As COP28 approaches, 'clock is ticking' on Middle East clean energy cooperation

February 2023 Al-Monitor PRO Trend Report 

4227 words

 

Introduction

 

As Egypt basked in the spotlight as host of COP27 in 2022, the sun was also shining on a newly launched 6-megawatt (MW) solar plant in Sharm El Sheikh, the Red Sea resort town that welcomed the UN climate change conference. The plant, brought online for COP27 and capable of powering roughly 5,000 homes, was developed by Infinity Power Holding, a joint venture between UAE renewable energy company Masdar and Egyptian renewable energy provider Infinity. Although modest in scope, the collaborative project provides a glimpse of a wider trend blowing across the Middle East and North Africa (MENA).   

Momentum is building around green partnerships and impactful cross-border cooperation on climate issues in MENA. In 2022, Egypt alone inked several billion dollar clean energy deals with regional partners that could eventually deliver over 20-gigawatts (GW) of capacity. For context, that could be enough energy to power up to 15 billion homes. COP27 highlighted this trend, with regional players announcing a range of crucial new agreements spanning green hydrogen, water desalination and more. Now, collaboration is poised to ramp up further in 2023 as the UAE prepares to host COP28 in November — and the stakes are high.  

Climate change is a global challenge, but MENA occupies a uniquely precarious position in this crisis: the region is simultaneously extremely vulnerable to climate change impacts while also home to prolific producers of the hydrocarbons fueling global emissions. MENA countries face shared challenges, from water scarcity to desertification, with the region warming at nearly twice the global average. It will take collective action to tackle these challenges and there’s little time to waste. Globally, there’s a collaboration gap that threatens to undermine climate progress and delay net zero emissions goals by decades, according to the Breakthrough Agenda Report 2022 produced by a number of international organizations including the International Energy Agency (IEA) and the International Renewable Energy agency (IRENA). Considering the climate risks facing MENA countries, a lack of impactful collaboration could have especially dire consequences. That’s why hosting back-to-back COP summits represents a pivotal opportunity to make progress. 

 

1. State of play: COP27 boosts MENA climate cooperation 

 

Efforts to coordinate significant regional action on environmental issues in MENA were fairly limited until recently, hampered by everything from political discord to entrenched economic reliance on hydrocarbon revenues and a climate finance gap. For instance, 98% of energy production in MENA came from fossil fuels in 2020, according to the World Bank. That same year a paltry $1.2 billion worth of climate finance commitments were destined for MENA, the smallest total received by any region worldwide. 

However, that narrative has been shifting in recent years and 2022 saw regional cooperation coalescing around shared environmental challenges and the energy transition. COP27 conveniently amplified that momentum, with the climate summit serving as an important platform for regional engagement. “We saw lots of high-level discussions taking place,” said Gidon Bromberg, the cofounder and Israel Director of EcoPeace Middle East, a regional environmental organization consisting of Jordanians, Palestinians and Israeli activists. 

COP27 produced a slew of announcements between regional partners — largely powered by ambitious Gulf players targeting clean energy projects in Egypt. The UAE’s Masdar was especially active; as part of a consortium with Egyptian partners Hassan Allam Utilities and Infinity Power, it announced plans to develop a 10-GW onshore wind project in Egypt. That would be one of the world’s largest wind farms and Masdar’s largest project yet, with a reported price tag of $11 billion. Construction will start in 2024 and finish by 2030, according to Bloomberg, and could provide electricity to Europe and Saudi Arabia. 

This announcement came shortly after Saudi Arabian utility developer ACWA Power signed a memorandum of understanding (MoU) just days before COP27 to build another 10-GW wind project with the Egyptian Electricity Transmission Company, which is likely to be developed in phases. At the actual summit, ACWA also inked an agreement with the Sovereign Fund of Egypt to explore a joint investment in a 1.1-GW wind energy project in the Gulf of Suez area, with the fund owning up to 10% of the project, which is valued at $1.5 billion. The project, to be developed alongside Hassan Allam Holding, was first announced in June 2022 and is supposed to provide energy to over 1 million households by 2026. Oman’s sovereign wealth fund also signed an agreement with ACWA to explore a potential 10% equity stake in the wind project. 

