Investing for Energy Productivity in the GCC: Financing the Transition

2017-05-09, by Kankana Dubey, Steven Fawkes, Nicholas Howarth, Moncef Krarti, and Padu S. Padmanabhan, from King Abdullah Petroleum Studies and Research Center (KAPSARC), Saudi Arabia

An unprecedented infrastructure investment boom occurred in the Gulf Cooperation Council (GCC) in the first part of the 21st century. Strong public capital spending supported by high energy prices provided governments with an opportunity to accelerate economic diversification and infrastructure investment, lifting economic growth and per-capita incomes. The 2014 collapse in oil prices created an added impetus for a transition to a more sustainable growth model, less dependent on volatile energy markets. Given that GCC governments face a constrained fiscal environment and low domestic energy prices remain in place for consumers, we suggest that policymakers consider a market-based 'negabarrel' program to stimulate energy productivity investment. A 'negabarrel' program on the scale of around USD 100 billion across the GCC implemented over 10 years could incentivize private sector investment, generate around 800,000 to 1.2 million new jobs and increase government revenue, if a robust energy service company (ESCO) market can be established. Implementation programs, such as super-ESCOs, need careful planning, but can deliver substantial economic benefits and employment opportunities for GCC citizens in the area of energy auditing and management.

Executive Summary:

The paper consists of the following parts: First, the GCC’s energy productivity investment challenge, and analysis suggests that strong capital spending may be a necessary condition for significant improvements in energy productivity, but it is not sufficient. A financial sector aligned with the goal of developing high energy productivity infrastructure is also necessary.

Second, the paper introduces energy productivity investment categories, two main factors affect energy productivity: the underlying energy efficiency of the economy and its structure, and programs to improve productivity should target both aspects: energy efficiency and diversification.

Third, a business model for energy productivity investment, as well as sources of finance for energy productivity investment in the GCC.

Forth, the introduction of managing energy productivity and investment risk and barriers.

Finally it comes to a conclusion that creating a market for energy productivity, or 'negabarrels', would have a great impact. Such a policy is difficult to introduce, but is worth considering as a target to move towards. Implementing this kind of measure in the GCC would effectively leap-frog the productivity policies of other countries and establish GCC leadership in this area.

This paper has been granted authorization to use and reproduce by the King Abdullah Petroleum Studies and Research Center (KAPSARC). For academic purposes only.

Copyright © 2016 King Abdullah Petroleum Studies and Research Center (KAPSARC). All rights reserved.

https://www.kapsarc.org/wp-content/uploads/2016/10/KS-1647-DP042A-Investing-for-Productivity-in-the-GCC-Financing-the-Transition.pdf