Current Policy Projections
It is difficult to assess whether Saudi Arabia’s current policy projections reach its NDC since there is no business-as-usual baseline available for the target (as discussed in the Pledge section) and there is limited data availability for the current policies trajectory. This is further explained in the Assumptions section. Based on these assumptions, we expect that under post-COVID-19 current policy projections, Saudi Arabia’s emissions will be at around 930–1040 MtCO2e by 2030—a five to six-fold increase from 1990 levels. Saudi Arabia can reach the upper end of its “Critically insufficient” NDC target under current policies projections and is also close to reaching the lower end of it.
In 2020, we expect Saudi Arabia’s GHG emissions to be 3% to 6% lower than in 2019 due to the repercussions of the COVID-19 pandemic. Our current projections for 2030 are 72–91 MtCO2e (or 6% to 9%) lower than under pre-COVID-19 projections.
As the host of the G20 Summit in November 2020, Saudi Arabia has an important role in shaping the global economic recovery measures. In March, the G20 leaders pledged to inject USD 5 trillion to the global economy to respond to the financial impacts of the pandemic (G20, 2020). Despite “Safeguarding our Planet” and climate mitigation efforts being important agenda points for this year’s summit, Saudi Arabia has reportedly made efforts to censor the discussion around fossil fuel subsidy removal by removing references to subsidies from briefing documents—despite this being a standard G20 agenda item since 2009 (Farand, 2020).
The Saudi economy has been affected in two ways by the COVID-19 pandemic: first, due to the restrictions put in place to curb the pandemic, and second, due to the freefall in oil prices resulting from a decrease in international demand. The Saudi tourism industry has notably been affected by travel restrictions: whereas usually up to two million people travel to Makkah for the annual Hajj pilgrimage, in July only a few thousand local pilgrims were allowed to travel (Jaffery, 2020). The action the Saudi government has taken since March 2020 to respond to the economic and financial consequences of the pandemic includes the following measures (IMF, 2020a):
- A USD 18.7 billion (SAR 70 billion or 2.8% of GDP) fiscal support package to provide liquidity to the private sector (e.g. by suspending taxes);
- A USD 13.3 billion (SAR 50 billion or 2% of GDP) monetary support package to increase lending to the private sector and defer loans payments;
- Temporary increases in electricity subsidies for certain consumers (see Energy supply section for details);
- Measures to increase non-oil revenues, including a tripling of VAT from 5% to 15% starting in July 2020.
None of these recovery measures directly address climate change. On the contrary, the electricity subsidies indirectly subsidise fossil fuels, as the electricity system is still nearly exclusively powered with fossil fuels (natural gas and oil).
To diversify its revenue streams, a central objective of “the Vision 2030” strategy - before the pandemic and crash in oil prices - the Saudi government decided to list a small share of the state-owned oil company Saudi Aramco on the stock market (de la Merced & Reed, 2019; Reuters, 2019). Following its stock market launch in December 2019, Saudi Aramco became by far the most valuable listed company worldwide (Jolly & Ambrose, 2019). Saudi Aramco’s stock market launch was initially complicated by an uncertain security situation in the region and increased awareness about the financial risks related to fossil fuel investments (de la Merced & Reed, 2019). Research by the Climate Accountability Institute shows Saudi Aramco has contributed more than any other company to global carbon dioxide emissions since 1965 (Heede, 2019; Taylor & Watts, 2019).
As the world’s leading oil exporter, oil extraction has been the backbone of the Saudi economy, with proceeds from exports covering almost 90% of total government revenues, and contributing more than 35% of GDP since 1970 (Al-Rushaid, 2010; Alshahrani & Alsadiq, 2014). Given the current policy framework in the energy supply sector, Saudi Arabia is projected to follow baseline levels using fossil fuels to supply its energy needs.
Growing domestic demand for oil and gas, coupled with years of oil prices often below the level of the fiscal breakeven price (i.e. the price needed to meet government spending) of USD 80–85 per barrel estimated by the IMF, have led the government to steer its economy towards diversification from oil dependence (Alsweilem, 2015; Barbuscia, 2019). However, domestic oil product consumption has fallen due to the COVID-19 pandemic, decreasing by 15% and 13% in April and May 2020 respectively compared to the same months in 2019 (JODI, 2020).
