Barriers to decarbonising the regional economies was one of the subjects covered at the ‘Climate Crisis in the East Med and the Middle East’ conference organised by Cyprus Institute in Larnaca this week. It was a well-attended conference with delegates from 22 different countries.
What follows is based on my contribution to the conference.
Common barriers to change toward decarbonisation of regional economies in the East Medinclude:
- Government systems not up to managing the task
- Lack of capital to invest in new systems to mitigate and manage the impacts of climate change
- Competing priorities of energy investors in the region: financial returns prioritised over environment and sustainability
These challenges are by no means unique to our region. And I must hasten to add that regional enmities and proliferating conflict are magnifying these challenges.
Having said that, the East Med is a very diverse region on which to generalise about the barriers to decarbonisation. I will make my points by concentrating on Egypt, the most populous country in the region, and Cyprus, the only EU member state in the region.
Egypt
According to international economic indices, Egypt’s economy is considered “repressed”. Egypt is struggling with a prolonged economic crisis, with a debt of over $160billion, made worse by chronic foreign currency shortages and reserves barely enough to feed its people for four months.
Another challenge is its increasing population now at 116 million and still growing at 1.6 per cent per year, putting more pressure on the country’s beleaguered economy and growing energy needs.
These are the main barriers making it difficult for the country to tackle climate change. To do that it needs external investment. This is trickling in but not at levels required to make a serious difference.
In 2023 wind and solar provided only 5 per cent of Egypt’s primary energy mix, that was dominated by hydrocarbon fuels with an 85 per cent contribution. Even though Egypt’s target is to achieve 42 per cent renewables by 2035, based on current performance this looks unlikely.
Egypt relies heavily on natural gas for power generation. But it has been unable to maintain payments to the international gas companies. It owes them over $5billion. As a result, they have slowed investments in new E&P, with Egypt seeing a rapid decline in gas production, down 30 per cent over the last three years and still declining. This year the country was forced to go back to LNG imports, with a devastating impact on its balance of payments. Not only it has lost the ability to export LNG, that earned foreign currency, but it has to pay for expensive LNG imports with foreign currency that is in short supply. For that it has gone back to IMF and its rich Arab neighbours for help.
On top of that, the country has become even more reliant on Israeli gas, with all the political implications given the Gaza and now possibly Lebanon wars. In fact, Israel this year sanctioned new projects to increase gas exports to Egypt from 10 bcm/yr now to 21 bcm/yr by 2028. This is about a third of its gas consumption.
With abundant solar and wind potential, turning to renewables as fast as possible may be the answer, but the barriers I raised earlier make that a big challenge.
Egypt has ambitious plans for future decarbonisation. But these will have to wait. The most populous country in the region is in a chronic survival mode, and getting out of it is its top priority.
Cyprus
Cyprus has none of Egypt’s problems. It is doing well economically and it is a member of the EU with all the benefits and systems it brings, with little stopping it from becoming a leader in decarbonisation, as Greece is doing. But it is not happening.
So, what has gone wrong? Electricity production from renewable sources was about 18 per cent in 2023 in comparison to over 50 per cent in Europe. The dependence of EU’s electricity generation on fossil fuels has been reduced to 27 per cent and is still going down, compared to Cyprus’ 80 per cent. Unfortunately, ambition remains low. At present, the target is to achieve 23 per cent renewables by 2030, half of the EU target.
The greatest challenges are limited capacity in the transmission and distribution network, lack of battery storage and electricity interconnection with the rest of Europe. Without major changes, these will continue to limit a significant increase in renewables in the foreseeable future.
Cyprus has more than 400 bcm of natural gas but developing it is not profitable enough and not a priority for the oil companies, let alone bringing it to the island. Its project to import LNG has been mired in endemic corruption and government systems not up to managing the task. And yet using gas to generate electricity could have advanced energy transition at a stroke by slashing emissions by 30 per cent and electricity prices by a third.
The GSI Interconnector between Cyprus and Crete is on the verge of final approval. But it will not be operational until 2030 at the earliest. In the meantime, the greatest hope to reduce emissions lies in the import of LNG to replace diesel/HFO in power generation and more rooftop solar. The latter got a boost earlier in the year and was a great success. But it requires grid upgrading to take off.
The headline on Monday was that the villagers around the Dhekelia power plant are drowning in pollution because Cyprus continues to use a highly outdated and inefficient plant to generate electricity. This is symptomatic of what is going wrong in Cyprus’ energy sector. We have known about this and what needs to be done for years. But we still carry on paying huge fines for high emissions and we are still stuck in talking mode, while the problem remains unresolved.
In Cyprus big renewables projects, especially solar, have gone astray. They are mostly owned by independent, private, producers that more or less operate as a ‘cartel’, keeping prices very high. Electricity market liberalisation could help if and when it comes and is ‘truly-liberal’.
Cyprus energy minister seems to have recognised the problems with the current electricity system. It is urgent to speed up the implementation of the required measures to address them, especially grid upgrading, so that the adoption of renewables, especially rooftop solar, continues at a rapid pace. He outlined future plans to improve Cyprus’ energy system. But we need to progress from talk to implementation faster.
Dr Charles Ellinas, @CharlesEllinas, is a councilor at the Atlantic Council
