UAE, A Potential Breakthrough

UAE, A Potential Breakthrough

Brian Efird and Steven Griffiths
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One of the biggest obstacles to energy transition is the lack of detailed action plans. Some objectives, such as those that relate to renewables and nuclear power, are within reach, while others, such as a carbon tax, appear difficult to achieve

The United Arab Emirates (UAE) has said it wishes to transition toward a less carbon intensive energy system, both as part of its Nationally Determined Contribution (NDC) within the United Nations Framework Convention on Climate Change (UNFCCC), and as one of a number of investments in green research and development, technology and power generation. However, given the complexity of the UAE’s political system, which requires consensus among seven relatively sovereign and independent emirates, as well as commercial and financial interests, it is not clear which policy instruments are politically plausible.

This article summarizes the results of a longer analysis of the UAE policy process  that utilized the King Abdullah Petroleum Studies and Research Center (KAPSARC) Toolkit for Behavioral Analysis (KTAB) platform, a model of collective decision-making processes (CDMPs), to evaluate the political feasibility of six different policy options that could help achieve the efforts of the United Arab Emirates to change its energy system to a less carbon-intensive one (hereafter referred to as the UAE Energy Transition).

KTAB is a platform that enables the modeling and analysis of CDMPs.  CDMPs capture the political bargaining process, both explicit and implicit, among a set of actors—individuals, institutions, constituencies or identifiable groups or “blocs.” KTAB simulates how actors interact with and influence one another over time to arrive at a “feasible outcome” for the modeled question. This reflects a model-based view of the expected outcome for actors’ collective support for—or opposition to—each of the policy alternatives included in this article. We will only discuss the aggregate findings from the larger study, rather than provide a detailed summary of the preferences, evolving political will, and expected behavior of each actor in all of the relevant policy dimensions.

 

An energy-intensive but environmentally-friendly country

The UAE is the world’s seventh-largest oil producer and fourth-largest exporter. It also has substantial natural gas reserves and its power and water sector is almost entirely dependent on natural gas. Although the country has made great efforts toward economic diversification, energy intensive industries still dominate the landscape, with more than 60 percent of total final UAE energy consumption coming from the industrial sector. Industrial energy intensity, a hot and arid climate that requires substantial energy for cooling and water desalination, and subsidized energy and water prices have made the UAE one of the world’s highest energy consuming countries per capita.

The UAE has a long history of cautious economic development, particularly when it comes to minimizing the effect of economic activity on the environment. The UAE’s first President, Sheikh Zayed Bin Sultan Al Nahyan, undertook measures to protect the environment including, among others, an early decree to reduce the flaring of associated natural gas, a byproduct of oil production. In 1973, the Abu Dhabi Gas Liquefaction Company Limited (ADGAS) was established to collect and liquefy natural gas in the Emirate for export to Japan. Additionally, all the UAE’s power and water desalination plants were designed to use a gas feedstock supplied by ADNOC. Since then, Abu Dhabi has flared very little gas.

In 2006, in response to increasing global concerns about carbon emissions, state-owned Mubadala established an entity to develop and invest in clean energy. Known as the Abu Dhabi Future Energy Company, or Masdar, this company quickly spawned into a large-scale enterprise that invested in renewable energy innovation and deployment in the UAE and abroad through a variety of projects.

Masdar completed its first solar project in the UAE in 2013 with the 100MW Shams 1 concentrated solar power plant, the world’s largest at the time. Since 2013, both Abu Dhabi and the neighboring emirate of Dubai have moved ahead with a number of renewable energy projects. Abu Dhabi is also building the Gulf Cooperation Council’s (GCC) first nuclear power plant at Barakah, where Emirates Nuclear Energy Corporation (ENEC) is constructing four reactors. The first reactor, originally scheduled for completion in 2017, has been postponed until 2020 due to regulatory delays.

Masdar’s creation has been complemented by a number of master plans or vision statements broadly covering the UAE’s sustainable economic development and climate change aspirations. Masdar takes its cue from Abu Dhabi Vision 2030, but in recent years the UAE federal government has published its UAE Vision 2021, the Emirate of Dubai has its own Plan 2021 and the Dubai Integrated Energy Strategy 2030 that map out distinct visions for a sustainable future.

