Explainer: what is energy transition and which countries are most resilient to it?​​​​​​​​​​​​​​

Oil-exporting countries stand to lose about $13 trillion in revenue by 2040 as global economies decarbonise their power systems but some energy producers such as the UAE are proving more adaptable to the shift

The Burbo Bank Offshore Wind Farm in the Irish Sea in north-west England. Global spending on energy transition hit a record of more than $500bn in 2020. AFP

Rising global temperatures and sea levels have resulted in drastic action by the global community to mitigate the adverse effects of climate change. With the UN Climate Change Conference, or Cop 26, scheduled for November in the Scottish city of Glasgow, world leaders are preparing to protect their economies from climate disasters and hasten the transition from fossil fuels.

What is the energy transition?

Energy transition refers to the concerted global move away from fossil fuels to zero-carbon technology by the middle of this century. Several countries and companies with fossil-fuel operations have adopted various road maps as they embark on changing their energy mix.

What is net-zero?

The concept of net-zero emissions, also known as carbon neutrality, refers to the balancing of carbon dioxide output through various offsetting methods. The Paris Agreement urges governments to reach net-zero emissions by 2050. Several countries have adopted a net-zero policy. South Korea and Japan pledged to become carbon neutral last year. The US, the world’s biggest fossil-fuel producer, also plans to reach carbon neutrality.

What is the Paris Agreement?

The 2015 Paris Agreement provides a mandate for countries to lower their carbon emissions to well below 2°C above pre-industrial levels, preferably about 1.5°C. Carbon capture, use and storage is favoured by several oil producers to green their processes and is one of the many strategies governments are adopting to reach their goal. Production of low-carbon hydrogen is also at the top of green investment agendas.

How much is being spent on changing the energy mix?

Global spending on energy transition hit a high of more than $500 billion last year as countries prioritised measures to offset emissions and chart a greener post-pandemic economic recovery, according to the World Economic Forum.

Flows of finance into changing the energy mix reached a high of $501bn last year, up from $458bn in 2019, according to the WEF’s Energy Transition Index 2021.

The index, which surveys 115 countries, benchmarks them on the basis of their energy system performance and their readiness to switch to a greener energy future.

How are oil exporters gearing up for energy transition?

Oil-exporting countries stand to lose about $13 trillion in revenue by 2040 as global economies continue to decarbonise their power systems, according to Carbon Tracker.

These economies are set to face an existential crisis as countries around the world lower their carbon footprint and energy companies set net-zero emissions targets over the coming decades, the think tank said in February.

But some energy producers such as the UAE are proving more adaptable to the shift.

What are the UAE's plans for energy transition?

Several Middle East exporters such as the UAE and Saudi Arabia have already set in motion efforts to diversify their economies. The UAE earns revenue from tourism and manufacturing and intends to generate half of its electricity from clean sources by 2050.

Abu Dhabi also has a substantial renewable energy industry and recently pivoted towards the production of hydrogen. The country’s leading industrial and financial players, including state oil company Adnoc, this year formed an alliance to manufacture hydrogen.

How resilient is the UAE to a net-zero world?

Economies based on hydrocarbon exports are generally expected to be hit hard by the decarbonisation of energy systems. However, the UAE has adopted a conscientious path to maximising the potential of hydrocarbons while minimising their environmental impact as it prepares for a carbon-free future.

Among the oil producers, Iraq, Libya, Venezuela, Equatorial Guinea, Nigeria, Iran, Guyana, Algeria, Azerbaijan and Kazakhstan are the least prepared for a net-zero emissions landscape, according to the World Bank. Canada, Norway, Australia and the UAE are among the producers that are most resilient to the switch from hydrocarbons.

The UAE, Opec’s third-biggest oil producer, has allocated $163bn to raise the contribution of clean energy in its mix to 50 per cent by 2050. Of the clean sources, renewables will account for 44 per cent while the remainder will come from nuclear.