While governments have an important role to play in fighting climate change, the real mover is the market itself.

By Xische Editorial, November 16, 2021

The COP26 climate summit came to a close last week in Glasgow. The primary focus of this UN conference was to find ways to keep global temperatures from rising more than 1.5C in line with the Paris Agreement on climate change. The most important work of the summit took place behind closed doors as ministers and other government officials gathered to hammer out the details of an agreement the majority of countries in attendance could agree on. 

Much was left to be desired from COP26 and that’s because our approach to climate change and curbing carbon emissions isn’t working. Governments and international organizations have so far failed to alter the trajectory of our warming planet. This isn’t for lack of trying, but the fact is that governments and international organizations haven’t been able to curb the global market’s appetite for fossil fuels. Yet, there is an obvious and potentially lucrative way out of this challenge. 

While governments have an important role to play in fighting climate change, the real mover is the market itself. The technology underpinning clean and renewable energy is accelerating exponentially, with costs plunging through the floor. As a result of these developments, clean energy will soon be cheaper across every metric than traditional fossil fuels. Since these trends are happening by the forces of the market alone, the best thing that governments can do is meaningfully invest in climate technology infrastructure and companies.  

Just before COP26, Saudi Arabia announced a decision to curb carbon emissions to net-zero by 2060. This is welcome news but the real opportunity of the Kingdom’s pledge remains unrealized. As one of the world’s leading producers of hydrocarbons, Saudi Arabia wields incredible influence over global carbon emissions through its ability to curtail oil production. A dramatic shift in oil production isn’t realistic because the world is still dependent on fossil fuels. The market won’t allow it at this stage but things are changing fast. When it’s cheaper and easier to get electricity from solar energy and drive an electric car, there won’t be much room left for fossil fuels.

The market will render fossil fuels obsolete. The question is how long this shift will take and whether we have the time to wait. The forces are already taking shape as the market is course-correcting through deeper adoption of renewable energy. Just look at the skyrocketing share price of Telsa and the explosion in global electric vehicle sales. There are examples of the shift everywhere. Governments can accelerate this transition with intelligent policy investment in climate technology and (hopefully) stave off dire climate change forecasts. 

That’s why the Gulf needs to invest in climate technology startups. Leading Gulf countries like Saudi Arabia and the United Arab Emirates have already laid out ambitious green-energy goals. With the capital to invest and the ideal conditions for research and development, Gulf states are positioned to support the next generation of climate-technology startups. These aren’t limited to renewable-energy projects but can focus on agricultural technology, smart-city development, and green hydrogen energy. With this investment, the market could take care of the hard work of climate change and the countries of the Gulf would see their knowledge economies get stronger. 

Larry Fink, the CEO of hedge fund Blackrock, recently said that the next 1,000 unicorn startups worth at least $1bn would be involved in climate technology. Moreover, international organizations need to ensure that capital is invested in climate technology in developing nations. Not only is the market exploding, but there is significant room for governments to help direct the energy to emerging and developing nations. Given the Gulf’s strong connections with emerging market countries in Africa, the Indian subcontinent, and Asia, it is perfectly positioned to be an exporter of climate technology. 

 Long-term projects are good targets for Gulf countries, but smaller-scale investments in startups now can be the catalyst for real change. Not only are the Gulf investments in climate technology valuable for the global fight against climate change, but they are critical for building the strength of the region’s knowledge economy. Moreover, the Gulf can export such technology to emerging market countries around the world. When Cape Town, South Africa, nearly ran out of water in 2018, the UAE was close to exporting desalination technology to ease the crisis. That’s a specific example of how the Gulf could spread its climate-related industry across the world. The industrial revolution and the triumph of resource-hungry capitalism are a big reason we are facing climate challenges. Instead of reinventing the wheel, let nations embrace the mechanism of capitalism to foster real change in the hydrocarbon industry and the transition to renewables.