Simultaneously, green hydrogen — which is created using renewable energy instead of fossil fuels — also featured prominently at COP27, as Egypt is located adjacent to European markets where demand for it should be robust. Masdar, again with Hassan Allam Utilities and Infinity Power, declared an intent to enter a binding framework agreement with Egyptian state-backed entities on the development of a 2-GW green hydrogen project in the Suez Canal Economic Zone, scheduled to be operational by 2026. The agreement relates to the first phase of a wider 4-GW green hydrogen program that the consortium is developing in Egypt, with a target of producing 480,000 tons of green hydrogen annually by 2030. The partners initially inked an MoU around this program in April 2022. Meanwhile, ACWA Power also announced a joint development agreement in early 2022 with Omani government-owned energy company OQ to develop a multibillion-dollar green hydrogen project in the Sultanate.  

Also at COP27, Dubai-based AMEA Power signed an agreement with Egypt’s government to develop a 1-GW green hydrogen project capable of producing 800,000 tons of green ammonia annually for export once completed. Shortly afterwards, AMEA Power also sealed a $1.1 billion deal to deliver 1-GW of renewable energy projects in Egypt. In April 2022, AMEA also agreed to build two solar power facilities in Morocco. Elsewhere at COP27, Masdar signed an MoU with Jordan's Ministry of Energy and Mineral Resources to explore developing 2-GW worth of renewable energy projects — a significant increase in Masdar’s footprint in Jordan, where it has developed two renewable energy plants with a combined capacity of 317-MW.  

These moves were just the tip of the spear at COP27 and come as regional governments have been rolling out climate commitments and decarbonization plans. For example, the UAE, Oman and Israel have set net-zero emission goals for 2050, while Saudi Arabia, Kuwait and Bahrain are targeting this by 2060. Saudi Arabia has also committed to plant 50 billion trees across the Middle East to help absorb carbon. Gulf countries are striving to support emission reduction targets while simultaneously pursuing lucrative investment opportunities in clean energy projects.  

In particular, the region is generating ambitious efforts to develop green hydrogen, such as Oman’s goal of producing 1 million tons of green hydrogen annually by 2030. As of 2022, there were at least 46 known green hydrogen and ammonia projects across the Middle East and Africa, with an estimated total budget around $92 billion, according to Siemens Energy. Plus, Saudi Arabia’s ambitious megacity NEOM includes a $5 billion green hydrogen project being developed in a joint venture with ACWA Power and US-based industrial gas supplier Air Products. Scheduled to be commissioned in 2026, the facility will use 4-GWs of renewable power and have the capacity to produce 600 tons of green hydrogen daily.  

Crucially, the line between traditional security risks and environmental security is also blurring in MENA, with drought and rising food insecurity increasingly threatening stability. Jessica Obeid, an independent energy policy consultant advising international organizations and governments on electricity and energy transition, told Al-Monitor that despite domestic measures to adapt and mitigate climate change, climate risk is a threat multiplier spread across borders and requires collective action. “We’re seeing platforms and bilateral [and] multilateral dialogues among several states in the region addressing the climate risk,” said Obeid.  

More broadly, regional platforms that can facilitate further cooperation already exist. One is the Saudi Arabia-based GCC Interconnection Authority, established in 2001 by GCC countries to interlink regional power systems, which should prove important as renewable energy generation becomes more prominent. “The GCC Interconnection Authority has improved grid interconnectivity between the Gulf countries, which reduces costs, increases resilience and will help the countries decarbonize their power systems,” said Jeffrey Beyer, managing director of Zest Associates, a Dubai-based sustainability-focused consultancy firm. Global players also want to facilitate regional collaboration through the MENA Hydrogen Alliance, a platform established in 2020 to bring together local stakeholders to help promote hydrogen projects that export to Europe. The alliance was formed by Dii Desert Energy, which was originally launched as an industry initiative in Germany aiming to connect Europe with MENA renewables. 

