GCC Countries Strategic Options in a Global Transition to Zero-Net Emissions

Abstract

Using a multi-level perspective approach combined with top-down macroeconomic models, we analyze the situation of the GCC countries in the perspective of a global transition to zero-net emissions before the end of the century. Based on these analyses, we propose strategic and political options for these oil and gas exporting countries. We show that it would be unwise for GCC member states to adopt an obstructionist strategy in international climate negotiations. On the contrary, these countries could be proactive in develo** international emissions trading market and exploiting negative emissions obtained from CO₂ direct reduction technologies, in particular direct air capture with CO₂ sequestration, and thus contribute to a global net-zero-emissions regime in which clean fossil fuels are still used.

1 Introduction

How Gulf Cooperation Council (GCC) countries might lessen the negative effects of a reduction in hydrocarbon prices on their economies? This paper explores long-term policy options for a transition to sustainable energy systems in the GCC¹ countries. The role played by new technological developments involving renewable energy and negative emissions is analyzed using complementary qualitative and quantitative models.

The successive COPs² have encouraged a transition of the global energy system towards sustainability through deep decarbonisation and the active use of renewable energy sources. COP26, held in Glasgow UK in November 2021 reaffirmed the goal to secure global zero-net emissions (ZNE) by mid-century and to keep 1.5°C within reach. To deliver on these stretching targets, countries will need to accelerate the phase-out of coal, curtail deforestation, speed up the switch to electric vehicles and encourage massive investment in renewables.³ This reaffirmation of the Paris agreement goals will not, however, convince everybody that such a transition will take place. In [1], W. Nordhaus claims that Paris agreement, like Kyoto accord, is a “dead-end” because of lack of penalties for countries that would do “free riding.” In any case, the GCC⁴ countries are hit by a “double whammy,” with the necessity to adapt to an even warmer climate and the possible deep decline of fossil fuels use worldwide⁵. Already in 2017 KAPSARK, a Saudi research center on energy, has organized a workshop on the theme “Role of oil in the low carbon energy transition” [2]. Among key points put forth we can quote:

... Under a binding constraint, the energy transition would have an impact on demand for hydrocarbons, including oil, which would probably peak... Although Gulf Cooperation Council (GCC) oil producers are better placed to survive periods of greater price volatility that are expected as part of this transition than higher cost suppliers, they are still exposed to fiscal risks if they do not diversify from reliance on hydrocarbon revenues... The energy transition poses challenges for both companies and governments. Those institutions that assume that it is business as usual face a threat to their business models. For financial institutions, the uncertainty posed by this transition represents a major risk factor. ...

In this paper⁶, we address the conundrum posed by climate change to GCC countries by proposing a Multi-Level Perspective (MLP) approach to provide a qualitative assessment of the challenges for GCC countries and policy choices that could be taken to mitigate the societal cost of a transition to ZNE before the end of the century. This qualitative analysis is complemented by quantitative scenario-building approaches that exploit top-down macroeconomic modeling to assess the welfare losses associated with different climate policies around the world. The main contribution of this article is its focus on one of the topical issues, the issue of climate change, and the restrictions that this issue will impose on the ability of the GCC countries with regard to the use of their reserves of fossil fuels. In this context, and based on the three methodological pillars described previously, the paper draws future scenarios for the countries of the region regarding how to deal with the restrictions imposed by international frameworks to address the issue of climate change, such as the Paris Agreement. Thus, a common thread between the qualitative and quantitative approaches is the analysis of climate change risks and the potential role of CDR/DAC with smart energy systems in mitigating them. This supports the political economy analysis that concludes the paper.

The scenarios obtained from modeling the energy system at the GCC country level and the macroeconomic effects of deep decarbonization on a global scale highlight the key role that emerging CO₂ direct reduction (CDR) technologies, and in particular direct air capture (DAC) [3], coupled with carbon capture and sequestration (CCS) [4] or coupled with enhanced oil recovery (EOR) [5] will play in the future.

In reviewing the literature, we note that the topics in this paper have received considerable attention recently in GCC member states and around the world. The issue of climate change is now well recognized, as evidenced by the numerous articles that have appeared in the general and specialized press⁷. The book When Can Oil Economies Be Deemed Sustainable? [6] edited by Luciani and Moerenhout, is a recent presentation of the situation of GCC member countries in a global transition to sustainability. Two KAPSARC reports, Understanding the energy transition [7], and Role of oil in the low carbon energy transition [2], analyze the impact of energy transition on GCC member states. The limited level of cooperation among GCC countries is analyzed by Rossi in [8]. The stranded asset risks is evaluated by IRENA [9] and the GCC states energy challenges associated with renewable energy is discussed by Al-Maamary et al. [10]. The impact of oil prices on GCC economies is discussed by Vohra in [11] and the need of diversification by Fassano and Iqbal [12] or Flamos et al. [13]. Strategies of oil exporters in a carbon-constrained world are discussed by Van de Graaf and Verbruggen [14] and Gross and Matsuo claim for pragmatic policies [15]. A comparison of alternative programs for climate policies is done by Atalla et al. in [16]. Carbon trading scheme [17] and willingness to pay for a climate backstop provided by direct CO₂ air capture was already considered by Nemet and Brandt in 2012 [18]. CCS: State of play, challenges and opportunities for the GCC countries was discussed in [19]. Policy lessons from China’s CCS experience are derived by Yang et al. in a KAPSARC report [20]. The development of CO₂ direct reduction technologies in long-term climate strategies of the Gulf countries is proposed in [21] and [22]. The role of negative emission technologies in meeting Paris Agreement targets is discussed in an EASAC report [3]. CDR/DAC in EU is also envisaged by Gelden et al. in [23]. CCS technology was already described in the models developed by ETSAP [4]. Enhanced oil recovery and CO₂ storage potential outside North America is discussed by Ward et al. in a KAPSARC report [5]. Recent reports and articles on CDR/DAC include [24] which gives a new insight into DAC and in particular, the modular low temperature DAC technology developed by Climeworks of Switzerland; [25] which provides an overview of the considerations for deploying DAC technologies, including concepts for learning-by-doing that may drive down costs and material requirements for scaling up DAC technologies; [26] which predicts that solid sorbents are an economic solution to scale carbon dioxide removal projects and so, Carbon Capture and Carbon Dioxide Removals projects will boost in the near future; [27] which tells that direct air capture (DAC) is one promising technology to remove CO$_2$ from the atmosphere and meet the emissions goals of the Paris Agreement; [28] which reviews the state-of-the-art to provide clear research challenges across the process technology, techno-economic and socio-political domains; [29] which gives a comprehensive analysis of possible DAC development and shows the comparative advantage of Middle East countries to develop DAC activity; finally [30] which is the most recent report on stat-of-the-art for DAC development.

