Full report
Published: 28 June 2023

Fostering Effective Energy Transition 2023

Saudi Arabia

Country Analysis

Key progress on ETI

Saudi Arabia ranks 57 out of 120 countries on the ETI 2023. The country has long been a dominant player in the oil market, and in recent years has undergone a significant energy transition, recognizing the need to shift towards renewable energy and reduce its carbon footprint. Over the past 10 years, Saudi Arabia has shown an 11% improvement in its overall ETI score, including both system performance and transition readiness. It leads the Middle East, North Africa and Pakistan peer group and ranks highly in both the secure and equitable dimensions. Although its sustainable ranking is making progress, there is still room for improvement, particularly in reducing energy and carbon intensity. To achieve this, measures such as expanding renewable resources and using carbon capture technologies could be implemented. Within transition readiness, significant progress has been made on regulation and political commitment.

Key imperatives and policies in place

Saudi Arabia’s Vision 2030 was launched in 2016 and aims to diversify the country’s economic resources and help it become more sustainable. Through the Vision, the Kingdom seeks to diversify non-oil exports and increase its share of non-oil GDP from 16% to 50% by 2030.91 The King Abdullah Petroleum Studies and Research Center maintains that “non-oil exports are an important component of Saudi Arabia’s economic diversification, as they can play crucial roles in sustainable economic development and job creation”.92 According to one analysis, “hydrogen production would allow Saudi Arabia to become less reliant on domestic oil as a key source of income”93 and would use its existing oil and gas infrastructure and supply chain networks. Saudi Arabia’s National Hydrogen Strategy, targeting 4 million tonnes per year of clean hydrogen,94 aims to make the country a leader in its production and export. The Public Investment Fund (PIF) has invested in several hydrogen-related projects, including a joint venture with Air Products to build a $5 billion green hydrogen plant in the country.95 In October 2022, PIF also successfully auctioned 1.4 million tons of carbon credits, making it the first voluntary carbon market in the region.96 The country’s shift towards renewables, with 11.4GW capacity under development,97 represents a significant departure from the traditional economic model and may have geopolitical implications.

Despite the objective of reducing fossil fuel subsidies under Vision 2030, Saudi Arabia still had the world’s third-largest subsidies in 2019 at nearly $30 billion, primarily directed towards oil, fossil-fuel electricity production and natural gas.98 Cheap, available fossil fuels reduce incentives for investments in renewable energy technologies, as companies and investors may view them as less financially viable. Launched in 2021, the Saudi Green Initiative (SGI) describes itself as “steering the implementation of a sustainable long-term climate action plan. Three overarching targets guide SGI’s work – emissions reduction, afforestation, and land and sea protection.”99 By 2030, the Kingdom has promised that 50% of its energy will come from renewable sources, and SGI is leading several ambitious efforts that will lower emissions and change the domestic power mix, including creating a programme for carbon capture and storage (Carbon Circular Economy), increasing energy efficiency (Saudi Arabia Energy Efficiency Programme) and investing in new energy sources.

What’s next?

The Kingdom has been investing in research and development to support new solar and wind technologies and improve the efficiency and cost-effectiveness of existing technologies. The renewable power sector encounters various challenges, however, including a shortage of skilled human resources. In addition, oil exports remain central to the Kingdom’s economic development and export portfolio; Saudi Arabia aims to expand its oil production capacity to 13 million barrels per day by 2027.100 While this may maintain the country’s position as a reliable and versatile global supplier in a volatile market,101 the additional production and related revenues also provide an opportunity to invest in and develop technologies that can capture generated emissions to ensure the Kingdom meets its emission reduction targets. In addition, Saudi Arabia can become an even stronger leader of the energy transition in the region by developing joint investments, research programmes, training and education, as well as incentives that help accelerate the move to electrification, energy efficiency and use of hydrogen.

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