Transcript Saudi Arabia

Sustainable development
and state capacity in the
Gulf
Steffen Hertog
Sciences Po/Durham
Per capital oil consumption
Per capital oil consumption
http://bbs.keyhole.com/ubb/placemarks/812794WorldOilConsumptionPerCapita.kmz
Egypt
United
Kingdom
Japan
United
States
Qatar
Bahrain
Kuwait
Oman
United
Arab
Emirates
Saudi
Arabia
Per capita CO2 emissions 2004 (t)
90
80
70
60
50
40
30
20
10
0
Carbon intensity of growth (kt CO2/million US$ GDP, 2000 PPP)
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
Saudi
Arabia
United
Arab
Emirates
Oman
Kuwait
Bahrain
United
States
Japan
United
Kingdom
Egypt
Egypt
United
Kingdom
Japan
United
States
Qatar
Bahrain
Kuwait
Oman
United
Arab
Emirates
Saudi
Arabia
CO2 emissions growth rates 1990-2004
30
25
20
15
10
5
0
2004 GCC CO2 emissions relative
to GDP
tons of CO2/year/person
90
Qatar
80
70
60
ROW
50
Kuwait
40
GCC
UAE
KSA & Oman
Bahrain
30
20
10
Linear (ROW)
0
-106.00
7.00
8.00
9.00
10.00
ln of GDP per capita (2005 PPP)
11.00
12.00
GCC CO2 emissions relative to
GDP (without Qatar)
tons of CO2/year/person
40
35
30
25
ROW
20
GCC
15
Linear (ROW)
10
5
0
-56.00
7.00
8.00
9.00
10.00
ln of GDP per capita (2005 PPP)
11.00
12.00
The GCC’s global environmental
role
• Large exporters of pollutant fuels
• Increasingly large consumer of fuels
– 50% of all Arab emissions come from the Gulf
– High growth rates
• Yet, they are trying to reinvent themselves
as international leaders in sustainable
development
Kyoto signatories
Kyoto signatories
What explains the new interest in
sustainability policies?
• “Branding”:
• A second generation “nouveau riche” phenomenon?
• Latecomers Qatar and Abu Dhabi in particular
– Also expressed through new, internationally oriented museums,
universities, charities, cultural organizations
• Ambition to become modern, regional leaders (vacuum left by failed
republics)
• New fiscal surpluses give young ruling elites large-scale autonomy
for experiments
• Pressure from the climate change debate:
• Fear that oil could be sidelined even as transport fuel
• All GCC states have ratified the Kyoto protocol (NOT as industrial
countries):
– Kuwait, Oman, Qatar, Saudi, UAE: 2005
– Bahrain 2006
 concurrent with the new oil boom!
Policy innovation facilitated by large
amounts of play money (source: Citi)
More reasons for the GCC’s
repositioning
• Ambition to diversify into technology sectors that are
closely related to existing industrial structures in the Gulf
– Track record in energy technology
– Increasing ambition to export services internationally (telecoms,
logistics)
• Interest in conserving energy and feedstock which are
needed for local industries:
– Greatly increased production costs of marginal barrels
• Different from 1980s, no more spare capacity that can be cheaply
used for power generation
– Petrochemicals projects forcibly demand local feedstock (esp.
ethane)
– Other energy-intensive projects (aluminum e.g.) can be fed
through other forms of energy
• rationale to conserve feedstock for them is less strong
• but by the same token, comparative advantage also less strong
Gulf service exports: telecoms as new FDI niche
Which policies are pursued?
Carbon capture
– Hope for trade in emissions certificates and participation in
“Clean Development Mechanism”
– Carbon sequestration in non-oil energy industries (coal esp.)
could leave more space for oil-based transport emissions
Solar energy and other renewables
– Use of natural geographic advantages
– Hope to build up exportable technology expertise
Nuclear energy
– could provide affordable, carbon-free baseload energy supply
Reduction of domestic energy consumption
– big potential in principle – large current wastage
The impact of international energy
prices on Gulf sustainability policies
• Oil income determines available capital
resources for project investment
• Oil prices increase international pressure
to find energy alternatives
• International energy prices do NOT usually
filter through to domestic prices/demand
Current oil price collapse could decelerate
sustainability drive
The institutional setting: who is
in charge?
• Gulf regimes are largely autonomous in
the use of their fiscal surpluses
– Exception: Kuwait
– Partial exception: Bahrain
• Rulers delegate complex policies to
technocratic clients
– Successful pattern of project-based
development since the 1970s
– Successful use of international expertise
Gulf governments are worse than OECD
ones, but better than their reputation
Government effectiveness
2.5
2
gov. eff. score
1.5
1
0.5
0
-0.5 4
5
6
7
8
-1
-1.5
-2
Ln of GDP p.c.