The rest of the paper is presented as follows: Sect. 2 recalls how the multilevel perspective (MLP) approach can provide insight into the possible transition to sustainability for GCC economies; Sect. 3 focuses on the transition to a net-zero emissions regime at the global and GCC country level; Sect. 4 presents the results of two macroeconomic modeling exercises that were used to explore possible socio-technical regimes; Sect. 5 summarizes the results of this MLP analysis; Sect. 6 concludes.

2 Multi Level Perspective for GCC Countries Transition to Sustainability

The multi-level perspective (MLP) is a promising framework for analyzing socio-technical transitions to sustainability [31]. In general, the multilevel perspective can be seen as an approach in which interactions between multiple actors within a given environment can be explained and understood. These interactions take place mainly on three levels and result in transformations in various issues, such as those related to transformations in the fields of energy. The first level is known as the micro level, wherein transitions in their various forms begin to occur in their initial stages. Transitions at this stage are mostly characterized by creativity and radicalism. As such, innovations need an incubation period before moving to the higher level. The second level of analysis is meso-level. At that level, innovations interact with the institutional framework with all its customs, rules, procedures, and values, all of which affect the transformation process that takes place within the various sectors, including transitions in energy policies. The meso-level is very important, as it affects the possibility of success or failure of transitions with regard to innovations, and thus the extent to which they can be transferred to the macro level or not. The third and final level of analysis in the multilevel approach is the macro or “landscape” level. This level includes contextual factors such as political, economic, and social structures, as well as factors that will influence transitions in the field of energy, such as global energy prices, international agreements in the field of energy, climate change, and wars. Comparing all the previously mentioned levels of analysis, this level includes the most stable factors and is therefore the most difficult in terms of the ability to change them. Figure 1 summarizes on a diagram inspired from [31] and [32] how the MLP approach can be used to analyze the techno-economic transformation of the GCC economies in their possible transition to sustainability.

Fig. 1

MLP approach to GCC countries adaptation to a new climate regime

One distinguishes the “Landscap” level describing global environmental, political, and societal developments, “Meso” level where new socio-technical regimes take place and “Micro” level where technological niches nurture emergent technologies. Figure 2, below is a presentation in the MLP structure of the topics that are more specifically addressed.

Fig. 2

Topics in MLP

2.1 Landscape Developments

Landscape developments concern the mounting awareness of climate change risks, the reaffirmation of Paris agreement goals, but also the evolution of oil and gas markets in a global geopolitics perspective. They are mainly dominated by the global climate change issue and the possible global drive toward ZNE worldwide. The challenge of anthropogenic climate change caused by emissions of GHGs is now common knowledge, as indicated by the many articles on this topic published in the economic and general press. In the academic, corporate or international agency circles, scenarios about the future of climate change have been assessed using integrated assessment models (IAMs); see [1, 33-35] for a small sample of recent IAMs. In most of these scenarios a ZNE regime is reached before the end of the century and some forms of negative emissions must be obtained to offset the remaining use of fossil fuels in economic production domains not compatible with renewable energy sources (see, e.g., the IEA scenario [36] or Shell Sky scenario [37]). Currently, the economies of the GCC countries are among the most carbonized, resulting in some of the highest GHG emissions per unit of GDP in the world. However, they are part of the Paris agreement and all the GCC member states must envision a transition to ZNE by 2070 or earlier. This has been recognized in several recent publications, e.g., [38] on policy pathways to meet KSA’s contributions to the Paris agreement, [39] on the development of a GCC power market and [40] on macroeconomic pathways of the Saudi economy.

2.2 Socio-Technical Regimes

The socio-technical regimes that develop in this landscape are negotiated at the UNFCCC COPs. These negotiations focus on the technological transformation of the world economy’s energy systems needed to meet the ZNE target, the need to continue to supply fossil fuels to develo** and emerging countries, the equitable sharing of costs and burdens between groups of nations, etc. The implementation of a global carbon pricing system, for example in the form of an international market for tradable emission rights, would facilitate the transition to ZNE in the foreseeable future. In GCC countries the socio-technical regimes are affected by five groups of factors corresponding to: (i) the geography of hydrocarbons deposits and CO$_2$ storage capacities; (ii) the size and diversification of the economies that are in transition; (ii) the public/private structure of fossil fuel exporting economies and the possible dominance of the national oil company; (iv) the willingness of political leaders to change; and (v) the balancing mechanism of the energy industry (market vs. public).

2.3 Technological Niches

The technological niches regroup the development of smart energy systems, exploiting the Internet of Things (IOT) in Smart Grids (SG) that are delivering electricity to Smart Cities (SC), the development of an hydrogen economy and also the development of operational large scale negative emission technologies, like DAC coupled CCS.

The arrows in Fig. 1 indicate the diffusion of new technologies permitting the establishment of new technological regimes that are motivated by the global climate change awareness effect and will ultimately permit a transition to sustainability. In this MLP framework, all the innovation is external. This is relevant for GCC countries, as new technologies are imported from the rest of the world through expatriate employees and foreign companies investments.

3 GCC and Net Zero Emissions: A Policy Perspective

Could ZNE be achieved in the Gulf region without undermining economic progress? Changes in the field of climate change at the level of the Arab Gulf region always come from abroad. For a long time, the countries of the Arab Gulf region have not made real commitments to reduce their carbon emissions. Those countries contented themselves with hosting the international conferences of many organizations working in the field of environment without taking actual steps to reduce the carbon footprint of their economies that rely heavily on hydrocarbons. This situation has changed now, as these countries, like others, are required to take effective measures and develop policies to reduce their carbon emissions. Many countries in the Arab Gulf region tended to submit their commitments to reduce carbon emissions prior to the meeting held in Glasgow, UK, during the month of October of the year 2021. In this context, some Gulf countries, including the United Arab Emirates (UAE), Kingdom of Saudi Arabia (KSA), and Bahrain, announced their intention to reduce carbon emissions in accordance with the Paris Climate Agreement, which is trying to maintain the rise in the Earth’s temperature at one and a half degrees Celsius.

3.1 Towards a Zero Net Emissions Regime for GCC Countries

For a long time, Gulf states were reluctant to commit to absolute quantitative cuts in their carbon emissions. This is evident in the commitments made by these countries in the framework of the Paris climate agreement, which lacked any real commitment to reduce carbon emissions, but contained a lot of goodwill about the desire to tackle the problem of climate change. Instead of the Gulf countries presenting their commitments in the form of quantitative targets for the reductions they intend to make in the field of carbon emissions. The documents presented included flexible statements about the need to preserve the environment and expand investment in the field of clean energy. From this angle, many analysts in the field of environmental and energy policies concluded that the commitments made by the Gulf states under the Paris Climate Agreement are insufficient, and stressed the need to take more realistic steps and develop effective policies that include numerical targets to reduce carbon emissions.⁸

