarbonization ambitions into federal policy that impacts the entire economy.

Economic transition

Saudi Arabia is at present heavily reliant on the production and use of fossil fuels. It is one of the top three oil producers globally, and even in 2020 when prices were depressed by the impacts of COVID-19, oil generated 53.5 percent of the government’s revenues.

The country has plans to diversify away from oil to exploit strong potential for solar and wind generation, as well as developing capacity to produce clean hydrogen. By doing so, the government aims to improve both environmental and economic sustainability: “It understands this is the solution for Saudi Arabia as a country, rather than slowing down this substitution,” says Oliver Gawad, Senior Director, Economic Development, Strategy and Sustainability, KPMG in Saudi Arabia. “There has been a clear change of mindset.”

State-directed investment

The National Renewable Energy Program, part of the country’s Vision 2030 strategy, includes plans for Saudi Arabia to generate half of its electricity from renewables by 2030. This aspiration is supported by favorable climate conditions for solar and wind energy projects. In April 2021, the country signed long-term agreements to buy power from seven new solar projects, adding to the previously announced Sakaka solar project, the country’s first, and the Dumat Al Jandal wind farm.1

Although investments in oil and gas continue and Saudi Arabia is unlikely to fully transition away from a reliance on fossil fuels any time soon, the country’s ambition long-term is reflected through the fact that it has joined a Net Zero Producers Forum led by the US and also involving Canada, Norway and Qatar that will develop technologies including carbon capture and storage.2

The country’s new Giga project Neom city on the Red Sea coast will use only renewable energy and will include what is planned to be the world’s largest renewable hydrogen project.3 The associated Red Sea tourism development, which is due to open by the end of 2022, plans to use only sustainable energy, with cleantech and biofuel specialist Neutral Fuels setting up a biofuel refinery to run its transport.4

Capital city Riyadh has built a six-line, 85 station metro system which it plans to open during 2021 and will integrate with a bus network, providing an alternative to driving.5 The city also has a Green Riyadh project which involves planting 7.5 million trees, with the national Saudi Green Initiative targets announced in March 2021, including a target to plant 10 billion trees planted over the coming decades.6

Gawad says that some of Saudi Arabia’s potential for reducing emissions comes from existing inefficient practices, such as poorly insulated buildings that require powerful air conditioning at present.

Transparency

As one of the wealthiest countries in the NZRI, international pressure on Saudi Arabia to provide greater transparency on climate targets and emissions will be likely to continue to grow. The country has not yet published a ‘business-as-usual’ baseline or an official set of projections for its emissions as part of the Paris Agreement process.7

Gawad adds that Saudi Arabia would likely benefit from extending its targets beyond 2030, setting up structures to support these and strengthening legislation, including through legally binding targets. “There needs to be another step on institutionalizing and getting a regulatory framework around these ideas,” he says.

     

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1 Ahmad Ghaddar and Raya Jalabi, ‘Saudi Arabia signs agreements for seven new solar projects – SPA’, Reuters, 8 April 2021. https://www.reuters.com/article/saudi-solarpower-int-idUSKBN2BV2AV
2 ‘Joint statement on establishing a net zero producers forum between the energy ministries of Canada, Norway, Qatar, Saudi Arabia and the United States’, US Department of Energy, 23 April 2021. https://www.energy.gov/articles/joint-statement-establishing-net-zero-producers-forum-between-energy-ministries-canada
3 Neom, accessed July 2021. https://www.neom.com/
4 ‘ACWA Power signs MoU with Neutral Fuels to supply Saudi Arabia’s Red Sea project’, ACWA Power, 1 June 2021. https://www.acwapower.com/news/acwa-power-signs-mou-with-neutral-fuels-to-supply-saudi-arabias-red-sea-project/
5 'Riyadh Commission to launch metro in Q3 2021: CEO', Arab News, 30 January 2021. https://www.arabnews.com/node/1800841/business-economy
6 ‘Greening Saudi’, Saudi Green Initiative, accessed July 2021. https://www.saudigreeninitiative.org/targets/greening-saudi/
7 ‘Saudi Arabia’, Climate Action Tracker, 22 September 2020. https://climateactiontracker.org/countries/saudi-arabia/pledges-and-targets/