9
10
11
12
“Islands of efficiency” in the
GCC states
• While large parts of the bureaucracy tend to be slow and
opaque, GCC rulers have managed to carve out a
number of pockets of efficiency
• both public enterprises and regulatory bodies
– Insulation from political predation and rent-seeking through
special protection by ruler
– Handpicked leadership of long-term technocratic clients
– Separate salary scales and hiring structures
– Often special regulations allowing them to bypass the rest of the
bureaucracy
 Successful enclave-based developments since the
1970s:
–
–
–
–
SABIC, SAMA in Saudi Arabia
Emirates, DP World, and free zones in Dubai
Alba and BMA in Bahrain
Qatar Industries in Qatar
Saudi Arabian Basic Industries (SABIC):
one project-based success story
Saudi non-oil exports
Egyptian non-oil exports
30000
25000
20000
15000
10000
5000
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
19
88
19
86
19
84
0
Conditions for the emergence of
islands of efficiency in the past:
– Significant increments of state income
– regime autonomy from societal demands
– a non-populist development ideology
• Islands have operated efficiently and coherently,
while
– Quality and coherence of the bureaucracy at large
has been limited,
– Regulatory penetration of society and economy at
large has been only partial, and
– Non-project spending policies – subsidies, public
employment etc. – has often not followed economic
rationality
 A segmentation of state structures according to
different political purposes, made possible by oil
surpluses
Sustainability policies as a new phase
of enclave-oriented development?
• Window of opportunity through large surpluses
– Few policy innovations during the austere 1980s and
1990s
• Return to public capital spending in recent years
• Creation of new SOEs and regulators
• Emergence of a new generation of young
technocrats
– Renewed use of foreign manpower and expertise
• Not all sustainability policies are project-based,
however
– Some of them are regulatory in nature, requiring
different capacities
Back to project spending: Saudi fiscal
patterns since 1969
capital expenditure
current expenditure
19
69
19
72
19
75
19
78
19
81
19
84
19
87
19
90
19
93
19
96
19
99
20
02
20
05
500000
450000
400000
350000
300000
250000
200000
150000
100000
50000
0
The outlook country by country
Abu Dhabi:
• High regime autonomy, large surpluses
• “Mubadala” as main promoter of sustainability-related
projects
– Crown Prince Mohammed bin Zayed as main principal of its
technocratic agents
– Still untested, but based on patterns that have been successful
in the past
– ADFEC & Masdar under Mubadala
– Heavy use of expatriate expertise
– Small national population makes projects much more important
than the regulation of sustainability in local society
Dubai
• Highly autonomous leadership, but not
enough play-money for large projects
• Could create the environment for smaller,
private service sector service companies
serving the environmental technology
sector at large
• Some attempts at regulating private
behaviour:
– LEED building standards
– TECOM free zones have announced their aim
to become carbon neutral
• Generally however: not a leader as in
other sectors
• On sustainability, a rich state has to lead
due to issues of scale and insecurity
Saudi Arabia
• The country with the worst bureaucracy scores, but also
the most impressive islands of efficiency
• Most of all: Saudi Aramco, probably the most efficient
and technologically autonomous NOC in any OPEC
country
– Significant in-house expertise
– Declared interest in sustainable energy technology
• carbon capture
• clean fuels & combustion engines
• solar energy
• Saudi Arabia has a much stronger national technocratic
workforce than Abu Dhabi
• Aramco-managed KAUST could emerge as main conduit
of innovation
• At the same time, Saudi Arabia lags in regulating local
business and consumers
Saudi Aramco’s international
ranking (Eller/Hartley/Medlock)
Qatar
• Enjoys both surpluses and significant regime autonomy
• Creation of a Ministry of Environment in June 2008
• QIA & Qatar Petroleum as leader on sustainability
projects
– QP has registered the first Gulf-based CDM project
– Creation of QIA-sponsored £250m Qatari-British fund dedicated
to clean energy technologies and research in November 2008,
combined with agreement on technology transfer for lowering
carbon dioxide levels in the air.
– Hamad bin Jasem as patron of QIA
• Limited importance of local consumers – carbon
emissions mostly through local industry
• Ambition of new leadership to put Qatar on the map as
technology leader
Oman
• Autonomous leadership and decent
bureaucracy, but limited fiscal resources
– 750 MW solar plant in proposed by Electricity
Regulation Authority
– Some experience with desalination driven by
photovoltaic power
Kuwait and Bahrain
• Not much is happening
• Political constraints:
– Populist parliament in Kuwait stalls both
regulatory reform and new state-financed
projects
– Polarized political scene in Bahrain and
pressure to disburse funds to population
• Fiscal constraints in Bahrain
Institutional context: summary
• Political autonomy and rents per capital as main
constraints on sustainability projects
– Influencing both the scale of projects under way and
their future prospects
• Special regulators and SOEs with direct
connection to leadership as driving agents
• Outward orientation of many projects
• Bureaucracy at large not much involved
• States have taken the lead, the private sector, if
interested at all, follows
Policy areas: solar
• Region has 40% more sun than Spain
• Saudi Arabia’s Ali Naimi: The country could be "a centre
for solar energy research and hopefully over the next 50
years [it] will be a major megaton exporter"
• More opportunities for private sector due to scalability
– 130 megawatt manufacturing plant to be set up in Dubai’s
Technopark
• “Mediterranean Ring” HVDC electricity grid project could
lead to large-scale electricity production in the future
(large, project-oriented plan)
• Economics not yet sorted out, but institutional capacity
and political interest are there
Carbon capture
• A sector in which states need to lead
• GCC governments and NOCs aim at CDM & emissions
trading
• In November 2007, Gulf Opec members pledged $750m
to fund research on clean technologies, focusing
especially on carbon capture and storage to fight global
warming.