With the trend of many countries in the world to adopt the concept of ZNE, the Gulf countries found themselves compelled to keep pace with the development in this field. At the forefront of countries that announced their commitments in this regard was China, which set the year 2060 to achieve the climate neutrality goal. The USA and the European Union countries have also announced achieving the same goal by the year 2050. This global trend has created pressures on many Gulf countries to do something similar. In this context, in November 2020, Saudi King Salman bin Abdulaziz announced the launch of the National Program for the Circular Carbon Economy during KSA’s presidency of the G20. As reported by the Ministry of energy, the program was approved by the G20 as an integrated and comprehensive framework to address the challenges arising from greenhouse gas emissions and manage them with various available technologies. This approach represents an economically sustainable way to manage emissions using four strategies: reduction, reuse, rotation, and removal. These four strategies are in line with the Kingdom’s Vision 2030 through its programs aimed at achieving social transformation and more sustainable economic growth, by aligning and working with all development sectors in the Kingdom such as energy, industry, water, agriculture, tourism, and other sectors.⁹

Following the same lead, UAE announced that it is committed to achieving the goal of reducing carbon emissions to zero by 2050. Other countries in the Arab Gulf region, including KSA and Bahrain, have set the year 2060 as a target to achieve ZNE. The importance of this step comes from the fact that the three countries, UAE, KSA, and Bahrain, are responsible for producing the equivalent of thirteen percent of the total oil production globally. Other countries have expressed some reservations about this matter, such as a country like the State of Qatar.

Perhaps one of the factors that attract the Gulf states to the concept of ZNE is the lack of emphasis by this term on the need to specify absolute quantitative reductions in the volume of carbon emissions. Instead, the ZNE concept focuses on the need to offset carbon emissions by adopting certain techniques to sequester carbon, convert it into sustainable carbon, and then reuse it again in industry. The most prominent example here is the building materials industry, in which carbon is widely used. From this point of view, the application of this concept will not affect the productive capacity of the Gulf states and will not disrupt their economic development plans as long as the amount of carbon in the atmosphere is compensated through other mechanisms.

3.2 What Sectors and What Technologies to Reach ZNE?

In order to reach the goal of reducing carbon emissions to the zero level, the energy sector comes at the top of the sectors targeted by the Gulf countries. To achieve that goal, the GCC countries are required to review the energy policies and systems currently used, which still depend to a large extent on generating energy from fossil fuels, especially petroleum and natural gas. In KSA, for example, there is the equivalent of 60% of the total energy generated using gas, while reliance on oil to produce the remaining percentage of energy to meet the country’s need and meet the increasing domestic demand for energy. Looking at the case of UAE, it can be noted that natural gas represents the primary fuel for power generation operations. It is responsible for producing abour of 90% of the total energy generated within the country. The percentage of renewable resources in the process of power generation does not exceed 4% in 2020. But it is also noted here that KSA has announced its intention to increase the volume of investments and participation in terms of renewable energy sources to 50% by 2030. UAE has also set the year 2050 as a target to reach 50% of its total energy production from clean energy.

In terms of technologies used to reduce carbon emissions, the GCC countries are using technologies that are related to CCS during industrial processes. These technologies are regarded as one of the alternatives available to public policy-makers in the field of energy. In this regard, these technologies can help the countries of the Arab Gulf region to achieve their goals and their commitments to reduce carbon emissions. For example, UAE uses CCS technologies and reuse carbon in many industrial sectors, including the steel industry.

3.3 Policies and Actions to Reach ZNE

On the operational level, many companies working in the field of oil extraction have adopted the oil and gas climate initiative. As part of this initiative, Saudi Aramco announced its intention to commit to reducing carbon emissions during exploration and extraction.¹⁰ Despite this initiative, it is noticeable that at a time when governments, investors, asset managers and consumers in European countries are exerting great pressure on companies operating in the oil field in order to reduce emissions and achieve ZNE, these pressures are almost non-existent in the Arab Gulf countries. Hence, it is not expected that these companies will commit themselves to the restrictions imposed on them by similar pressures in European countries. For instance, The region’s hydrocarbon sector continued to expand, with ADNOC (Abu Dhabi National Oil Company) announcing a 5-year investment plan worth $122 billion.

4 Modeling Scenarios for Socio-technical Regimes

To explore possible socio-technical regimes for GCC countries under a transition to ZNE, we developed scenarios using two top-down macroeconomic models. The first model is based on an optimal economic growth paradigm, while the second model is a game-theoretic approach to the burden-sharing issue, with an emphasis on measuring the economic impact on the GCC countries. The mathematical formulations of both model are given in Appendix 7.1 and 7.2, respectively. In these macro models, some key elements of an MLP are retained at the landscape or technology niche level, but the socio-technical regimes that emerge are dictated by pure cost-benefit or cost-effectiveness considerations.

At the landscape level, we represent the advent of active global climate policy by: (i) the definition of a remaining safe emissions budget (SEB), which should not be exceeded for the entire future, as suggested in [41, 42]; and (ii) the creation of an international emissions trading system, where different groups of countries will trade on their respective shares of the SEB.

At the technological niche level, we represent two important innovations: (a) the progress in efficiency and cost of renewable energy technologies; and (b) the penetration of direct air capture technologies that generate negative emissions. DAC is an emergent technology that has been described and analyzed in [43, 44]; and more recently, in [45] and [46].

4.1 Optimal Economic Growth with DAC Technologies

The potential role of DAC in climate stabilization has been explored in [18], and then in [47], using the WITCH model [48] and in [49], which used the MERGE-ETL model [50]. Both models are based on an optimal economic growth paradigm. To assess the role of DAC technologies in establishing a global ZNE regime, we use a new compact optimal economic growth model, first introduced in [51], where the production of economic and energy goods as well as negative emissions are described by a set of CES functions [52]. The originality of the approach, compared to [47] and [49] lies in a consistent representation of useful and secondary energy production as well as negative emissions production across the DAC, by dedicated factors such as capital (factories), labor and primary fossil energy, and source of GHG emissions. The model describes the economic and energy production functions for three regions of the world: OECD (industrialized countries), BRIC (emerging economies¹¹), ROW (rest of the world, develo** countries). Calibration of the CES production function for DAC technologies was made using the techno-economic analyses of [46] and [53].

We represent climate policy as the sharing a remaining safety emissions budget (SEB), as suggested in [41, 42]. In addition, the representation of an international emissions trading system is included in this new model. The global supply of emission rights (permits) will determine the price of the permit and the emission levels in each region, which will be such that the marginal cost of abatement is equal to the price. The structure of this model and the detail of the modeling approach, is presented in Appendix 7.1.. Below, we discuss the results obtained from three contrasted scenarios: (i) a BAU optimal growth scenario in which there are no global environmental constraints, (ii) a GREEN scenario where convergence to ZNE is achieved without using DAC technologies, and (iii) a MARKET scenario in which shares of the SEB are allocated to different groups of countries, which exploit their budget in the international carbon market and invest optimally in DAC technologies.

