The 28th edition of the UN Climate Change Conference (COP28) will be hosted by the United Arab Emirates (UAE) throughout November and December 2023. The eyes of the world will be on the country and scrutiny of its performance as host of the world’s most important climate conference will be sky-high.
The world’s media will be quick to highlight the awkward symmetry of one of the world’s largest hydrocarbon producers leading efforts to reduce the environmental impact of global carbon emissions.
The UAE is only too aware of this likely criticism and is undertaking rigorous preparations to attempt to answer its critics and make sure COP28 is a success.
As part of those preparations, in November 2022, Abu Dhabi added a day dedicated to sustainability to Abu Dhabi Finance Week, an event previously focused solely on fintech. In January 2023, it will follow this up with Abu Dhabi Sustainability Week, intended to be a bridge event for COP28.
These events are intended to show the world that Abu Dhabi and the wider UAE do not just intend to fulfill their obligations to climate action but become a global leader in sustainability.
Changing perceptions of the UAE on sustainability
The Paris Agreement, the result of COP21 in 2015, established the system of nationally determined contributions (NDCs) under which all signatory countries would declare their greenhouse gas emissions and targets to reduce them. While the system is non-binding, signatory countries are expected to update their NDCs every five years and ratchet up climate action over time.
The UAE’s first NDC did not include any emissions-reduction target and was only updated in December 2020. This second NDC pledged a 23.5% reduction by 2030 compared with 2016 levels, although this was still judged “highly insufficient” by the independent research group Climate Action Tracker.
In a sign that the UAE is taking emissions reductions more seriously, in September 2022, it published a third NDC that increased the reduction target to 31% and included far more details on delivery. It will focus on five priority sectors: electricity, transport, industry, waste management, and carbon capture, utilization, and storage.
The UAE retains a target of becoming net zero by 2050. While some will say these targets remain too unambitious, they will nevertheless require a stark transformation for a country built on hydrocarbon production and consumption.
Abu Dhabi Finance Week, organized by the emirate’s financial center Abu Dhabi Global Markets (ADGM), promoted the country’s strategy for achieving this transformation. The UAE intends to become a hub for energy transition companies through increased inward investment, and for new forms of capital and exchange that will fund climate action.
Mercedes Vela Monserrate, head of sustainability at ADGM, says that “as a hydrocarbon-producing country, the UAE has an important role to play in the energy transition”, and that its net-zero strategy “directly aligns with the UAE’s development vision for the next 50 years to create new knowledge, new industries, new skills, and new jobs”.
Regulatory harmonization
Monserrate says that the UAE is “a proven convener on the issue of climate and will build on this tradition to continue to push for bold climate action, including through COP28”.
She points to the Abu Dhabi Sustainable Finance declaration, launched by ADGM in 2019, which brings together financial institutions, multilateral organizations, institutional investors, and academic institutions to discuss sustainability plans.
More recently, ADGM published a consultation paper on a proposed comprehensive Sustainable Finance Regulatory Framework in alignment with international standards. This covers rules on sustainability-orientated investment funds, managed portfolios, and bonds, as well as environmental disclosures by ADGM companies.
These types of frameworks have been launched in various jurisdictions around the world since the EU introduced its own taxonomy in 2020, but Monserrate sees potential for the UAE to play a leading role in creating greater international standardization.
A proliferation of differing sustainable finance frameworks by multiple jurisdictions carries the risk of “adding to the complexity, cost, and confusion”, Monserrate says. “In a way, sustainable finance has outpaced financial legislation,” she adds.
Attracting innovative sustainability companies to the UAE
Another plank of the UAE’s strategy is becoming the home of some of the world’s most innovative energy and sustainability companies. The country, and in particular Dubai, has achieved impressive foreign direct investment inflows, even at the heart of the Covid-19 pandemic.
