Ashim Paun, Co-Head of Global ESG Research, HSBC
As emissions rise and the climate changes, global warming brings different risks to different countries and cities. In the Middle East, North Africa and Turkey – MENAT – where fossil fuels play such a significant role in most economies, the transition towards more sustainable growth is still in its early stages, but the pace is quickening.
Needless to say, the region is already hot. Qatar and Bahrain have among the highest average temperatures in the world and in 2016, Kuwait registered the third highest temperature ever recorded at 53.9°C. The region’s summer temperatures are expected to rise twice as fast as the global average in coming years.
This brings more risk – water shortages, increased stress on health services, drought and livestock death. Water access is a particular concern: some countries in the region already have among the world’s lowest water availabilities per head.
MENAT is responsible for 10 per cent of total global greenhouse-gas emissions. The region’s emissions per head and per unit of GDP are higher on average than those of other emerging markets. This is partly down to countries such as Saudi Arabia, Kuwait, the United Arab Emirates and Qatar that have large oil and gas extraction and processing industries relative to their populations (resulting in high carbon emissions per capita), or that form a large proportion of their economies.
The region’s oil and gas resources are characterised by some of the largest reserve bases and among the lowest per barrel extraction costs in the world, allowing most countries to ride out any post-coronavirus price volatility.
Though this may delay investment in the low-carbon transition, there is a commitment to change across the region. All the region’s major economies have submitted Paris Agreement pledges on emissions reduction and six countries added wind and/or solar to their energy generation mix in 2019. High temperatures and consistent sunshine make the region a potential solar powerhouse.
Turkey is the regional trailblazer, generating 6 per cent of its electricity from wind and solar generation, with another 26 per cent from hydro power. Overall, Turkey is best-placed to move forward fastest on transition, with high levels of clean-tech investment and a low reliance on fossil fuels.
All the region’s major economies show a declining dependence on fossil fuels in GDP and in exports, demonstrating a degree of economic diversification away from oil and gas when measured in monetary terms. Nevertheless, some countries remain highly exposed to the sector, and absolute oil and gas production volumes have increased over the last 20 years.
A key challenge will be energy demand, which will increase in tandem with a fast-growing population in MENAT countries. The near-term decisions taken in terms of building out new and replacement capacity will be very important in determining the future emissions trajectories across the region. However, a nascent sustainable finance industry evident in countries across the region will be further supportive in enabling a transition, in our view.
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The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Ashim Paun
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