4.1.1 BAU Optimal Growth

Using this modeling of the economy/energy system in three regions of the world we have produced a base case scenario also called BAU.¹² This scenario provides guidance on the pace of implementation in a traditional framework where economic rationality drives the transition to lower dependence on fossil fuels. In the absence of public guidance, the cost of solar and wind technologies is the key driver of the pace of their diffusion. By our calculations, CO₂ emissions do not decline until after 2080. A socio-technological regime driven solely by technological economics will lead to catastrophic temperature increases in the long term.

In this scenario the sum for the three regions of the discounted utilities derived from consumption is optimized over a 150 year horizon. To avoid the end-of-horizon effects we look only at the variable values between 2014 and 2120. In the BAU scenario, there is no need to use CDR or DAC since there are no global environmental constraints. The world growth decreases regularly to reach only 1% per year at the end of the period, i.e., an average growth of 1.8% over the whole period. This decrease is due to two factors, a decrease in the growth of the world population which will reach 11 million inhabitants in 2100, and an assumption of saturation of the technical progress. The resulting global and regional emission profiles that are associated with optimal economic growth are shown in Table 1. Yearly emissions top at 80 Gt CO$_2$ in 2090 and decline afterwards. This is due to the increase in efficiency of renewable energy technologies evaluated to 1.5% per year on the whole period. Cumulative emissions on the next 150 years reach more than 9’170 Gt CO$_2$. This is 8 times the safety emissions budget¹³ (SEB) compatible with a 2°C increase. Note that according to most climate models, the temperature increase and resulting damage could be considerable. Per-capita consumption more than double for OECD countries, from 2020 to 2130, but it is multiplied by a factor 11 for BRIC and a factor 16 for ROW. In brief, in the BAU scenario OECD countries make a transition to a relatively decarbonised economy but BRIC and ROW achieve their development by still relying heavily on fossil energy sources.

Table 1 BAU scenario: Emissions (in Gt CO₂/Year) and consumption (in $1000/Year)

The considerable increase in fossil energy ($K_1$) and renewable energy ($K_2$) capital stocks is summarized in Table 2, in per-capita values. It is important to note that the resulting cumulative emissions budget should lead to a catastrophic temperature increase in the long term.

Table 2 BAU scenario: $K_1/L$ versus K2/L (L refers to the population)

4.1.2 GREEN: Convergence to ZNE Without CDR/DAC

Using this model, we have also produced a scenario that is more in line with the policy advocated at the COP21 in Paris, where DAC technologies don’t play an important role; we call it GREEN scenario. In this scenario a global SEB of 1’170 Gt CO$_2$ is imposed (recall that this SEB is compatible with the 2°C goal with regard to 1850-1900 period, with probability 66% (see [54]). We suppose that the emissions of this budget are allocated in each region over a 150 year horizon, in a program that maximizes the sum for the three regions of the discounted utilities derived from consumption. In the GREEN scenario, since there is no possibility to use DAC technologies, the only option to reduce emissions is to switch to renewable energy source. The resulting global and regional emission profiles that are associated with economic growth are shown in Table 3. ZNE is reached very late, because it is very costly to eliminate totally the use of fossil fuels. From 2020 to 2130, per-capita consumption is multiplied by a factor 1.8 for OECD countries, but it is multiplied by a factor 8 for BRIC and a factor 13 for ROW. The fossil energy capital stock collapses and renewable energy capital stock reaches much higher value as shown in Table 4. In short, this scenario shows how costly a complete exit from fossil fuel use will be for the BRIC and ROW countries.

Table 3 GREEN scenario: Emissions (in Gt CO₂/Year) and consumption (in $1000/Year)

Table 4 GREEN scenario: $K_1/L$ versus K2/L

4.1.3 MARKET: Optimal Use of Shares of SEB with Carbon Market and DAC Available

In the MARKET scenario, an international carbon market is assumed to exist. Each coalition receives a share of the SEB and can capture CO₂ through DAC activity with some limits on sequestration or storage, as shown on Table 5. In the model, negative emissions produced by DAC activity are represented through a CES production function properly calibrated to reflect the cost and efficiency of the technology.

The MARKET scenario leads to a ZNE regime reached by 2070, as shown on Fig. 3. DAC activity begins in 2060 with a rapid increase until 2090 when it reaches a steady-state at 23 Gt CO$_2$ captured each year, as shown on Fig. 4. After this date, all GHG emissions must be offset by some DAC activity in the world. In 2050, total CO$_2$ removals reach 5 Gt CO$_2$ significantly higher than the figure used by the International Energy Agency in its latest World energy Outlook which is equal to 1.5 Gt CO$_2$ [55] As noted by IPCC [56], very few studies and pathways consider DAC, but when it is included, it represents potentially large removal, up to 37 Gt CO$_2$ in 2100, which is significantly higher than the 20 Gt CCO$_2$ assumed in our simulation for 2100.

The resulting global and regional emission and consumption¹⁴ profiles that are associated with economic growth are shown in Table 6. From 2020 to 2130, per-capita consumption net of revenue from permit trading is multiplied by a factor 2 for OECD countries, but it is multiplied by a factor 9.6 for BRIC and a factor 14.4 for ROW. The emissions decline until 17 Gt/Y in 2070 and reach a steady state at 21.4 Gt/Y thereafter.

Table 5 SEB shares and sequestration bounds

Fig. 3

Budget Profiles (Gt of CO₂)

Fig. 4

DAC activity (in Gt CO₂/Year)

Table 6 DAC/MARKET scenario: Emissions (in Gt CO₂/Year) and consumption (in $1000/Year)

Table 7 shows per capita consumption adjusted by revenues or expenditures associated with emissions trading.

Table 7 Per capita consumptions ($ 1000/Year)

Table 8 MARKET scenario: Carbon price and permits trading

CO₂ price starts at $ 241 in 2020 and reaches $ 828 in 2130 (See Table 8). BRIC and ROW are permit sellers and OECD is a permit buyer, as indicated on Table 8. Table 9 shows the evolution of fossil and renewable capital stocks, expressed in per-capita values.

Table 9 MARKET scenario: $K_1/L$ versus K2/L

This MARKET ZNE regime allows complying with the Paris agreement in the proposed timeframe. It also permits continued use of oil and gas. Policies dictate massive investment in CCS and DAC technologies.

4.1.4 Comparing Welfare

We use the discounted sum of per-capita consumption as a welfare criterion. Table 10 shows the welfare losses with respect to the BAU scenario. From these figures it appears that introducing DAC technologies mitigates the welfare losses w.r.t. BAU scenario. The variations in the welfare losses seem to indicate that giving 10 % of the SEB to OECD may be too generous and 50 % of the SEB to ROW is not sufficient. These welfare losses are in the upper range of those compiled in the latest IPCC report.¹⁵

Table 10 Welfare criteria (in $1000)

In this analysis, we have only considered economic variables that affect welfare. Indeed, in the BAU scenario the considerable emission budget would create enormous ecologic and economic damage. Similarly, the risk of stranded assets, which exists in a GREEN scenario where fossil energy almost completely disappears, should also be taken into account and included in a policy analysis. These aspects will be discussed using a more detailed model where the macroeconomy of the GCC countries is represented more accurately.

