Can technology save the Middle East from climate change?

With targeted investment, the Middle East will be able to assume global leadership in a number of climate tech domains where it now enjoys a competitive advantage.
GCC countries have been catching up to emerging and developed nations in renewable energies investments at an incredibly quick rate. In our recently issued report, we’ve found that $6 billion has been invested in climate tech since 2013 by 12 Middle Eastern countries, and $1.6 billion of that was invested in the first half of 2022 only.

There are a number of reasons for this impressive growth rate in renewable energy investment witnessed in the region: First of all, Middle Eastern nations can take advantage of their natural resources by building sustainable hydrogen and solar power plants thanks to differentiated availability of land. The cost of producing solar based electricity, and green hydrogen in the Gulf is significantly competitive due to the fact that the region enjoys some of the highest solar voltaic output in the world. Both the UAE and Saudi Arabia have made solar energy cost competitive as a result, and renewables have become an important regional investment focus.

On the other hand, sovereign wealth funds are in a position to support a significant push into climate tech innovation locally as well as globally, at a time when the global economy is in a phase of slowing growth. Add to the aforementioned, the fact that the region is investing largely in new industrial zones that are set to be sustainable and circular. One final point is related to the capabilities. The region can easily pivot its capabilities in the chemicals sector towards the hydrogen economy and direct its youth towards STEM education in related fields.

Despite the plummet of the overall venture funding for climate tech start-ups by U$52 billion over the first three quarters of 2022, our analysis reveals an increasing desire for investment in the Middle East. However, broader tech investment trends in the Middle East also follows the global trend: after sharp increases in overall tech funding over the past few years that continued into the first half of 2022, the investment momentum slowed in the second half of the year.

Furthermore, a number of countries in the region have taken major steps to reach their climate change goals with a focus on pioneering technologies. A few days prior to COP27, Saudi Aramco unveiled a $1.5 billion sustainability fund that would invest in the technology required to facilitate the transition to green energy. The UAE also signed a $100 billion strategic agreement with the US in clean energy projects, focusing on investing in reliable and responsible supply chains and encouraging investment in green mining. This was a significant development as the country prepares to host COP28 in 2023.

With the Middle East economies being oil focused, what immediate steps can the GCC countries take to lead in the area of climate tech?

Funding climate tech in the MENA is one part of the equation—the easy one. Success requires a holistic and mission-oriented or moon shot approach that hinges on the following:

1. Connect the dots between sovereign wealth funds, government programs, and national champion plans—essentially launching a climate-tech mission. Connecting the dots also goes beyond the region, to include deeper partnerships with countries that share common goals.
2. De-risk through longitudinal collaborations. It will be important to create off-take markets for the local innovations, by connecting green product end-consumers such as airlines or shipping companies for synthetic fuels with the green fuel supplier, supply-chain innovators including electrolyser manufacturers, and carbon feedstock providers, where relevant.
3. Make climate tech a major R&D priority and channel long-term and “patient” funding that brings in innovators and researchers around missions. In addition, the region should design new educational programs and dedicate applied institutes related to climate technologies, such as nature-based engineering and the hydrogen economy.
4. Pivot existing capabilities. GCC countries could leverage their expertise as global leaders in oil and gas to develop other, capital-intensive, and geological complex green energies, including geothermal energy and carbon air capture and sequestration. The region’s capabilities and knowhow in petrochemicals could likewise be critical to develop synthetic fuel production and the hydrogen economy. Ammonia subsidiaries or business units can become core growth platforms.
5. Create an enabling ecosystem. Establishing regulatory “sandboxes” in which new approaches could be tried and tested in a careful but encouraging environment will help with their development. Better data about climate investments, including reporting requirements for companies, could already help track how and where funds are flowing, and thereby help set clearer priorities.
6. Galvanize the younger generation. Climate change is an intergenerational problem, and the Middle East, with its young populations, has the potential to galvanize the younger generation into action, providing new purpose and new vision for the region. That will require a focus on education, to ensure that climate science and its ramifications become part of the core curriculum. Employers can also help unleash youthful energy.

What are the biggest opportunities and challenges for the Middle East countries in shifting to clean energy?

Given the above mentioned green competitive advantages and the existential challenges, the region has the right to win in six climate tech areas:

• Green fuels: green hydrogen and synthetic fuels
• Green industries (heavy industries -steel, Aluminium, titanium, and consumer centric products like sustainable fashion)
• Climate resilient agri tech (precision fermentation)
• Decarbonizing the built environment w circular economy (e.g., plastic recycling, construction waste recycling, energy recovery from waste)
• Direct Carbon Capture from Air
• Nature based solutions for arid environment (e.g., mangroves plantation, high carbon capture trees w low water intensity, blue economy concept on the red sea side)

To win, the region has to move fast and in an agile way noting that we have a unique window of opportunity to attract foreign direct investment looking to walk the ESG talk. At PwC, we believe that Environmental, Social and Governance (ESG) imperatives can accelerate the massive and fast transformation of our region. Through the strategic role the region plays in the energy transition, pioneering hydrogen and circular economies, developing sustainable destinations, localising supply chains, generating employment, expanding social inclusion and good governance, ESG can both drive the transformation and create opportunities to develop world leading, competitive advantage.