The UAE was not a big player in the global climate change talks in New
York last week, where heavyweights China and the US took centre stage,
but the Emirates’ economic future has a massive stake in whatever
agreement emerges.
The final treaty that is expected to take
shape in December in Copenhagen will have far-reaching and opposing
effects on the economy, from boosting key industries to sapping global
demand for oil, experts say.
And a failure to reach agreement,
with potential corresponding climate change this century, would have
extreme, if less certain, long-term effects on the UAE’s way of life.
OPEC
states have historically played an “obstructionist” role in climate
change talks, resisting both the argument behind global warming and
efforts to cap emissions, but the UAE now has an economic rationale to
weigh in, says Mari Luomi, an expert on Gulf climate change policy at
the Finnish Institute of International Affairs in Helsinki.
“The
GCC states have a vested interest,” she says. “By playing both a
supporting and visible role in the negotiations, the UAE would attract
a lot of positive attention, which would then add international
interest in the new alternative energy and technology taking place in
Abu Dhabi and the other emirates.”
After a successful diplomatic
effort to bring the International Renewable Energy Agency (IRENA) to
the emirate earlier this year, she thinks Abu Dhabi should want “… to
play a more visible and proactive role in the [process]”.
The
UAE dispatched a high-level delegation to this week’s summit, led by
Sheikh Abdullah bin Zayed, the Minister of Foreign Affairs, and Sultan
al Jaber, the chief executive of Masdar, the Abu Dhabi Government’s
clean energy firm.
The talks were an opportunity for the
government to showcase its clean energy projects and to lobby behind
the scenes on three issues likely to top its list: carbon capture and
storage (CCS), heavy industry and oil.
A key priority for the
UAE and other oil producers is a proposal that would offer UN-led
financing to CCS projects that redirect carbon pollution from smoke
stacks to underground storage.
If implemented at a reasonable
cost, the technology would allow the world to continue burning coal,
oil and natural gas without harming the environment.
Masdar
wants to construct a network of CCS projects to collect emissions from
industrial sites across the emirate and inject them into ageing oil
wells. The scheme is designed to reduce the country’s carbon footprint
while increasing output of oil and freeing up valuable natural gas that
is pumped into wells to maintain reservoir pressure.
The main
hurdle is the high cost, which the company is hoping to defray in part
through the sale of carbon credits on the international market.
Under
the UN-monitored Clean Development Mechanism (CDM), a financing scheme
created by the Kyoto Protocol on climate change, firms in developing
countries can sell credits on the market for every tonne of carbon they
keep out of the atmosphere through clean energy projects.
The
framework creates an economic incentive for emissions reductions in
developing countries, including the UAE, which are not bound by hard
targets.
CCS is currently excluded from the CDM, as are nuclear
power plants, which produce no carbon. But the UAE and others are
pushing to change that in the treaty that will replace Kyoto by 2012.
The sale of carbon credits from CCS and nuclear power projects is a
potential revenue stream worth billions of dirhams to the Government.
A
Masdar official confirmed this week that the Government-owned company
would join officials in Copenhagen to lobby for the inclusion of CCS in
the CDM. The proposal received the backing of the International Energy
Agency (IEA), a Paris-based group of energy consuming nations, which
also endorsed including nuclear plants in the framework.
But it
faces significant opposition from environmental groups such as
Greenpeace, which fear it would encourage greater combustion of fossil
fuels and construction of nuclear reactors, and also from large current
recipients of CDM funds, such as Brazil. They say it would divert
limited international funds from their own efforts to preserve forests.
The
Government’s proposal came under fire this week from Helene Pelosse,
the director general of IRENA, who described CCS as a “fata morgana”, a
reference to an Italian legend symbolising a mirage.
Federica
Bietta, the deputy director of the Coalition for Rainforest Nations, an
intergovernmental group of 40 developing countries, said the group’s
member states, which include Brazil, could support the proposal in
return for support from the UAE and other oil producers for forestry
projects.
Besides CCS, the UAE has a stake in broader questions
about how new limits on carbon emissions will affect heavy industry and
aviation in industrialised countries. Experts say the UAE, which is
investing billions of dollars into expanding both sectors, could
benefit from new high costs that will make firms in Europe and the US
less competitive.
Energy-intensive industry such as oil refining
and metals smelting is likely to grow more quickly in the Middle East
and Asia because of emissions limits that speed up industrial decline
in the West, experts say.
In aviation, new rules will come into
effect in Europe by 2012 that require airlines using European airports
to offset their carbon emissions, the cost of which will be reflected
in ticket prices.
For passengers flying through Europe on to
other destinations, the new rules will make those routes more
expensive, which will probably divert traffic to the Middle East, said
Quentin Browell, an assistant director for environment at the
International Air Transport Association (IATA), an industry trade group.
“It
may well be that some airlines or some passengers choose to hub outside
of Europe,” he said. “We don’t believe you can have regional schemes
such as this because it does cause those competitive distortions.”
The
potential for new limits to hasten the shift of industry and aviation
from the West to the Middle East and Asia is called “carbon leakage”
and has not been lost on politicians in the US and Europe.
Last
week, the European Commission approved a list of industries that are
vulnerable to leakage and will be exempt from requirements that they
buy allowances to release carbon into the atmosphere. In the US,
members of Congress have proposed free allowances for key industries in
the country’s inaugural emissions trading scheme and considered
imposing import duties on goods produced overseas in countries without
emissions limits.
Separately, IATA introduced a proposal to
implement worldwide carbon emissions limits on airlines to create a
fair playing field in the hope of obviating the new EU regulations.
The
outcome of each of these proposals will determine the extent to which
aviation and industry in the UAE benefit from the windfall of carbon
leakage.
As an oil exporter, the most difficult question for the UAE at Copenhagen will be the treaty’s effect on global oil consumption.
In
its long-term energy outlook released earlier this year, OPEC estimated
that a successful effort to reduce carbon emissions to a medium-level
scenario would reduce world oil demand in 2020 by 5 per cent. Assuming
efforts to capture and store carbon underground are unsuccessful, OPEC
said the impact on demand “is likely to be significant”.
The
forecast 5 per cent decrease is significant: this year’s demand drop of
2.2 per cent was a leading cause of a 75 per cent collapse in oil
prices.
The lead Saudi climate negotiator, Mohammed al Sabban,
told Reuters this year that carbon limits threatened the Saudi economy,
and the kingdom would seek international aid to help it adapt to a
future without fossil fuels.
But no independent expert has put
forward a forecast for what climate change limits mean for the Gulf’s
oil industry. John Mitchell, an energy security expert at the Oxford
Institute of Energy Studies, said the effect on oil consumption could
be significant, but without sufficient data “it would perhaps be easy
to exaggerate such considerations”.
Ultimately, the UAE and
other Gulf oil exporters will benefit from the fact that their
production costs are among the lowest in the world, he said. Oil will
play a part in the energy mix for decades and will continue to be the
preferred feedstock for plastics and chemicals for the next century.
With
nearly all world leaders now agreeing that some sort of large emissions
cut is necessary, the UAE has moral, strategic and economic reasons to
participate in shaping a climate change treaty, Ms Luomi said.
“If
the post-2012 treaty gets watered down and we don’t manage to stop
global warming … runaway climate change will not leave any country
untouched,” she said.
“The GCC states … are small actors and
small emitters in the big picture, but they can also choose to play
either a proactive, neutral or even a negative role in the forthcoming
talks.”