Growth, Investment and the Low-Carbon Transition: A View From Saudi Arabia

About the Project

This paper draws on KAPSARC’s energy productivity work focused on how shifting to a growth model based around higher energy productivity can benefit Saudi Arabia and the countries of the Gulf Cooperation Council. Energy productivity is both a policy agenda focusing on how energy can best be used to create value in the economy, and an indicator which integrates economic growth with energy consumption. At the macroeconomic level, energy productivity describes how much GDP can be produced using an amount of energy. It is the mathematical inverse of energy intensity and is both a reflection of what activities energy is used for (the structural make-up for the economy), and how well energy is used in specific activities (the level of energy efficiency). At the microeconomic level energy productivity focuses on how much revenue is produced from economic activities per unit of energy consumption. This is related but distinct from energy efficiency which focuses on how much physical output is produced per unit of energy consumption. KAPSARC has partnered with UNESCWA to explore the energy productivity potential of Saudi Arabia and the countries of the Gulf Cooperation Council and will release a synthesis report of this work later in 2017.

Key Points

A common priority across G20 countries is the need to reinvigorate economies through an economic transformation that delivers a higher level of better quality growth. At KAPSARC, the need to improve economic growth and deliver climate goals agreed at COP21 in Paris is being investigated using an energy productivity framework, or how greater value can be obtained from the energy system for each unit of energy consumed.

Energy productivity is an economic planning tool that is increasingly being used in G20 countries to help achieve sustainable development goals. Its key elements are structural change towards higher value added economic activities and improving energy efficiency.

A focus on lifting productivity across the economy aligns naturally with the need to lift overall economic productivity, which is the main long-term driver of growth.

Faced with the current extended period of weak international growth and low commodity prices, Saudi Arabia has intensified diversification efforts aimed at more sustained and sustainable economic development.

Key elements of the diversification strategy involve boosting private sector investment and improving business conditions; a significant fiscal stimulus to households and industry; increasing energy prices to help diversify government revenue and support structural change and energy efficiency in the economy; and increasing the share of renewable energy in the energy mix.

Such pro-growth measures to realign the Saudi economy towards a higher-value added, more energy efficient economy will lift the Kingdom’s energy productivity and contribute to achieving its Nationally Determined Commitment to avoid 130 million tons of CO2-e as set out at COP21 in Paris.