• ADFEC has awarded a contract for CCS to inject power
plant CO2 into oil fields (EOR)
• TAQA is working on a carbon sequestration project with
the port of Rotterdam
• Imperial College partnership with QP, the QSTP and
Shell for a 10-year, $70m research project on new
carbon dioxide (CO2) storage technologies that can be
applied in Qatar
• NOCs as leaders – capital and administration are there;
again, the jury is still out on the technical and economic
feasibility
Carbon storage through Peridotite?
• A rock present in Oman, UAE
and Southern Saudi Arabia:
• a potential “carbon capture”
material: contact between
carbon dioxide and peridotite
causes a chemical reaction
which, over time, converts
them into minerals such as
calcite
• Resources on the Arabian
Peninsula could suffice for
capturing 10% of total human
CO2 emissions/year
• Would involve large-scale
project work
Case study: Masdar in Abu Dhabi
• A city of 6.5 square
kilometres, to be home to
90,000 people
• Projected overall investment
volume over time for Masdar
City is $22 billion, in addition
to $15bn for Masdar
renewable energy projects
• City aims to be carbon
neutral, engage in CDM
trade, and become a hub of
environmental technology
finance and research
Masdar prospects
• a typical enclave/zone project, administered by trusted
technocratic lieutenants
 could work in regulatory and infrastructure terms; its
economics however are yet unproven
 while international high-calibre personnel might be
attracted, getting private investors could prove difficult
• In any case, Abu Dhabi is rich enough to bail the project
out
• Operating separately from Abu Dhabi’s bureaucratic and
social structures, even a successful Masdar City would
probably have limited impact on local society
Overseas investment as
technology transfer policy
• Masdar and Taqa overseas investment in renewable
energies companies:
– Masdar clean technology fund with Credit Suisse
– German PV plant to be built in Thuringia for $230m as part of a
total of $2b planned PV investments
– Masdar has lured the Finnish wind-turbine manufacturer
WinWinD to set up its business in Abu Dhabi through a €120m
investment in the company.
Taqa has bought a 50% stake in a Moroccan wind power
subsidiary of the French renewable energy company Theolia in
summer 2008
 again, separate, large-scale projects
 Overlap with increasingly activist Gulf SWF structures
 Similar to increasingly activist – and successful –
overseas investment in telecoms and logistics
 Leveraging of overseas capital as tool of industrial
policy (similar to “offset” investments in the security
sector – which have a mixed record)
Policies on domestic energy
consumption
• Requires regulation of local society and
business – cannot be administered on a project
basis
– LEED (Leadership in Energy and Environmental
Design (LEED) initiative in Dubai
– Similar standards planned in Abu Dhabi “Istidama”
building standards)
– Introduction of slab tariffs
– Introduction of product and process standards
– Introduction of harsher sanctions for pollution in
general
Domestic energy consumption II
• Tabreed and Masdar in talks over district cooling venture
– To produce carbon credits to be sold in Europe
• Public transport systems (railways, metro etc.)
• Apart from these large-scale infrastructure-related
initiatives, however, little has been done on domestic
consumption patterns
• Past attempts at large-scale regulation (taxes, IPR,
business information/surveys, residency registration etc.)
have met considerable resistance
• Moreover, GCC states are distributive states:
– Fuel, electricity and water subsidies are part of the ruling bargain
– Repeated reversals after price increases
Fuel prices 2006 (US$ cent/liter; source: GTZ)
200
150
100
Super Gasoline
Diesel
50
0
Saudi
Arabia
UAE
Kuw ait
Bahrain
Qatar
Oman
USA
UK
Outlook
• Prospects for widely-based adoption of
sustainability standards in society and private
sector are dim
• Prospects for enclave-based, project-focused
initiatives are better
– Not least due to interest of international energy
companies in partnering with NOCs and host
governments
• Not all technological and economic questions
have been answered, however
• SOEs could take the lead in introducing new
technologies and implementing new standards
– Gradual trickle-down into private business is
conceivable