The risks associated with a heavy reliance on oil revenues were further highlighted in September 2019 when a missile attack on Saudi Arabia’s oil facilities temporarily cut total production in half (de la Merced & Reed, 2019). The risks became apparent once again during the recent oil price war with Russia and the plummeting oil prices as a result of the COVID-19 crisis (The Economist, 2020).
In addition to fiscal pressure, Saudi Arabia has one of the world’s highest rates of per capita energy consumption, forecast to still significantly increase by 2030 compared to 2010 levels (Climate Action Tracker, 2019; Kingdom of Saudi Arabia, 2016). This issue presents two issues: it will significantly reduce Saudi Arabia’s capacity to export oil because of increased domestic needs, and it will increase government spending because oil is heavily subsidised for domestic consumption. Electricity consumption per capita is also high and prices continue to be subsidised—in April 2020, the government announced additional subsidies for electricity consumers in the industrial, commercial and agricultural sectors (IMF, 2020a).
In March 2018, Saudi Arabia and the SoftBank Group Corp. signed a memorandum of understanding to build 200 GW of solar (Nereim & Cunningham, 2018). There have been no recent developments regarding this megaproject, and in 2019 the Saudi government presented new 2030 renewable targets. As a result of this, we no longer take this 200 GW project into account in a “planned policies” scenario.
In 2013, the government announced its plan to build 54 GW of renewable power and 17 GW of nuclear power by 2032 to cover 40–45% of future electricity production (Al-Ghabban, 2013). After already announcing an eight-year delay of these plans in 2015, Saudi Arabia further revised the renewables energy targets in 2016 and again in 2019. In the “Vision 2030” announced in 2016, the target was reduced to an ‘initial phase’ of only 9.5 GW in 2023 (Borgmann, 2016; Kingdom of Saudi Arabia, 2016).
In early 2019, the Ministry of Energy announced an updated “Vision 2030” renewable energy target of 27.3 GW by 2023 and 57.8 GW by 2030. In June 2020, the Minister of Energy announced Saudi Arabia would produce 50% of its electricity from renewable sources by 2030 (Aluwaisheg, 2020). We have not taken this into account in our analysis, as this statement has so far not been backed by an official strategy.
In “Vision 2030” there is no further mention of the nuclear power target, but it appears the nuclear objectives have been revised downwards. In 2013, Saudi Arabia announced that it planned to build 17 GW of nuclear energy by 2032; this date was later revised to 2040 (World Nuclear Association, 2019). In September 2019, the newly appointed Minister of Energy stated that Saudi Arabia would “proceed cautiously” with nuclear energy development. There are now tentative plans to build two reactors totalling 2.8 GW by 2030 (MEES, 2019).
Through the National Renewable Energy Plan, Saudi Arabia has taken initial steps to expand renewable electricity generation. In February 2017, it launched a USD 30–50 billion renewable energy tender programme inviting domestic and international companies to bid for renewable energy projects (Saudi-US Trade Group, 2017). This funding was intended to support the achievement of the government’s earlier 9.5 GW target for 2023. So far there seems to have been no additional funding directed towards the achievement of the current, far more ambitious goal of 27.3 GW by 2023.
In a first tender round in 2017, companies bid to develop 300 MW of solar PV energy and 400 MW of onshore wind power projects (Bloomberg, 2017b). In August 2019, the Ministry of Energy launched a second round of renewable energy tenders, inviting bids for a total of roughly 1.5 GW of solar PV (Ministry of Energy of Saudi Arabia, 2019a). A third round for 1.2 GW of solar PV was launched in January 2020 (Ministry of Energy of Saudi Arabia, 2020). The government will need to increase the pace of installations to meet the 2023 and 2030 targets, considering that in 2019 the installed renewable energy capacity stood at only around 0.4 GW (IRENA, 2020).