 

2. Normalizing ties through climate cooperation: 

 

Crucially, COP27 also provided a snapshot of how climate issues and clean energy opportunities are starting to bridge regional hostilities. The summit saw multiple announcements between Israel and its neighbors in MENA. That included a new strategic deal between the Israeli hydrogen startup H2Pro and the Moroccan renewable energy developer Gaia Energy. Under the agreement, Gaia will use H2Pro’s green hydrogen production technology for a demo project and explore using it as part of a Gigawatt-scale system currently being developed by the company in Morocco.  

COP27 also delivered an MoU between Israel, Jordan and the UAE intended to advance a water for clean energy deal signed in 2021. Called Project Prosperity, the unprecedented trilateral agreement will see the UAE fund and manage a solar facility in Jordan, which will provide renewable energy to Israel in exchange for desalinated water. The new MoU built upon the intent of Project Prosperity, with a clear target set to finalize negotiations by COP28.  

Egypt’s climate summit also saw Jordan and Israel sign another declaration of intent focused on the ecological rehabilitation and the sustainable development of the Jordan River, which has been severely impacted by pollution and drought. According to EcoPeace’s Bromberg, the new Jordan River MoU is incredibly important for climate security and adaptation, as there’s a need to find alternative income sources for the populations along the endangered waterway, with cooperative efforts around climate smart agriculture and cleaning up the river essential to achieving this goal. 

These deals are the latest signs of a seismic shift in the region following the signing of the Abraham Accords in 2020, with cooperation on climate-related challenges emerging almost immediately after the historic normalization of ties. By December 2020 the Israeli company Watergen had already signed a strategic partnership agreement with the Abu Dhabi-based agriculture firm Al-Dahra. That saw Watergen, which develops devices that generate drinking water from the air, provide its technology to Al-Dahra for use in the UAE. Following that, in 2021 Watergen announced a new strategic commercial collaboration with Baynunah (a sister company of Al-Dahra) and Tel Aviv University to develop a joint Israeli-Emirati water research institute. 

Elsewhere in MENA, 2022 witnessed engagement on environmental security issues between Iran and Gulf neighbors. In July, Tehran hosted the Regional Ministerial Meeting of Environmental Cooperation for a Better Future, with ministers and officials from 11 regional countries taking part in the event, which was aimed at tackling shared environmental and climate challenges. Iraq, Syria and Kuwait signed an MoU with Iran during the conference to enhance cooperation to combat dust storms. Notably, Iranian Vice President Ali Salajegheh and the UAE’s Minister of Climate Change and the Environment Mariam Al Mheiri also inked an MoU around initiating collaboration on fighting sand and dust storms. According to the terms of the agreement, the UAE and Iran will share experience and expertise, implement joint activities and work together on developing a regional action plan to address the issue. 

 

3. Outlook: COP28 set to unlock further collaboration 

 

• Renewable electricity capacity expansion in MENA is expected to triple between 2022 and 2027 when compared to the previous five-year period, reaching 45-GW, according to the International Energy Agency (IEA). Solar is expected to make up 75% of that growth, as it offers prospects for low-cost power and hydrogen production. The IEA expects Saudi Arabia, the UAE, Israel, Oman, Morocco and Egypt will account for 85% of renewable capacity growth in the region between 2022 and 2027. 

• Like COP27 before it, expect the UAE’s upcoming climate summit to produce several key announcements and agreements between regional players. The summit offers another high-profile platform for MENA governments to accelerate domestic renewable energy projects and make investments abroad, with green hydrogen likely a focus area again. As host country, the UAE will likely drive activity, but Oman and Saudi Arabia are poised to make a splash too, setting the stage for further cross-border collaboration in 2023. 

