The Saudi and Middle East green initiatives have certainly captured global headlines, especially the Kingdom’s commitment to become a net zero carbon emission producer by 2060.

The recent Riyadh forum gathered together a global who’s who of policymakers including several heads of state, with key speakers such as Crown Prince Mohammed bin Salman, US Special Presidential Envoy for Climate John Kerry, UN Deputy Secretary-General Amina Mohammed, BlackRock Chief Executive Officer Larry Fink, HSBC Group CEO Noel Quinn, and BTG Pactual Senior Partner Andre Esteves.

At the same time, the Kingdom has been advising some realism noting that a sharp reduction in the use of fossil fuel without a meaningful and commercially viable alternative energy was not realistic. While there are many encouraging signs regarding the drive for green energy, a complete retreat from financing fossil fuels will also take time.

UN secretary-general, Antonio Guterres, for example, has called on international lending agencies to stop funding fossil fuel projects. Central banks are also on the case. Many are going to impose climate stress tests to try to ensure that bank balance sheets reflect the risks of climate change. Clients, too, want to at least look green — and many are trying to make substantive changes to their business models.

Last but not least, investors are a powerful force for change. Even if demand for fossil fuels remains in place for decades, there is still the potential for heavy financial losses.

Even OPEC members are now urging a radical rethink for the group. Iraq’s finance minister recently made an unprecedented call to fellow oil producers to move away from fossil fuel dependency and into renewable energy, urging them to pursue “an economic renewal focused on environmentally sound policies and technologies” that would include solar power and potentially nuclear reactors, and reduce their dependency on fossil fuel exports.

The International Energy Agency’s recent global roadmap to net zero carbon emissions by 2050 found that global demand for oil was likely to plunge from more than 90 million barrels per day to fewer than 25 million bpd by 2050, resulting in a potential 85 percent drop in revenues for oil-producing economies.

When oil prices plummeted in 2015, for example, investors in US oil exploration and production companies that went bankrupt on average recovered only around 20 percent of their money, according to Moody’s.

In the most recent oil price downturn in 2020, recoveries from bankruptcies averaged 42 percent, Moody’s said. But although overall pressure to exit fossil fuels is building, and banks’ own cultures are shifting, they still stand accused of looking the other way.

Banks may face a conflict of interest between short-term balance sheets and the longer goal of net zero emissions. Fossil fuels have many applications beyond domestic power that will make leaving them in the ground a challenge. That is why, the banks have pointed out, a complete retreat from financing fossil fuels will take time.

The use and extraction of thermal coal is already hard to finance. But it is used to generate around 40 percent of the world’s electricity, with India and China particularly reliant on it and expected to remain so as long as burning coal is cheaper than investing in renewables in some regions.

Metallurgical coal is used in making steel and building renewable energy capacity requires steel — for example, in wind turbines — and creates a dilemma between immediate environmental reduction action and realism. So, although metallurgical coal is a major pollutant, extracting and burning it will continue to be funded, at least until energy sources such as hydrogen can replace it.

But even if banks are increasingly unwilling to finance new fossil fuel projects, many have old exposures among their assets, some of which could become stranded. That could make it hard for banks to back new green projects, or worse still, make them invest in riskier assets than the fossil fuel sector, creating problems down the road.

However, building up renewable energy is also a big opportunity for banks. Extracting fossil fuels is a capital-intensive business, which makes some large energy companies big clients for banks. The suspicion of activists is that banks may not make the right choice in the conflict of interest they face between their short-term balance sheets and the longer goal of net zero.

These considerations did not stop Saudi Arabia from taking some practical financing steps with international partners with the announcement of a national infrastructure fund to support up to SR200 billion ($53.32 billion) in projects over the next decade, state news agency SPA said on Monday. The National Infrastructure Fund will invest in areas such as water, transportation, energy, and health, contributing to Saudi Arabia’s plans to transform the economy and make it less reliant on oil revenue.

The Kingdom has been a pioneer in carbon capture, utilization, and storage technologies to ensure a transition to a low-carbon future. As part of the country’s stated goal, as set out by Energy Minister Prince Abdulaziz bin Salman, this has been instrumental in enabling the circular carbon economy, a framework by which emissions of carbon are addressed through the four Rs – reduce, reuse, recycle, and remove – to help restore the balance of carbon and achieve the greatest impact in reducing global emissions.

At the same time, the Kingdom is leading in the race to produce blue hydrogen from natural gas through traditional methods, but the carbon is captured, while green hydrogen is produced through electrolysis of water and hydrogen converted to ammonia for long-distance transport before being turned back to hydrogen.

Saudi Arabia is not waiting for the fossil era to completely disappear but taking practical steps now.

• Dr. Mohamed Ramady is a former senior banker and professor of finance and economics at King Fahd University of Petroleum and Minerals, Dhahran.

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