4.2 Socio-Technical ZNE Regime: How DAC Reduces GCC Countries Exposure to Stranded Asset Risks

As discussed above, in a ZNE trajectory, energy exporting countries could be strongly negatively impacted by the decrease of fossil energy consumption combined with the drop in international energy prices. For example, the International Energy Agency shows that, in a ZNE scenario [55] the final global consumption of oil and natural gas drops to 42.1 EJ and 19.8 EJ, respectively in 2050; this represents a decrease of nearly 71% of current consumption. At the same time, the crude oil price falls to 24 US$ per barrel in 2050. However, a massive development of DAC activity could alleviate the stranded asset risk for GCC countries.

Using a computable general equilibrium model [57], we obtained scenarios confirming that oil and gas producing countries, and in particular the GCC countries, face a significant risk of welfare loss, due to “unburnable oil,” if a global climate regime as recommended by the Paris Agreement is put in place. In some scenarios, we see that the development of CDR technologies, in particular DAC alleviates somewhat this risk and offers these countries a new opportunity for exploiting their gas reserves and the carbon storage capacity offered by depleted oil and gas reservoirs. This was reported in [21] and [22]. Below, we summarize some of these simulation results.

4.2.1 A Metagame Model with DAC Options

To assess the opportunities offered by the development of DAC activities in GCC countries, we have designed a model of competition on an international carbon market, when a global SEB is set at 1170 Gt CO$_2$. With the associated abatement path and development of DAC activities, optimal exploitation of shares of emissions budgets of each coalition is given by a Nash equilibrium in a dynamic game model. This meta-modeling approach, where a dynamic open-loop game is calibrated using statistical emulation of a large sample of simulations performed with a world general equilibrium model, has been described in [22] and [58]. The mathematics are recalled in Appendix 7.2.

In brief, the model describes 10 coalitions of countries, including a grou** of GCC countries: European Union (28 countries), USA, China, India, GCC, Russia, other Asian countries, other energy exporting countries, Latin America, and the rest of the world, which are competing for the supply of emission permits in an international cap-and-trade system designed to satisfy a cumulative global security emissions budget. A ZNE regime has to be reached at the end of this period. To summarize the climate negotiations on the issue of burden sharing, we consider different possible allocations of a cumulative global SEB among different coalitions. Once each coalition’s share of the emissions budget is decided, the coalitions are assumed to play a non-cooperative game for the supply of emissions permits on the international carbon market. Depending on their respective reduction policies, coalitions can be net buyers or sellers of permits. This generates payment transfers that can lead to a fair distribution of burdens. The gains (payoffs) in the game theoretic model are obtained from a statistical emulation of GEMINI-E3, a well-established computable general equilibrium (CGE) model [57] that is built on the GTAP 9 database [59], with reference year 2011.

4.2.2 The Impact of Develo** CDR/DAC Activities

Cost of DAC has been discussed in recent publications. For instance, in [46], a full cost analysis is presented for a process fully powered by natural gas; it obtains a levelised cost of 232 $ per ton of CO$_2$ captured; an American Physical Society study [60] arrived at a levelised cost of 550 $/t-CO$_2$; another study [45] determined the cost for powering a gas-fired DAC plant with CCS at 396 $/t-CO$_2$ avoided; and the extra energy cost of DAC was estimated around 232 $/t-CO$_2$ captured in [61] and [62, 63]. Storage costs were evaluated in [64] to be in the range of 6 to 13 $/t-CO$_2$ stored. The total levelised cost in our model is set at $300/t-CO$_2$ captured and stored, for all regions except the USA and EUR. These latter are priced at $350/t-CO$_2$ captured and stored, assuming higher logistical costs.

BECCS technology consists of producing electricity from biomass while capturing and injecting CO$_2$ into geological formations. We use a unique levelised cost of 60$/t-CO$_2$ for the whole world, consistent with the IEA estimates [65]. BECCS potentials are estimated from the global and regional assessments [65], which take biomass supply chains and processing into account, and also include deployment issues due to policy and regulatory barriers.¹⁶ Using the IEA estimates, we have derived a global bound on GHG captured through BECCS equal to 10.2 Gt CO$_2$, based on technical potentials by 2050. These figures are derived from technical and economic assumptions from the World Energy Outlook [55]. Finally, BECCS penetration is related to electricity generation levels and composition by year 2050.

The main information obtained from simulations performed with the meta-game model, on the importance of develo** CDR/DAC is given in Table 12. This is based on scenarios corresponding to a worldwide optimisation, for the 10 groups of countries on the time horizon 2015-2100. In terms of global welfare, we observe a reduction of the welfare loss, which passes from 3.8% of discounted GDP to 2.8%. The shares of the SEB budget given to each coalition have been calculated in order to equalize the welfare loss (or cost) expressed in % of GDP. This burden sharing rule, defined as the Rawlsian rule solution, is usually considered as a fair burden sharing in the literature since it tends to equalize the relative contribution among all countries. Here each coalition has a welfare cost equal to 2.8 %. In Table 11, we detail the Rawlsian rule outcome.

Table 11 Burden-sharing and welfare cost with Rawlsian rule in percentage difference from the reference scenario

In this fair burden sharing solution, the GCC coalition receives 8.8 % of the SEB. This is significant and represents the main source of welfare cost mitigation for these countries, which are heavily affected by changes in the terms of trade (representing changes in the price and trade of fossil fuels). Table 12 gives two indicators of the role of CDR/DAC in reaching a feasible ZNE regime. The carbon price in 230 would be at $$_{2010}$ 775 without CDR/DAC instead of $$_{2010}$ 480, when these technologies are available. The welfare loss, worldwide, increases by 30% over the rest of the century.

Table 12 CO$_2$ price in 2030 and welfare cost in the period 2018-2100 assuming a safety budget of 1170 Gt CO$_2$ and a 3% discount factor

Figure 5 shows variation in global welfare loss for the different scenarios corresponding to different SEB targets, always assuming that CDR/DAC options are available. The diagram shows that the 1.5°C objective appears to be very challenging [66, 67], with a cost multiplied by 5. This indicates that the 1.5°C scenario has a very high cost, which make it quite unlikely. Figure 6 shows the evolution of carbon price when CDR/DAC is an available option or not. This graph gives a clue on the importance of implementing negative emissions to keep the economy on a feasible path.

Fig. 5

Discounted global welfare cost in % of discounted GDP with respect to carbon budget in Gt CO$_2$

Fig. 6

CO$_2$ prices

Fig. 7

Net emissions, DAC, BECCS and abatement profiles without (left) and with (right) DAC/BECCS (in Gt CO$_2$)

Figure 7 shows the relative importance of abatements and negative emissions in reaching the environmental goal. We can see that the abatement effort remains considerable in the scenario with CDR/DAC. However, allowing negative emissions leads to a policy that avoids the most costly emissions reductions in sectors of the economy where there are virtually no substitutes for fossil fuels.