• The energy transition should remain a top priority in 2023, and produce plenty of electricity from  leading regional renewables companies—most notably Masdar, which has committed to developing 100-GW of renewables by 2030, mostly in emerging and developing economies. Other UAE players to watch include the Dubai Electricity and Water Authority (DEWA), AMEA Power and Yellow Door Energy, alongside other Gulf firms like ACWA Power, Qatar’s Nebras Power and Oman’s Hydrom. 

• In 2023, EcoPeace’s Bromberg believes there needs to be further private sector investment and government support for regional green hydrogen production, particularly given the potential to export to Europe as it seeks to diversify its energy sources. “The Middle East has an opportunity here,” said Bromberg. “It needs to show that it's serious about wanting to provide that renewable energy, so discussions need to move forward.” 

• There’s also potential to manufacture solar cells in MENA for domestic use, according to Bromberg. Currently, the region is overwhelmingly dependent on importing solar cells from China. Bromberg points to the Biden administration’s support for solar cell manufacturing in India, arguing that such a program could be duplicated in the Middle East, perhaps in Jordan. 

• Climate finance is a key area to monitor in 2023, as it has chronically lagged in MENA. “We expect that COP28 will record significant financial commitments towards low-carbon technologies across the region,” said Obeid. The region has also been experiencing growth here in recent years: MENA green and sustainability debt issuance stood at $18.64 billion in 2021, up over 300% from the $4.5 billion issued in 2020.  

• Financing sustainable projects is a huge opportunity, which the region's sovereign wealth funds and oil and gas companies can target after a colossal capital infusion driven by high energy prices, said Beyer, who believes these financial resources should be invested in transition technologies and renewable energy, locally and internationally. The International Monetary Fund (IMF) estimates that the Middle East is positioned for a budget windfall of around $1.3 trillion in 2023 because of higher oil and gas revenues. “I think sovereign wealth funds and energy companies have an opportunity to double down on clean technologies that will power us in the future, rather than investing in new fossil assets that risk being stranded in the future,” said Beyer. 

• Ahead of the UAE’s climate summit, 2023 also represents a critical moment to go beyond talks and move forward on implementing projects and making the investments needed to unlock MENA’s large-scale renewables potential, while also making progress around adaptation. The clock is ticking, said Bromberg, as attention will go elsewhere after COP28. “This is the year to move forward from MoUs to project implementation,” said Bromberg, who wants to see purchase agreements and the completion of feasibility studies that allow for actual investments from the private sector. “This really is the year to deepen commitments, and particularly for Jordanians, Palestinians, Egyptians [and] more of the developing states,” said Bromberg. Key to that will be pushing public-private partnerships, as these projects will require support from donors and international financial institutions.  

• Plenty of challenges could impede further collaboration between MENA countries. “Whereas collective action is gaining momentum, politics often dictate the efficiency of the interventions,” said Obeid. “Another challenge is securing enough financing and creating an enabling business investment climate for the necessary measures across the region.”  

• Israel’s new hardline government also complicates further cooperation with regional neighbors. Already that could impact multi-lateral plans around the Jordan River, as bilateral relations between Israel and Jordan deteriorated following new Israeli government policies in East Jerusalem and the West Bank, according to an expert on water diplomacy in Jordan who spoke anonymously to Al-Monitor. “The MoU on the Israeli-Emirati-Jordanian deal seems to be a declaration of intent, so we will need to see if it will get implemented,” said the expert, who noted that past regional proposals never progressed, like a canal linking the Red Sea to the Dead Sea.  

• When it comes to deals between Israel and Jordan, Bromberg adds that these agreements need to expand to involve Palestine, so that the West Bank and Gaza can produce renewable energy and meet their domestic water and sanitation needs. “We believe that coming to new arrangements on sharing of natural water between Israelis and Palestinians is more urgent than ever,” he said.  

