fb-pixel Skip to main content
IDEAS

Can Saudi Arabia use ‘clean oil’ to buy time in the fight against climate change?

For a while at least, carbon taxes could give the Saudis an advantage over other oil producers.

Storage tanks for crude oil at a refinery in Ras Tanura, Saudi Arabia.
Storage tanks for crude oil at a refinery in Ras Tanura, Saudi Arabia.Bloomberg/Photographer: Bloomberg/Bloomber

As climate change grips the planet, spare a thought for Saudi Arabia.

The desert kingdom, like other equatorial oil producers, faces a lose-lose climate dilemma.

If climate action fails to stem rising carbon emissions and temperatures, the Persian Gulf region could become too hot for humans by the end of the century. Dubai, Abu Dhabi, and the Saudi oil capital of Dhahran could endure heat waves that kill healthy people.

If climate action succeeds, things look even worse — from the perspective of the ruling al-Saud family.

Climate restrictions could shift global transport to electric vehicles and decimate the demand for oil, which would undermine the income that funds the Saudi budget. Shrunken oil profits also would reduce the patronage that Saudi rulers distribute to buy citizens’ loyalty.

Advertisement



The only major country named after the family that rules it may find it difficult to maintain that status — in other words, to keep the “Saudi” in Arabia.

What’s an oil-funded monarchy to do?

Paradoxical as it might seem, Saudi Arabia’s best-case scenario is for climate action to reduce greenhouse gas accumulations without entirely undermining oil consumption.

Oil obviously isn’t a bit player in climate change. Oil combustion was the No. 2 source of greenhouse gas emissions in 2019, with nearly 13 billion metric tons deposited in the atmosphere. Coal was No. 1, at 15 billion metric tons. Natural gas contributed 8 billion.

But there could be a way for the Saudis and other producers to thread the needle and safeguard oil production while the world cuts down on carbon.

The trick isn’t to capture and sequester the oil-related emissions. Since most oil combustion happens in individual vehicles, carbon emissions from oil are tough to capture. Installing carbon capture and disposal kits on each car and truck — a technology that Saudi Aramco has proved and patented — would be expensive. It would also devastate engine performance while requiring regular, even daily, disposal of captured carbon, preferably injected underground. Most drivers and regulators concerned about carbon emissions would prefer a switch instead to electric vehicles powered by a carbon-free source of electricity.

Advertisement



For some companies, offsetting customers’ emissions is more appealing. Since climate change is global, it doesn’t matter where emissions are reduced. Drivers could still spew carbon, and as long as companies captured and sequestered an equal amount, they could claim “carbon neutrality.” Offsetting customer emissions is what oil and gas companies such as BP, Shell, and Total have vowed to do in their “net zero” pledges. These companies were each responsible for 400 million to 550 million metric tons of carbon dioxide in 2018. Combined, that was just under 4 percent of global CO2, according to the Carbon Majors Database, maintained by the Climate Accountability Institute.

A net zero strategy would be more daunting for Saudi Aramco, the Saudi national oil company, given that its oil and gas was responsible for nearly 2 billion metric tons, or 5 percent of global emissions, in 2018. That’s more than any other company.

So Saudi Aramco has a different advantage it will try to press: It produces the world’s “cleanest” oil.

This is a factor of geology. Saudi oil is pooled in enormous and productive reservoirs, including Ghawar, the world’s largest. Little energy is expended bringing the oil to the surface. And Saudi Aramco flares off far less natural gas than just about anyone, including US producers.

Advertisement



This means carbon taxes like those under consideration in Congress could actually help Aramco in the short run: They could give the Saudis a cost advantage over companies whose oil generates more carbon per barrel. And, ironically, this also means Congress could wind up helping Saudi Arabia at a time that many are more inclined to support sanctions over the Saudi-led war in Yemen and the kingdom’s trampling of human rights.

Over the longer term, carbon taxes would encourage virtuous competition among oil companies to reduce their emissions. If the European companies managed to sequester or offset as much carbon as their customers emit, they’d be selling “cleaner” — and thus cheaper — oil than Saudi Aramco. Carbon offsets are accomplished mainly by planting trees, capturing methane from landfills and farms, and replacing coal-fired power with wind and solar.

Right now, Saudi Aramco has no plans to offset the emissions from its oil. But as carbon competitiveness intensifies, Aramco could find its gasoline priced out of markets with carbon taxes. At some point, Aramco might have to join in the carbon neutrality race to stay alive — and to keep the al-Saud family in power. And because Saudi oil would be relatively clean, competitive decarbonization might give Saudi Arabia a few extra decades to diversify the economy.

Advertisement



Ultimately, however, Saudi Arabia and other petrostates will be forced into businesses that lack the competitive advantage granted by geological windfalls. Those businesses will face stiffer competition and be less profitable.

Can Saudi Arabia make the transition? There’s a fatalistic saying in the kingdom that acknowledges the fleeting nature of oil booms.

“In one generation we went from riding camels to riding Cadillacs,” Saudi King Faisal was quoted as saying in 1974. “The way we are wasting money, I fear the next generation will be riding camels again.”

Jim Krane is the Wallace S. Wilson Fellow for Energy Studies at Rice University’s Baker Institute. He is the author of the 2019 book “Energy Kingdoms: Oil and Political Survival in the Persian Gulf.” Follow him on Twitter @jimkrane.