4.3 Clues Provided by the Macroeconomic Scenarios

From these quantitative scenarios built using two complementary macroeconomic models, we can derive some insight to be used in an MLP analysis applied to the ZNE transition. First, we observe that the technical progress for renewable energies would make them dominant in the energy landscape, even in the absence of a strict climate policy; however, a laissez-faire climate policy is very far from achieving the goal of climate stabilization before the end of the century. Then we see that making a full transition to renewables in order to stabilize the temperature change at 2°C could generate a very large welfare cost, in terms of lost per-capita consumptions, in particular for emerging and develo** countries. This optimal economic growth model indicates also that the availability of DAC technology at scale would mitigate the welfare losses and stranded asset costs of a global climate policy consistent with a 2°C target. The second macroeconomic modeling shows that GCC countries have a comparative advantage in deploying DAC activities due to their easy access to natural gas as a primary energy source and depleted oil and gas reservoirs as storage facilities. An effective international carbon market would be an essential part of a worldwide DAC development strategy. It would allow the sale and purchase of negative emissions to offset remaining GHG emissions in different parts of the world. In such a context CDR/DAC technology development would significantly reduce the stranded asset risks for GCC countries.

5 MLP Exploration of ZNE Regime in GCC Countries

In this section, we integrate the policy perspective of Sect. 3 and the macroeconomic scenarios of Sect. 4 into an MLP analysis of a global transition to ZNE and its possible impact on GCC countries, as outlined in Sect. 2 and sketched in Figs. 1 and 2.

5.1 An Overview

The recognition of the need to engage in climate policy on a global scale is a major landscape development. Sociotechnical regimes interweave policy with societal acceptance and industrial organization. They will help create the negotiating arena (burden-sharing agreements) and economic tools (emissions trading markets) needed to meet the goals of the Paris Agreement. Technology niches involve a hoist of new technologies for renewable generation (solar, wind), zero-emission fuels (green hydrogen, clean fossil fuels) supported by CDR/DAC with CCS.

The “zero-net” equation involves balancing the sources and sinks of GHG emissions, i.e., reducing CO₂ emissions and removing CO₂ from the atmosphere. The variables in the “zero-net” equation are not fully defined and are constantly changing. While the focus is on man-made emissions, there are many natural sources and sinks of GHG emissions, from methane leaks to vegetation respiration. Similarly, many competing solutions coexist to decarbonise the economy and offset emissions. There are geographical limits to the implementation of renewable generation solutions, such as solar and wind or DAC with CCS, by region. A stranded asset risk exists in capital intensive energy sectors, etc.

We will organize the rest of our analysis around three key elements framing the transition to ZNE: (i) energy geography; (ii) economic and societal adjustment costs; and (iii) new governance, institutions and commitment.

5.2 Energy Geography

5.2.1 Appropriate Mix of Technologies to Reach ZNE

GCC countries have a competitive advantage in CCS and DAC. CCS development is still in the pilot stage, with some large projects (eg, in UAE or Qatar) already being implemented for enhanced oil recovery and storage. In 2020, the IEA [55] indicated that 40 mt were stored underground worldwide, but announced a need to capture and store 4 to 10 Gt/y by 2050, if a ZNE regime is to be reached. This is consistent with the results of the macroeconomic scenario presented in Sect. 4. In these scenarios the total of negative emissions generated by DAC and CCS could reach 23 Gt/y of CO₂ in 2080. However, as for today, only small DAC pilot projects are underway.¹⁷ The cost of capturing and storing a ton of CO₂ was over $800 per ton in 2019. A review of the literature for economic models in Sect. 3 indicates that a lower cost, on the order of $300/t, can be achieved after 2030. Macroeconomic models indicate that at this cost level, DAC technologies break even in 2040.

There is a window of opportunity for such a techno-economic regime, but what are the conditions to enable it in GCC countries? GCC countries should develop CCS projects in order to have access to the most recent data and to test the most promising pathways according to the specifics of the Gulf countries. National oil companies should be among the key players in this area as DAC could permit them to continue with a similar business model as nowadays. GCC countries could create industry-wide technology roadmaps to reduce uncertainty and align R &D investments in key technologies using “clean” hydrocarbons.

In each GCC country, emissions from petrochemicals, electricity generation, hydrogen production, and mobility could be reduced or offset by DAC where it is particularly costly to reduce them. These new forms of carbon management are a good hedging strategy and potential revenue diversification for GCC countries. As our scenario shows, they could significantly reduce the cost of transitioning to a ZNE regime and leverage the hydrocarbon resources of GCC countries.

If policy signals are driven by the public opinion in most OECD countries, in the GCC countries it is more the threat to future hydrocarbon demand, and hence revenues, that drives the political impetus. As a result, GCC countries are in a difficult balancing act between reducing oil rents and investing in clean energy and carbon-free economic activities.

For GCC countries, the consequences vary depending on the conditions that frame the trajectory towards the ZNE regime, such as natural gas endowment, the maturity of the oil sector, the cleanliness of the exploration and production processes (methane leaks and flaring); and the level of industrial activities associated with the transformation of oil and gas into steel, other energy intensive goods and petrochemical products. This raises questions about the national resilience of each GCC country: which sectors and geographic areas are particularly exposed and what mitigation measures (insurance, storage capacity, etc.) should be implemented. Thus, the creation of its own ZNE regime should be high on the agenda of each GCC country. Qatar, which has a large amount of natural resources and a small population, could opt for a ZNE regime based on neutral ammonia-hydrogen with CCS as well as neutral petrochemicals leveraging ADC solutions. Dubai could optimize carbon trading to enable carbon neutral real estate, tourism and financial services. Saudi Arabia, given its large population and land mass, may want to implement a different ZNE regime, in which solar power generation, carbon storage, and DAC could allow a hydrocarbon-based monarchy to survive on the cheapest oil reserves.

With uncertainty still very high, one of the avenues to be explored and experimented with by the GCC countries is to create forecasts and roadmaps for the entire value chain at the scale of technology development needed, to set consistent goals for all players in the sector, and to support coordination and collaboration between different stakeholders. The Lusail smart city in Qatar, the MASDAR experiment in the United Arab Emirates, or the Saudi NEOM city aiming for a ZNE environment in which energy is produced from decarbonized sources or renewables are needed to provide a large enough data set to make the right decision. These large investment programs, worth billions of U.S. dollars, encourage collaboration across supply chains and ecosystems to increase production by connecting providers of new technologies with providers of capital and secure buyers of those technologies.

5.2.2 Availability of Natural Resources

In the previous cycle, fossil fuels are key assets to power economies and supply chains. In the coming energy transition, metals become the key materials. Geopolitical power is beginning to be wielded over countries like China, Australia, Congo, Chile, ...that produce the copper, cobalt, lithium and rare earths needed to make batteries, solar panels, wind turbines, electric vehicles and the entire electrical grid. In this context, GCC countries will need to recycle fossil fuel revenues to access these new materials and build their new infrastructure to take advantage of solar and wind resources, but also to implement hydrocarbon neutrality. Clean water will become a scarce resource. Switching to seawater for the many uses of the energy industry (from fracking to water electrolysis for hydrogen) will become a necessity.