• Still, there are plenty of areas where regional stakeholders can expand cooperation, such as strategic investments, environmental diplomacy, joint scientific research and deploying innovative new climate technologies. “More can always be done,” said Beyer, who highlights the potential of developing a regional carbon market, ideally one that could trade with other regional markets like the EU Emissions Trading Scheme. It is an area of rising activity: in 2022 the Abu Dhabi Global Market created a carbon trading exchange and carbon clearing house, while Saudi Arabia also established the Regional Voluntary Carbon Market Company, with its Public Investment Fund holding an 80% stake.  

• A regional green taxonomy could accelerate intra-regional investment in sustainable projects, notes Beyer. “Working together to tackle opportunities like low-energy space cooling, arid agriculture and underwater conservation would be good opportunities for deeper coordination,” he said.  

 

4. Case study: Project Prosperity 

 

November 2021 recorded a significant milestone for climate cooperation in MENA, when Israel, Jordan and the UAE signed the trilateral clean energy-for-water agreement known as Project Prosperity. The deal has two components: Prosperity Green, which includes a 600-MW solar photovoltaic plant that will be built in Jordan and produce clean energy to sell to Israel, with the UAE's Masdar serving as technical partner; the other is Prosperity Blue, a sustainable water desalination program located in Israel that will export 200 million cubic meters of potable water annually to Jordan, which is one of the most water scarce countries in the world. 

This historic deal, brokered by US Special Presidential Envoy for Climate John Kerry, brings a multitude of potential benefits to the table by enhancing regional integration and resilience in face of climate change. According to Bromberg, whose organization helped develop Project Prosperity, these type of climate mitigation and adaptation projects are critical to the region's survival.  

The countries signed an initial declaration of intent in 2021 at Dubai’s EXPO to explore the project’s feasibility, but a year later at COP27 the partners inked another MoU intended to advance activity to the execution phase. As per the new agreement, feasibility studies for each of the projects have been ongoing and the partners will continue engaging to develop the necessary implementation plans ahead of COP28. Notably, Saudi Arabia tried to block the  original deal, sources with knowledge of the matter told Axios in December 2021, as it caught Saudi officials “by surprise” and angered them because they felt it would undermine Crown Prince Mohammed bin Salman’s plans to lead the region on climate. That resulted in the signing of the agreement in Dubai reportedly getting delayed for several hours to add cosmetic changes to the declaration's language to “appease the Saudis,” sources told Axios.     

That said, the project has been criticized both in the UAE and Israel for advancing too slowly due to bureaucratic hurdles, with the new MoU designed to address these obstacles. Lior Shilat, the director of Israel’s Ministry of Energy, has rejected criticism over the slow implementation of last year’s agreement, saying that Israel has met the original schedule and that the partners will be able to reach a more complete agreement in a year, including a schedule for completing the entire project. According to Bromberg, by December 2023 there needs to be actual purchase agreements signed between the partners in order to allow investments to start flowing in 2024.  

Still, Prime Minister Benjamin Netanyahu’s new hardline government may play a factor in the project’s development and surging violence between Israelis and Palestinians in the West Bank could strain ties. In principle, any side can cancel the agreement at this stage. Alongside questions around whether Project Prosperity will come to fruition, there’s also an issue of whether or not it goes far enough. EcoPeace would like to see cooperation expanded to include the Palestinians, as the West Bank and Gaza Strip need more electricity. Gaza also faces a serious water shortage, which solar energy could help tackle by powering a desalination plant. “There's a need to look again at water arrangements between Israelis and Palestinians, so that Palestinians can meet their domestic water needs,” said Bromberg. “We think that water issues should not be held hostage to the broader conflict.” As it stands, the deal marks a significant step for Israeli-Jordan relations, while also demonstrating the perils and pitfalls of climate cooperation in a region where many factors can undue needed progress.  

