Accelerating net-zero-What is the role of energy efficiency and how can the MENA region transform current practices?

Accelerating net-zero-What is the role of energy efficiency and how can the MENA region transform current practices?

Energy subsidies, specifically fossil fuel subsidies, are direct funds made by the government to cut the cost of fossil fuel-based energy production, maintaining the cost of that energy lower than market rates for consumers. However, reforming energy subsidies is critical because of their direct and indirect impacts across many different contexts. To ensure the Middle East and North Africa (MENA) is a more sustainable region and to promote the growth of energy efficiency markets, significant policy changes are required. 

Since the MENA region accounted for half of the global pre-tax energy subsidies in 2011, a few countries in the region have planned for the implementation of energy subsidy reform to phase them out. The Arab Petroleum Investments Corporation’s (APICORP) 2019 report also noted that, across the GCC, the amount of subsidies as a share of the Gross Domestic Product (GDP) has decreased.  

Recent developments in MENA countries 

 As a result of both completed and ongoing implementation of phasing energy subsidies out, energy prices have changed across the MENA region throughout the past decade in several countries across the region, including the GCC countries, Egypt, Jordan, and Morocco. Such price changes have gradually increased on an annual basis for industrial, commercial, and residential customers.  

In Egypt, energy subsidies made up 20% of the public expenditure in 2012, which prompted reforms in July 2014, and electricity prices were incrementally raised by an average of 30% in July 2016, reaching 15% in July 2019. Further, electricity pricing reforms in the United Arab Emirates began taking place in 2008 in Dubai, where electricity and water slab unit costs were further increased in 2011 by up to 20% for residential ex-pats, industry, and government, and more reforms took place in Abu Dhabi and the Northern Emirates.

No alt text provided for this image

 During the first half of 2022, there has been sharp drops in markets, surges in inflation with the United States rate reaching a record high of 9.1% in June 2022, and challenges for the global energy market as prices skyrocket. Since the beginning of this year, gasoline and crude prices in the UAE have risen by 80 and 50%, respectively, causing a 200% increase in demand for electric vehicles. As reported by the IEA in the July 2022 Electricity Market Report, wholesale electricity prices have more than tripled in various markets and even more, uncertainties are forecasted for 2023.  

No alt text provided for this image

A sectoral outlook 

Being aware of sector-specific trends and developments, specifically on commercial, government, and residential buildings, industry, and transportation, as part of the efforts to combat climate change in the region and achieve energy security through energy efficiency policies and programs is fundamental to guaranteeing a durable transition for individuals, businesses, and governments. 

No alt text provided for this image

Industrial Sector 

Industrial sectors consume the most energy worldwide when compared to other sectors, accounting for 50% of global energy consumption and 31% of MENA’s total final energy consumption, as reported by the IEA. The MENA region’s industrial sectors are structured differently in each nation, with some industries consuming more than others depending on the country.     

Residential Sector 

The International Energy Agency (IEA) has reported that residential buildings consume up to 17% of the region’s total final energy consumption. Rising power costs and the effects of other global economic trends and activities indirectly encourage consumers to cut down on their energy use, which reduces the demand for more generation and, as a result, cuts government spending. That said, governments and policymakers must continue to put in place programs that raise household members’ awareness on actions they can take to support energy efficiency and to alleviate the negative effects the additional expenses will have on them. 

Commercial and Government Buildings Sectors 

 As commercial and government buildings are known to have extended operating hours and high cooling demand, their consumption in the MENA region amounts to 7% of the region’s total final energy consumption. They are therefore well-suited candidates to partake in significant energy savings and financial performance improvement with rising internal mandates and requirements for sustainable and net-zero buildings. However, the shift is made easier with the advancement of energy-efficiency technologies. 

Transportation Sector 

Consuming about 27% of MENA’s total final energy consumption, the transportation sector is another major energy-consuming sector. In response to rising emissions from driving conventional vehicles and in accordance with energy-efficient measures, the region has undergone major structural changes and is anticipated to experience even more reforms over the next decade. As the EV market gains more momentum in the region, it is expected to grow to roughly 7% between 2020 and 2025.  

Energy efficiency improvements will drive the achievement of net-zero targets 

According to the IEA’s Sustainable Development Scenario, energy efficiency accounts for over 40% of the emissions reductions required by 2040, making it at the core of global climate goals. Several MENA nations have made the commitment to reach net-zero emissions and have established targets and various strategies, also referred to as nationally determined contributions (NDCs).   

In order to push the effectiveness of the set-out policies and strategies, MENA countries must scope out and establish clear procedures to achieve their set-out plans, monitor implementations and provide clear updates and data, and regularly assess their approach. Governments must guarantee a full transformation of the energy sector not only by integrating existing renewable energy technologies but also by funding new climate technologies and research efforts to boost the technology readiness level of emerging methods. 

What can MENA policymakers do to promote and support energy efficiency best practices? 

Energy efficiency is the lowest-hanging fruit of sustainability, and with the support of policymakers, the solutions will be easily obtainable with wide access to the needed tools. As mentioned above, Egypt is one of the MENA nations that is starting to take action to increase energy efficiency and reduce capital expenditure, where the country’s petroleum and resources industry has put an energy efficiency program into place for their work sites. 

The ministry has also joined the Global Methane Pledge initiative which aims to reduce methane emissions. Ahead of COP27, which will take place in Sharm El Sheikh, Egypt recently launched its 2050 National Climate Change Strategy outlining their adaptation programs and involvement of all the key sectors. On a global scale, Germany is one of the leading countries, predicting that the primary energy consumption will be reduced to half in 2050 compared to consumption in 2008, and the Federal Ministry for Economic Affairs and Energy published Germany’s Energy Efficiency Strategy 2050 Report, where the country’s targets for 2030 and pathway to 2050 are set out with extensive efficiency measures in various sectors. 

It is crucial for governments to inform and educate on the various actions individuals and businesses can take to contribute to achieving energy efficiency targets. Governments should also adopt and implement a national wide energy efficiency program or initiatives on their own premises and explore to expand the scope into the private sector as well, such as the Smart Green Governorates initiative in Egypt, National Energy Services Company in KSA, and Abu Dhabi Energy Services in the UAE. The complete phase out of fossil fuel subsidies coupled with the structuring of robust strategies and competitive government funding will expedite the scaling of energy efficiency projects and cultivate socioeconomic benefits in the MENA region.  

To read the CEBC’s detailed analysis on Energy Efficiency in MENA: Status and Outlook, download the whitepaper here