A new study by the International Monetary Fund (IMF) has revealed that renewable energy expansion in the Middle East and Central Asian regions will require an investment that would equal one-fifth of their current GDP of the countries that fall in the regions.
The IMF study has been conducted by Middle East and Central Asia Department director Jihad Azour along with economists Gareth Anderson and Ling Zhu. The study finds that in case the 32 countries in the two regions want to meet their emission reduction objectives, they will have to spend $884 billion on developing renewable energy plants till 2030.
IMF study finds that countries falling in the Middle East, North Africa, Afghanistan and Pakistan (MENAP) region will require $770 billion investment and Caucasus and Central Asia (CCA) countries would require $114 billion.
The author’s found that few large renewable energy projects are already being developed. This includes the 800MW Al-Kharsaah solar energy plant in Qatar that is expected to meet one-tenth of its power requirements.
The UAE’s Mohammed bin Rashid Al-Maktoum Solar Park that is being constructed at a cost of $13.6 billion I’m Dubai will be world’s largest single-site solar park that will generate 5GW of power by 2030.
The IMF study offers some key policy options for national governments in case they look to achieve climate targets. It says that besides capital expenditure on renewables, the governments should reduce fuel subsidies by two-thirds. The RE expansion in the region can create jobs and heightens energy security of oil-importing countries.
But this will have some costs attached. Those fuel subsidies that would continue will distort energy prices besides putting some breaks on potential gains from higher energy efficiency. Also, the study said that such high expenditure on renewables by governments could trigger fiscal challenges causing macroeconomic instability. But the national governments can gradually withdraw fuel subsidies and introduce a carbon tax – $8 per ton of CO2 emissions for the Middle East and $4 per ton in Central Asia.
The IMF report also notes some risks that are attached with these actions. They may affect vulnerable people and businesses that depend on affordable energy sources. Carbon tax and reduced subsidies may hinder economic growth and lead to high inflation.