 

5. Key takeaways 

 

• The energy transition requires massive new infrastructure, investments and cooperation. “It’s safe to say that most countries cannot do it alone, especially since countries across the region have different energy scenes, local contexts and financing capacity,” said Obeid, who added that there are major opportunities for innovation and knowledge transfer in low-carbon technologies across MENA.  

• Many regional entities are looking for investment opportunities that may also be present in a neighboring country, reports Obeid. “Eventually, connecting the power grids and building an efficient electricity exchange market will be required to integrate significant amounts of renewable energy into the grids, while reducing the investments in reserve margins,” said the consultant. 

• As Europe pursues a green transition and seeks alternatives to Russian gas, MENA countries are positioned to become major players in emerging low-carbon energy sectors and have an opportunity to maintain the strategic importance they amassed from producing oil and gas. The UAE, Oman, Egypt, Morocco and Saudi Arabia all seek to become global leaders in hydrogen production, which should drive both competition and coordination. According to the World Bank, countries such as the UAE could capture 25% of the low-carbon hydrogen market, the value of which is expected to surpass $400 billion annually over the next five years 

• MENA’s green initiatives and clean energy transition will still have to co-exist with the region’s stubborn economic reliance on hydrocarbons. That was plain to see last year as energy prices surged, which saw national oil companies including Saudi Aramco and ADNOC announce plans to increase investment spending by about 15-30% in 2022. Simultaneously, MENA’s natural gas exporters are positioned to expand production to seize new export opportunities. 

• Still, multiple Gulf countries are striving to become the regional leader in tackling climate change, which can continue fueling cross-border activity. The UAE is already flexing its might as a renewables investor and a champion of climate diplomacy. That’s underlined by the major new clean energy partnership it forged with the US in 2022 called PACE, which is set to catalyze $100 billion in financing, investment and other support and see 100-GWs of clean energy deployed globally by 2035. But keep an eye on Saudi Arabia. “Saudi Arabia's Middle East Green Initiative is the most ambitious regional effort to combat climate change,” notes Beyer.  

• Despite numerous pledges, projects and summits, it remains to be seen whether regional policymakers and business leaders will follow through and coordinate effectively enough to avert the catastrophic impacts of climate change. For instance, regional coordination on hydrogen policy remains questionable, according to a 2022 paper entitled The Hydrogen Ambitions of the Gulf States, which was published by the German Institute for International and Security Affairs, a think tank. The paper furthered that instead of identifying and using comparative advantages, Gulf countries have set a course for direct competition in developing non-petroleum sectors and regional coordination has been notoriously unreliable and inconsistent in the past.  

• Crucially, MENA countries bring different resources to the table when it comes to potential climate cooperation. Cross-border green finance activity and investment can be driven by the Gulf states as each seeks to expand their regional role, argued Tobias Zumbrägel, a researcher at German think-tank CARPO-Bonn, in Al-Monitor PRO’s January trend report on green finance. That’s because Gulf monarchies see green finance and climate-related investments as a geopolitical instrument that can influence the whole region. Meanwhile, MENA countries like Jordan, Egypt and Morocco all provide ample opportunities to develop solar and wind power, while Israel’s vaunted technology sector can provide climate innovations. 

• Beyond the energy transition, there are numerous areas where regional cooperation would be especially valuable going forward, particularly around water issues. In addition to boosting ties between Israel and Jordan, engagement around climate solutions and environmental security could also be a potential opportunity to boost diplomacy with Iran, which faces huge environmental challenges and lacks the investment capabilities and resources that wealthy Gulf neighbors possess.  

• After COP28 wraps up, the global spotlight will shift away from MENA. That’s when we’ll truly begin seeing how much real weight is being thrown behind these initiatives, with the coming period a pivotal moment for these green partnerships to make tangible progress. “Many of these efforts to improve coordination are relatively young,” said Beyer. “So it will take some time to see if they have a big real-world impact.”