In 2019, Saudi Arabia’s Renewable Energy Project Development Office (REPDO) completed a study claiming that 13.5 GW of renewable energy could be integrated without major grid upgrades (Ministry of Energy of Saudi Arabia, 2019b). Beyond this, and in order to achieve the renewable energy targets the government has set by 2023 and 2030, large-scale investment in grid infrastructure will be necessary. Saudi Arabia is moving ahead with grid interconnection plans with neighbouring countries, which could facilitate a future uptake and integration of renewables. In August 2020, Saudi Arabia and Jordan signed an agreement to connect the two countries with a 164 km grid interconnection project (ME Utilities, 2020).
In July 2020, a U.S. based company announced it would build a renewable energy-powered hydrogen plant in Saudi Arabia (Parnell, 2020). The USD 5 billion plant would be the world’s largest green hydrogen plant.
Our current policy projection range reflects optimistic and pessimistic assumptions on the implementation of the 27.3 GW by 2023 and 58.7 GW by 2030 targets for renewable energy from Saudi Arabia’s “Vision 2030”. For further details, see the Assumptions section.
The King Abdulaziz Public Transport project is a major initiative to modernise transportation in the city of Riyadh. The capital is set to become the second city in Saudi Arabia with a metro network after the Makkah metro opened in 2010 (Saudi Gazette, 2020b). Parts of the metro network should be operational by the end of 2020. A bus network will also be launched around the same time as the city’s metro (Saudi Gazette, 2020a).
The Saudi government has also taken steps to invest in rail transport; however, it remains unclear whether the new networks will be electric or diesel-powered. In 2010, it launched the Saudi Railway Master Plan, aiming to construct a 9900-km network by 2040 (Oxford Business Group, 2020). The first phase, running until 2025, includes constructing and upgrading 5500 km of tracks for freight and passenger transport, including interlinkages to the wider GCC railway network. As of 2020, 1500 km of new tracks have been built and the total length of the network stands at 5000 km. This includes the flagship Haramain high-speed railway linking the two holy cities of Makkah and Medina. The project was completed in 2018 and can serve up to 60 million passengers annually (Kalin, 2018).
The Saudi government has sought to reduce energy subsidies to reduce the burden they represent for the state budget. This started with an increase in fuel prices in December 2015, with the aim to reach international price levels by 2020. In December 2017, however, Saudi Arabia announced it would instead slow the pace of energy subsidy cuts to offset the impact of austerity measures on the stagnating economy.
Saudi Arabia is now planning to gradually reach parity with international gasoline prices between 2018 and 2025. In the same period, Saudi Arabia plans to increase local diesel prices to 90% of international prices. It has also announced other energy types price increases (Bloomberg, 2017a).
We estimate that the updated energy subsidy cuts will result in emissions reductions of 53 MtCO2e compared to business-as-usual in 2030. The Government has also implemented a 5% VAT for fuel prices from January 2018 onwards (General Authority of Zakat & Tax, 2018). Another policy in the transport sector foresees fuel economy standards for imported vehicles by 2020 (IEA, 2017).
In October 2018, Saudi Arabia’s Public Investment Fund announced its intent to establish an electric vehicle (EV) industry in the country following an agreement to invest more than USD 1 billion in the US-based EV manufacturer Lucid Motors (Reuters, 2018). But progress to date has been slow: Saudi Arabia only installed its first EV charging station in August 2019 (Utilities Middle East, 2019).
In the buildings sector, Saudi Arabia has introduced energy efficiency measures such as insulation standards for new buildings, and tightened minimum energy performance standards for air conditioners (ACs) to reduce local oil consumption (IEA, 2014). Since the introduction of these measures and standards in 2012, the standards for ACs have been further refined and the insulation standards continue to be enforced. Saudi Arabia is currently looking into developing standards for appliances and lighting. The measures and standards in the building sector are expected to reduce emissions (Saudi Arabia Energy Efficiency Center, 2017).
Contrary to other countries in the region such as the UAE, per capita emissions in the buildings sector have mostly continued to increase over recent years and remain far above world average.