UAE requires $681bn investment for net-zero transition, says Standard Chartered

The UAE will require Dh2.5 trillion ($681 billion) in investment to finance its transition to a net-zero economy, a new report by Standard Chartered has revealed.

Emerging markets overall need to invest an additional Dh350tn to transition to net zero in time to meet long-term global warming targets, the bank said on Tuesday. This is on top of the capital already allocated by governments under their current climate policies.

"The UAE is well positioned to capitalise on the major economic opportunities offered by the path to net zero. Reaching this objective would require a strong focus on ensuring economic prosperity throughout the transition process in addition to a great deal of investment," said Rola Manneh, chief executive of Standard Chartered UAE.

"The public and financial sectors need to come together to help facilitate the flow of investment into net zero. Failure to deliver transition finance could mean climate goals are missed, therefore triggering an environmental catastrophe.”

The UAE is pursuing aggressive goals to reduce its carbon footprint and last year became the first country in the Middle East to set a net-zero target. The Emirates aims to achieve carbon neutrality by 2050 and plans to invest $160bn on clean and renewable energy sources over the next three decades.

If the finance required by the UAE to transition to net zero is provided by developed markets, the country's household spending could increase by about Dh2tn compared to self-financing, the Standard Chartered study found.

If emerging markets fund their own transition without the contribution of developed markets, household consumption in these markets could fall by 5 per cent on average each year, it said.

Private investors can contribute more than Dh300tn of the Dh350tn that is required for the energy transition — "underscoring the urgent need for financial institutions to fulfil green and transition finance pledges", the bank said.

However, encouraging investment in emerging markets is a difficult task, and "to transition in the fairest way possible, greater collaboration is required in strategy, policy and financing", the report said.

"More importantly, banks need to live up to the pledges made during Cop26 if ordinary households are to avoid bearing the costs of their market’s transition to net zero."

The world united behind a deal to tackle climate change after a tense climax to the Cop26 summit in Glasgow in November last year.

The bank's report looked at two pathways to closing the emerging market transition finance gap: self-financing by emerging markets and developed market financing, where capital is provided through grants and loans.

Exclusive emerging market self-financing would lead to higher taxes and an increase in government borrowing, meaning that families in emerging markets, including the UAE, will have less to spend on their everyday needs, the report said.

However, developed market financing has the opposite effect.

Developed market financing could see emerging market household spending increase by around Dh6.25tn on average each year (compared to self-financing) and would also stimulate global growth — the gross domestic product could be about Dh400tn higher cumulatively between now and 2060 if developed markets finance the transition, Standard Chartered said.

"Emerging markets being able to reach net zero without hampering their growth or prosperity would represent a just transition," the report said.