 

Strategy 2050 objectives and implementation tools

More recently, in 2017, the UAE Ministry of Energy announced a new UAE Energy Strategy 2050 that outlines a number of UAE energy targets for 2050, including:

- Power: 44 percent from clean energy, 38 percent from natural gas, 12 percent from clean coal and 6 percent from nuclear energy.

- Energy Efficiency: 40 percent improvement relative to current annual growth in electricity demand of 6 percent.

- Carbon Emission Reduction: 70 percent reduction in carbon emissions from power generation.

In parallel, the UAE’s federal Ministry of Foreign Affairs submitted its Intended Nationally Determined Contribution (INDC) to the United Nations Framework Convention on Climate Change (UNFCCC) in October 2015, in advance of the 21st session of the Conference of the Parties (COP21) meeting in Paris. The document was ratified in September 2016, becoming its Nationally Determined Contribution (NDC). The document sets a target of increasing clean energy contribution to the UAE’s total energy mix from 0.2 percent in 2014 to 24 percent by 2021. In 2018, the target for clean energy in the total mix was raised to 27 percent.

The UAE Energy Strategy 2050 and documents such as the UAE NDC contain general ambitions for sustainable national development and aspirational targets, but do not specify precisely how the ambitions and targets will be implemented.

One reason for this, if not the overarching one, is the UAE’s complex decision-making process, resulting from the country’s being a federation of seven nominally independent emirates. Power is polarized between Abu Dhabi and Dubai, which historically strictly guard their policymaking independence. The remaining smaller emirates, known collectively as the Northern Emirates, tend to follow Abu Dhabi’s policy lead.

For the purposes of this study, we have identified six policy instruments:

1 | Carbon pricing: Implementation of a carbon focused tax or related policy measures that directly impose a price on carbon. In order to maintain a level playing field within the UAE, it would be necessary for the introduction of carbon pricing to be a federal policy, uniformly adopted by all the emirates. The UAE has no explicit commitment to a certain level of carbon emissions abatement.

2 | Renewables: Increased deployment of renewable energy sources, solar and/or wind, for electric power generation and desalination. The implementation of renewable energy projects is currently the policy domain of individual emirates and their respective utility companies.

3 | Nuclear energy: Implementation of previously planned deployment of nuclear energy in electric power generation. Only the emirate of Abu Dhabi has decided to develop nuclear energy and ENEC, the company charged with building four nuclear power plants in Abu Dhabi, is fully owned by the Abu Dhabi government. However, the UAE nuclear regulator, the Federal Nuclear Energy Authority (FANR), is a federal institution, with a board composed almost exclusively of officials from Abu Dhabi.

4 | Energy efficiency (EE): Increased implementation of EE standards with monitored performance and audits to achieve greater EE technology adoption and demand side management. Each UAE emirate implements its own EE regulations and standards for buildings, although regulation of appliance energy efficiency is at the federal level through the Emirates Authority for Standardization and Metrology (ESMA).

5 | Energy subsidy reform: Further reform of energy subsidies for power, water and transportation fuels. Transport fuel prices in the UAE are harmonized between all the emirates. In recent years, the federal Ministry of Energy has taken a lead in introducing variable prices for retail transportation fuels, gasoline and diesel, based on the international market price. Electricity and water prices are established by each emirate, with Dubai taking an initial lead in establishing cost reflective pricing, but with the other emirates making substantial progress in recent years.

6 | Natural gas: Maintaining the use of natural gas in electric power generation, perhaps taking advantage of new sources of cheap liquefied natural gas, or new gas field development. The emirates of Abu Dhabi, Dubai and Sharjah all produce natural gas, either from gas fields or in the form of associated gas. However, gas production in the UAE is not enough to supply growing demand from its power sector and from industrial users. Since 2006, the UAE has imported gas from Qatar via the Dolphin pipeline (17.9 bcm in 2016) and more recently has expanded liquefied natural gas imports (3.9 bcm in 2016) through Dubai. It is introducing floating storage and regasification units (FSRU) in Abu Dhabi and Sharjah. Plans for a fully-fledged gas terminal in the emirate of Fujairah appear to have stalled, given the more attractive near term economics of FSRUs. ADNOC is also putting renewed efforts into the development of non-associated sour gas fields, with new developments expected to bring billions of cubic feet a day (bcf/d) of new gas to the UAE within the next several years. Increased use of natural gas for power and water generation is a policy choice made by individual emirates which have control over their respective electricity and industrial sectors, though the smaller Northern Emirates are dependent on Abu Dhabi for much of their power supply and thus can be clustered with it.