5.3 Economic and Societal Adjustment Costs

5.3.1 Capital Allocation and Financing

As noted above, capital investments are needed across all sectors, geographies, and the full range of technologies deployed for the transition to ZNE. GCC countries need to determine, based on risk/return profiles, payback periods, and broader capital investment characteristics, what capital expenditures are needed over time for renewable energy, neutral hydrocarbon construction, and growth in the negative emissions business segment (e.g., public capital, public debt, private capital, project finance, and public guarantees). If public support is truly needed to launch new technologies and effectively demonstrate their potential, the role of private and public financing, including that of huge sovereign wealth funds, must be assessed and mapped.

In addition, financial innovations and new market structures such as carbon markets could support the transition from brown to green for carbon-intensive companies and countries. Compliance markets should be created to facilitate the necessary allocation of capital. For example, as in Norway, voluntary carbon markets could facilitate the reallocation of capital between investments in carbon removal, avoidance or reduction assets. While such a solution is currently being prototyped in Norway, such markets need to be adapted to the GCC and their integrity, liquidity, and depth guaranteed through appropriate mechanisms.

Similarly, from a financial perspective, many oil and gas assets are at risk of being abandoned, as well as energy-intensive industries or energy-inefficient buildings in all sectors and regions of the world. The associated risks must be managed proactively. This means creating financial incentives for the retirement and decarbonisation of carbon-intensive assets, rather than simply waiting for divestment. This may involve creating indicators based on life cycle analysis to assess the roadmap for green capital investment and brown one divestment.

Capital allocation decisions are often best made when there is transparency and robust information about transition risks. The development of new products and financial structures could help GCC states and companies to liquidate old assets and develop new low-emission assets. Fiscal solutions to delineate greenhouse gas emitting assets and retire them in line with a ZNE trajectory should be tested, as well as long-term purchase agreements for renewable energy plants to replace high-emitting generation assets. GCC sovereign wealth funds could help manage the gradual reduction of GHG emitting assets and reduce the value-at-risk of abandoned assets by providing guarantees if necessary.

5.3.2 Compensating Mechanisms for Socioeconomic Impacts

The impact of the various transition paths on overall economic activity in the GCC will be very significant. This means job losses or gains, by sector, country, and region. The burden on household in each country and region in these transitions must be assessed Governments should address and manage the negative consequences with programs to support worker retraining and subsidies for lost consumption while maximizing the positive effects, including job transitions to new and growing sectors. They must identify the skills that will be in greater or lesser demand under different transitions and establish appropriate retraining programs for those workers most at risk, both in the public and private and social sectors. These training programs will require social assistance and compensatory measures, including income support measures such as unemployment protection and public employment programs.

In this regard, the technological trajectories, based on gas-powered DAC with CCS, as modeled in the macroeconomic scenarios of Sect. 3, could permit GCC countries to continue along their usual socio-economic paradigm. While creating huge investment needs, they do not require major changes in the economies and policy framework of the GCC countries.

5.4 Governance and the Role of Market in ZNE Regime

5.4.1 Governing Standards, Tracking for Market Mechanisms

A key question for the GCC is whether existing institutions can cope with the change in governance involved in supporting the energy and environmental transition. Which institutions need to be rethought at the national and Gulf levels? In what areas are new institutions needed? GCC member states should explore solutions and test ideas from the perspective of what might not have happened in 2030, 2050, and 2070 to achieve the ZNE transition, and ask whether new institutions could prevent such failures, ensure collective success, create new industry collaborations to collectively make commitments, invest in new technologies, build capacity, and share best practices.

The ZNE regime leveraging DAC and CCS will need to establish standardization and certification institutions for common carbon accounting principles across sectors and corporate disclosures for public and private companies to ensure appropriate levels of emissions traceability. Improved measurement of emissions at the source through digital tracking technologies to measure fugitive emissions or the use of satellite imagery data to map global carbon and methane emissions are needed to enable international carbon trading. Establishing governance mechanisms to ensure the quality and integrity of carbon credits is a key element in the development of a well-functioning carbon market and thus of a ZNE regime for GCC countries.

5.4.2 Collaboration Among Public, Private, and Social sector

Beyond goals and roadmaps, mechanisms and coordination between private and public investments must be established. This means that the usual structure where a national oil companies is dominating the full economic activity spectrum might be changed to enable more market based incentives. GCC countries leaders must continue to reinforce and support the belief that change is necessary and must happen now within the window of opportunity created by large revenues from oil and gas sales enabling investment in the DAC and CCS technologies to support a ZNE regime. GCC leaders must take the long view and avoid short-term, free-rider climate strategies. If an electricity-based ZNE regime is adopted worldwide, will it still be room for a hydrocarbon-based ZNE regime?

5.4.3 Support from Citizen and Consumers

In centrally controlled countries, such as in the GCC organization, where is citizen participation most needed, and what changes might meet the most resistance? The narratives and social dynamics around the transition to ZNE consumption in specific communities, sectors, societies, and countries need to be heard and addressed in order to cultivate broad support and encourage long-term thinking. The sovereign fund policy for investment could provide guidance for GCC economies and companies. Consumers must change their preferences and behaviors: what are the best incentives to implement these changes? The collective impacts of increasing physical risks and the need for a ZNE transition must be communicated to build awareness, will, unity, and conviction.

5.5 An Agenda for GCC Leaders

The MLP suggests that GCC countries leaders must commit to several actions in order to implement a viable roadmap for survival in a ZNE environment.

5.5.1 Understand and Commit

GCC leaders need to formulate an oil and gas revenue diversification program within the framework of representative global organizations, such as OPEC and GCC, in order to support their views and interests in the COP discussions as well as in other global institutions (G20, UN, etc.). Our various studies on ZNE show that implementing these regimes will have a significant cost (2.8% of discounted sum of GDP in the best case for GCC countries). To minimize this cost and achieve this goal, GCC countries must push for the appropriate international framework for carbon trading and support R &D in negative emission technologies such as DAC.

5.5.2 Foster Emissions Reduction Technologies, CO₂ Credits, and Higher Energy Prices

Within the framework of their own economic processes and operations, the GCC countries need to improve energy efficiency, reducing wasteful energy use in the industrial, commercial and individual sectors. This means establishing a market price for energy to balance different energy production technologies and reduce energy use, coupled with a carbon market to value emission reduction technologies. This represents a significant shift in the GCC. For example, KSA has used regulated prices for domestic energy for decades. Energy subsidies in KSA are implicit because they are based on revenue foregone by the government. KSA has begun reforming energy prices, resulting in sharp increases in gasoline and residential electricity prices in 2018. In a recent article [7], it was shown that energy price reform in KSA has significant economic and environmental benefits. Similar policy should be pursued and extended to all GCC countries.

