The Middle East can take a global leadership role in climate technology

The COP27 summit in Egypt last November and this year’s COP28 in the UAE are focusing new attention in the Middle East on the critical importance of taking action to reduce climate risk. The region itself is vulnerable to drought, sandstorms, and rising temperatures, making action to mitigate climate change an imperative.

Beyond this defensive self-interest, the Middle East—and especially GCC countries—also have a significant opportunity to take the lead in developing innovative solutions that can contribute to global climate efforts. The region has nature-given advantages including some of the most competitive solar energy output in the world that make it a very low-cost producer of renewable energy.

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Indeed, the cost of producing solar energy, and green hydrogen in the Gulf is about one-third of the global average. At a time when the global economy is in a phase of slowing growth, sovereign wealth funds can finance a major push into climate tech innovation in the region and beyond.

Moreover, by aspiring to take on a global leadership role in climate-related technologies—and putting in place the enabling conditions—GCC governments can accelerate their existing goals to diversify the regional economy, build new sources of future prosperity, and bring about the “greening” of the Middle East.

The appetite for climate tech investment in the Middle East is large and growing, in contrast to the more subdued global picture. PwC’s latest Global State of Climate Tech analysis shows that funding for climate tech globally has encountered some inertia after a strong year in 2021. But in the Middle East and North African (MENA) countries, while the growth in overall technology investment has slowed, climate tech investment in the region has continued to make substantial inroads.

We identified 98 climate tech start-ups in the region that are currently receiving funding and estimate that about $6 billion has been invested in climate tech in MENA since 2013, with $1.6 billion invested in the first half of 2022 alone. Moreover, several major investment announcements were made around COP27, including a $1.5 billion sustainability fund that Saudi Aramco is setting up, suggesting that the momentum is strong.

Climate technology is a large and fast-evolving area, but already it’s clear that the GCC has the potential to develop a leadership position in many fields. The region’s cost advantage with renewable energies opens the door to green fuels including green hydrogen, as well as the greening of some industries that have high energy intensity, such as steel and aluminium. The arid local environment could also benefit from nature-based solutions, such as mangrove plantations and preserving the unique “blue economy” environment of the Red Sea, with its mangrove, seagrass, and coral reef ecosystems.

A recent report we published on climate technology in the Middle East focuses on five technologies for which GCC countries have a competitive advantage:

Green fuels: Renewable energy is used to electrolyse water for the generation of green hydrogen.

GCC producers could supply large export markets by converting green hydrogen to green ammonia, an effective hydrogen-carrying compound. GCC producers would then “crack” the ammonia at the export destination to extract the hydrogen for end use. In addition, they can lead on the production of synthetic fuels from green hydrogen that would enable the net zero agenda in the transport sector.

Green industries: The hydrogen advantage will put the region at the cusp of a “Green Manufacturing Renaissance''. The expected global transformation of hard to abate sectors like steel, aluminum and titanium will hinge on access to competitive green energy with circular and smart industrial infrastructure. With the undergoing major industrial infrastructure plans, the region is best positioned to attract FDI in these sectors.

Energy to food: the region’s ability to produce very low-cost renewable energy can be harnessed for various technologies including precision fermentation, which uses bioreactors to convert energy into proteins and other food substitutes. In becoming global champions in this area, GCC countries could reduce food imports, which currently fill 85 percent domestic needs.

Decarbonization technologies for the built environment with a circular lens: Demand for recycled plastic is soaring but supply is not yet meeting that demand. GCC players have an opportunity to plug the gap by developing a dual feedstock advantage: leveraging the continued access to advantageous feedstock for virgin plastic production and, at the same time, increasing access to quality plastic waste for recycled plastic production.

Nature based solutions in arid and semi-arid environments: drive innovative solutions around nature-based carbon sinks with low water intensity and lead the world around blue economy solutions capitalizing on the richness of the red sea.

Assuming a leadership role in climate tech will require focus, increased funding, and changes in regulatory and reporting requirements to enable the growth of a climate tech ecosystem. Broadly speaking, GCC and other countries in the region will need to address a range of localization challenges as they seek to realize the vision of a green Middle East. If they manage to do so, the upside for the region—and the planet—is immense. At the same time, Middle Eastern countries have no choice but to take the lead in some areas to help themselves: water-related challenges, among other region-specific climate risks, demand that these countries find their own longer-term solution.

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