We can summarize the current level of consensus for each of the policy alternatives, based on the data collected for the larger KTAB study. Based on the KTAB simulation results, we can also make an assessment about the expected level of future political will for each policy alternative. These results are summarized in Figure 1:

 

 

Based on Figure 1, we can see that currently there is no consensus regarding carbon pricing, a positive consensus in favor of renewables, and an uncertain consensus for the remaining policy instruments. In other words, there is uncertainty and debate around each policy option considered in this study.

 

Political feasibility for each policy option

The UAE has committed to a target of achieving 44 percent total of renewable energy in power generation capacity by 2050, with a further commitment to achieving significant curtailment of electricity demand growth in the same timeframe. This commitment to renewable energy and energy efficiency complements a commitment to nuclear energy that should ultimately result in four operational nuclear reactors in the UAE by 2021 or soon thereafter. Although the UAE has published a NDC that is supportive of mitigating greenhouse gas emissions, no definitive commitments have been made to a specific level of greenhouse gas emission reductions in the near or long term. The implication from the KTAB modeling, that explicit carbon pricing in the UAE is politically unlikely, reinforces the notion that the country is reluctant to address greenhouse gas emissions directly.

Regarding the UAE’s sustainability commitments, a key challenge to realization is that political visions are in place without detailed strategies and roadmaps to guide policy and regulatory approaches. The situation is additionally challenging given the relative sovereignty that each UAE emirate has over its energy policy. Nonetheless, the results of this work provide insights as to the policy instruments most likely to be implementable based on political consensus, even without clearly defined plans—or perhaps implying which may enjoy clearer plans in the future.

From a policy perspective, it seems clear that the UAE can effectively deliver in the near term on renewable energy ambitions with continuation of the utility scale solar energy tenders that have already proven successful. Nuclear power to the level of 5.6GW is a commitment that the UAE will almost certainly deliver, although support for nuclear beyond this level of deployment is uncertain. A perhaps surprising outcome from this study is the somewhat neutral, although still positive, view on natural gas given the current dominance of natural gas in the UAE power sector. An explanation may rely on the value of natural gas in many uses for the UAE beyond power generation, most notably enhanced oil recovery and as a feedstock for petrochemicals. Even for power generation, natural gas would be expected to play a role in system balancing for intermittent renewable energy.

On the demand side, energy subsidy reforms in the UAE have already been undertaken and are expected to continue, perhaps due more to fiscal challenges from low international oil prices than direct climate concern. Policies targeting appliances and building energy efficiency as well as demand response will further support energy demand management and when targeted toward the commercial and residential buildings sector should not be politically troublesome. Although energy intensive industrials might be expected to oppose energy efficiency and conservation in the same way they oppose carbon pricing, this was not found to be the case in this study. Rather, energy efficiency policy appears a plausible approach to realizing sustainable energy in the UAE. This affords an opportunity, because only limited overall progress can be made toward the UAE energy transition if the industrial sector, which by far has the greatest contribution to the UAE’s final energy consumption, is not in agreement with policies that are developed and implemented. Hence, energy efficiency and demand management in industry is a policy area that should be further strengthened as a complement to the current focus on renewable energy for the power sector. If the UAE is to achieve a true energy transition, the more holistic and seemingly politically acceptable approach will be necessary.

 


Brian Efird is Senior Researcher and Program Director for Policy and Decision Science at King Abdullah Petroleum Studies and Research Center (KAPSARC), Riyadh, Saudi Arabia.

Steven W. Griffiths is Senior Vice-President of Research and Development and Professor of Practice at the Khalifa University of Science and Technology, Abu Dhabi