The UAE has some of the lowest costs for solar power anywhere in the world have invested heavily in the technology over the past decade. The country is planning to have 5.6GW of solar power capacity installed by 2026 and has set a target of 50% of its energy coming from clean energy sources by 2050.
Construction of Masdar City, a free zone in Abu Dhabi dedicated to sustainability, began in 2008. It has been home to the intergovernmental organization the International Renewable Energy Agency since 2015.
Toddington Harper is the CEO of Gridserve, an electric vehicle (EV) company that specializes in offering a ‘sun-to-wheel’ service: generating and storing solar power at scale, then providing this to EVs through a network of charging sites, while also leasing EVs to its customers.
Although the company is UK-based, Harper grew up in Bahrain and sees huge potential in the region.
“Do you want to be on the front foot and be a leader in what comes next? Or do you want to be a laggard, resistant to change?” Harper asks. “All the evidence I see, with initiatives over the past 15 years, or the work on Masdar and so on, is that the UAE gets it and wants to be on the right side of history.”
Harper insists his focus is on moving the needle on climate change, and to do that, services such as his need to reach all regions around the world.
Not only does the UAE offer a market for innovative technology companies to potentially expand into but also has access to a significant pool of capital.
“The costs of delivering this infrastructure is a multi-billion pound investment in each and every region, but that creates significant opportunities for those who are interested in that sort of scale of investment,” says Harper of Gridserve.
The future of carbon markets
The UAE sustainability strategy also appears to be based on becoming a major global marketplace for carbon credits. The country has set no targets for ending gas exploration but seems to want to offset this by helping companies around the world reduce their carbon footprint.
In March 2022, ADGM announced a partnership with AirCarbon Exchange to create the world’s first fully regulated carbon trading exchange and carbon clearing house.
“ADGM’s regulatory framework allows market participants from all over the globe to trade carbon credits on a spot basis, like conventional financial assets, thus increasing participation and investment in global carbon reduction and offset programs,” says Monserrate.
In November 2022, this partnership was further strengthened when the Abu Dhabi sovereign wealth fund Mubadala acquired a 30% stake in AirCarbon.
Nili Gilbert is vice-chairman of Carbon Direct, a company that invests in climate tech companies, and also advises Fortune 500 companies on carbon management. She sees huge potential in carbon markets if they are made efficient, and says demand by companies for carbon abatement strategies is growing.
“Social awareness of greenwashing is now quite high, and it is not just reputational risk that most companies are managing against – there is also the risk of falling short of decarbonization targets,” says Gilbert. “They want to get this right, but it is hard. Carbon offset markets offer a lot of promise but are very complicated right now.”
Gilbert visited Abu Dhabi for Finance Week and sees significant potential in the UAE and the wider region.
“The harder to abate the emissions, the more technical expertise is required to be able to manage them,” she says. “When we hear leaders in this region talk about building a knowledge economy with local and foreign partners, that really resonates with us at Carbon Direct, because we see a strong intersection between the need to expand the knowledge economy and the ability to achieve climate goals.”
The potential of Abu Dhabi as a sustainability hub
“For the net-zero industrial revolution, or the green industrial revolution, we will need to complete something at the scale of the first industrial revolution, which took about 80 years, but now we have less than 30 years”, says Gilbert. “So we really need to talk about drivers of exponential change.”
The UAE says it has the tools to deliver that exponential change, even if it remains a major hydrocarbon producer. By becoming a hub for sustainable capital and energy transition companies, it believes it can become a global leader in the fight against climate change while managing its own transition in a way that allows its economy to continue growing.
“The UAE has significant influence in the region as a major oil and gas producer as well as being a world leader in renewable energy,” Monserrate says. “Because of this, the country’s Net Zero Strategic Initiative will resonate widely by encouraging neighboring countries to follow the same path, and by drawing attention to the UAE’s innovative approach to tackling climate challenges.”
COP28 will be the ultimate test of whether the UAE’s strategy has the backing of the rest of the world.
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