Fuels and emissions in a post COVID-19 world

The GCC region, like the rest of the world, has been treading uncharted waters since February 2020. As oil revenues account for more than 50 percent of GCC fiscal revenues with the exception of the UAE, where oil accounts for about 35 percent of the fiscal budget, the impact of the pandemic has invariably spread across the entire region. The domino effect of the lockdown measures and movement restrictions meant a decline in the transportation of goods and people, which in turn reduced the demand for fuel. The slump in the tourism industry has further exacerbated the demand for fuel. GCC countries have faced the lowest levels of oil prices in 17 years in March 2020. The dual shock of plunging oil prices and the pandemic’s impact has, unfortunately, introduced one of the biggest economic challenges in front of the oil-dependent GCC countries.

Tadhg O’Donovan, head – school of engineering and physical sciences,  Heriot-Watt University Dubai

A recent report by McKinsey & Company confirmed the dramatic decline in vehicle miles travelled (VMT) as one of the immediate outcomes of the lockdown, and coupled with conservative consumer spending this could further suppress the demand for new vehicles in the GCC. Despite the easing of restrictions, many employers have opted for remote working structures wherever possible, and some among the general public may continue to avoid visiting places of interest such as malls and cinemas as uncertainty around the pandemic remains. McKinsey & Company further claims that the negative trend in VMT might endure even further if remote working continues well into the long-term. Furthermore, the demand for new passenger vehicles will most likely see a pre-pandemic level of performance by the end of 2021, provided a steady progress on the road to economic recovery.

The reduction in carbon emissions due to the lockdown, mainly due to the drastic fall in air travel has been estimated as a 4-7 percent reduction over 2020 as per reports by the Global Carbon Project. However, a huge drop in carbon emissions has very little impact on the overall CO2 concentration in the atmosphere as argued by the Global Carbon Project and other climate change experts. Moreover, one should note that carbon emissions will subsequently increase as we move along the post-lockdown phase, as seen during the recovery period following the 2008 financial crisis due to the sudden increase in economic activity.

The future of mobility and alternative fuels

The GCC policy makers have already recognised the need to diversify their national economies and reduce the dependence on oil and gas revenues due to fluctuating oil prices and changes in global market dynamics. Consequently, they are mapping out the new reality once the demand for fossil fuels subsides irrespective of supply outlooks. And as such, the GCC region has introduced policies and initiatives in support of alternative fuels aimed at reducing carbon emissions and meeting the various sustainability agendas. For instance, the UAE National Energy Strategy 2050 aims to reduce carbon emissions by increasing the contribution of clean energy (in the total energy mix) from 25 to 50 percent and increase consumption efficiency of individuals and corporations by 40 per cent. The main objectives of the strategy include delivering clean, secure, affordable energy while treating the environment responsibly, and responding to the risks of climate change by reducing the greenhouse gases caused by the production and use of energy.

In line with this ambitious vision, the UAE have started to embrace many innovative solutions of which compressed natural gas (CNG) seems to be showing promising signs as an alternative fuel in the future. CNG is inexpensive and in fact more efficient than gasoline. Significant progress has been made already in Abu Dhabi especially, where fleets of taxis, government vehicles and buses have been switched to CNG in line with the UAE’s vision for sustainable development. This has mainly been spearheaded by Emirates Transport, a Federal entity, which is responsible for converting petrol and diesel vehicles to CNG, and is promoting its agenda to private vehicle owners. Barring the upfront retrofitting costs, natural gas vehicles (NGVs) have lower operating costs given that the price of natural gas is 50 percent less than that of petrol, and users also benefit from lower maintenance costs. The long-term cost savings is incentive enough for CNG’s proliferation, but the only caveat is that CNG refuelling stations are currently sparse at the moment, which means that there is more investment required to build the infrastructure that will propel the adoption of CNG as an alternative fuel.

Biofuel, another alternative fuel with potential, is gaining prominence among both private and government entities in the UAE. This includes McDonald’s who reuse waste cooking oil to run its truck fleet and Dubai Municipality who power their vehicles with biodiesel made locally from 100 percent cooking oil. Sustainably produced biodiesel reduces CO2 emissions by around 50 percent which rises to around 90 percent for waste vegetable oil. Hydrogen fuel has also shown massive potential. It guarantees zero emissions with pure water as the only residue. Hydrogen fuel can be used in fuel cells or internal combustion engines. It has begun to be used in commercial fuel cell vehicles, such as passenger cars, and has been used in fuel cell buses for many years. However, it is costly, and a more robust delivery infrastructure will be required in place.

Implementation of Euro VI emission standards in the GCC

The Euro 6 Emission Standards – the sixth amendment of the European Emission Standards introduced within the European Union (EU) to ensure vehicle manufacturers keep harmful emissions by both petrol and diesel engines below specific limits – are yet to make a mark in the region. The Euro 6 emission standards require the greatest emission reductions of any previous stage along the European regulatory pathway.

Under the current circumstances where the VMT is at a historic low, the GCC region could perhaps afford a slightly delayed approach with the adoption of Euro 6 emission standards. Before setting the legal obligation date, the GCC countries need to evaluate the current state of the automotive industry on whether they are in a position to adjust to the demands of Euro 6. Moreover, by taking a phased approach, the GCC countries can incentivise the voluntary adoption of Euro 6 vehicles before transitioning to a regulatory regime.

In this region, Dubai’s Roads and Transport Authority (RTA) is already leading the way with Euro 6-compliant buses that were introduced over the course of the last two years, in an effort to provide the most fuel-efficient, cost effective and environment-friendly public transport solution in the emirate. The UAE has always been at the forefront of innovation and while the pandemic has many tragic consequences, it does present a significant opportunity. Governments around the world will look to boost their economies as we recover. By incentivising clean technology and supporting industries at the forefront of a green and sustainable agenda, it will give countries like the UAE a competitive advantage in renewable, green and sustainable marketplace. Given the international and binding carbon reduction commitments, this is a market that will grow and therefore investment now will ensure that competitive advantage.