To achieve a global ZNE regime, an international emissions trading system is a necessity. The MLP analysis and the macroeconomic scenarios discussed above show that the GCC countries could benefit greatly from the organization of such a carbon market, which will allow them to exploit a new extractive resource, negative emissions. Investing in R &D to develop emission reduction technologies, negative emission technologies, and CO$_2$ storage capabilities will provide new revenue streams for GCC countries. The sale of CO$_2$ emission credits could be a significant business opportunity after 2050. The roadmap for realizing this business opportunity must be developed by political leaders.

6 Conclusion

In 2020, the coronavirus pandemic dealt a heavy blow to global climate diplomacy, which was already suffering from the absence of strong leadership. It has paralyzed all multilateral climate negotiations, banning face-to-face meetings and marginalizing the issue of climate change in many other international discussions. In this context, “Green Recovery,” which has become the new climate agenda in various parts of the world, has been absent from policy discourse in the Gulf. KSA’s production of crude oil during the year 2020 reached a record level of 12.1 million barrels, according to the report submitted by Saudi Aramco. In 2022, the Ukrainian crisis gives the oil and gas of the GCC countries a major boost in value. Production and revenue will still increase. However, climate change is a long-term issue, which will remain in the landscape for the rest of the century.

The challenge is clear for the GCC countries with regard to reducing their carbon footprint, given their high per capita emissions rate. It is noticeable that some of these countries, led by UAE and KSA, come at the top of the list of countries with a high carbon footprint, compared to many developed countries as well as develo** economies around the world. In addition, these economies depend intensively on energy consumption. Moreover, air-conditioning systems, as well as the expansion of infrastructure projects and new urban construction, have in turn led to a significant increase of emissions. Domestic energy subsidies, implemented to lower fuel prices, represent one of the challenges facing the ability of these countries to achieve their emissions reduction commitments. The energy subsidy policies applied in the GCC states, as part of the social contract, lead to lower fuel prices in the Arab Gulf region compared to their counterparts in developed countries. Indeed, these policies encourage residents and citizens of the Gulf countries to consume more fuel, that in turn leads to an increase of carbon emissions.

Some energy policy analysts believe that the commitment of the GCC countries to reduce carbon emissions will not affect their ability to produce oil and natural gas. The reason is that the way carbon emissions are calculated depends mainly on the place in which these hydrocarbon are consumed. In other words, the oil producing and exporting countries are not responsible for emissions in the importing countries. Therefore, the increase in carbon emissions in those countries will not negatively affect the ability of the Gulf countries to increase production and will not affect their commitments. As a consequence, some Arab Gulf states (UAE and KSA) announced their intention to increase their oil production during the coming stages. Here the question arises about the extent of the seriousness of these countries with regard to their environmental obligations. The contradiction appears between their local ZNE pledges and the fact that these countries are exporting emissions globally.

6.1 So, Which Climate Strategy for GCC States?

In [68] Jim Krane analyzed the possible climate strategies for oil and gas production countries, taking the case of KSA as a motivating example. He focused on three types of nearer-term climate strategies that he titled “Dig in,” “Join in” and “Throw in.” By “Digging in” states assume GHG accords like Paris agreement remain aspirational rather than binding, and act to insulate the hydrocarbon sector against the aims of such accords; By “Joinning in,” states engage in pursuing economically rational domestic energy policies that provide benefits in reducing GHG emissions; In “Throw in” strategy producer governments concede that climate change is inevitable and argue that damage caused by anthropogenic GHG emissions is preferable to costly GHG mitigation in line with Paris goals [68].

Interestingly, J. Krane observes that KSA, the largest economy among the GCC states has adopted a mixed strategy, which includes components of the three types above. In the past KSA was a climate obstructionist, which joined UN-led climate treaty negotiations to thwart, delay or weaken a possible agreement (see J. Depledge [69]). Since the 2015 Paris agreement, KSA has shifted its stance to one of support for climate action. With other GCC member states KSA has declared nationally determined contributions (NDCs) to reduce emissions of GHGs. Domestically the kingdom has launched reforms of fossil fuel subsidies; internationally it promotes cleaner fossil fuel usage by supporting CCS, flaring reduction, and reduction of “alternate” GHGs, such as methane or Nitrous oxides. At COP22 the kingdom declared it sees CO₂ emissions as a “harmful effect” that can be mitigated with technological solutions.¹⁸ And finally, KSA is also supporting a “throw in” strategy that revolves around the idea that one will be better off by delaying strict mitigation because improved technology will emerge in the future to reduce GHG emissions without eliminating the fossil fuel industry [68]. “Dig in” and “Joining in” strategies are also develo** in other GCC member states, in particular UAE. To decarbonise the production and use of oil and gas CCS is a valid option in Gulf countries; in UAE one envisions capturing CO₂ in natural gas fuelled power plants and sequestering it for EOR [70]. UAE government announced in 2018 a proactive CCS development.¹⁹ At the regional level, GCC nations have both the drivers and environmental gains to adopt the CCS technologies.²⁰ CDR and in particular DAC with CCS, are also promising options for these countries, which can tap unlimited renewable solar energy source or huge natural gas reserve to power plants located in vast open desert space. DAC technologies are becoming mature; a commercial demo DAC plant opened in Switzerland in May 2017; since then several operational projects have taken root in Iceland and USA.²² Another available strategy to preserve the economic value of fossil fuels in a decarbonising world is to separate them into hydrogen and CO₂ with CCS for the latter. This strategy makes sense in the perspective of the development of a hydrogen economy as discussed by the International Energy Agency [71]. In summary, these strategies involve offering “clean fossil fuels” whose carbon content is either captured and sequestered or offset by DAC with CCS. Indeed, the current price of carbon on the ETS market does not bode well for the competitiveness of these technologies; however, if the goals of Paris agreement have to be reached most of the scenarios predict a carbon price that should make these technologies competitive in 2050 or even before.

In brief, the MLP analysis developed on the basis of the scenarios produced by two macro-economic models leads to the conclusion that the climate change issue is now recognized everywhere and there is no future for GCC member states in adopting an obstructionist strategy. The options offered by CCS, DAC and Hydrogen economy contribute to foster a mix of the “Dig in" and “Join in" types of strategy. On one side one will work at preserving the economic value of fossil fuels, while on the other side one will decarbonise entirely the local economy and exploit the opportunities offered by the international carbon markets. CCS and CDR technologies are essential to achieving the ZNE regime globally and also locally. In the scenarios studied in our research, the cumulative emissions budget was not allowed to be exceeded. Therefore, there was no incentive to adopt a “Throw in" strategy. GCC countries could be more proactive in the coming negotiations, and aim at defining a governance based on equalizing the relative welfare losses among groups or coalitions of countries. GCC countries could develop their programs of clean fossil fuels, in particular CCS and Hydrogen extraction. GCC countries must prepare to the change in oil and gas demand patterns caused by the advent of electric mobility and smart energy systems. All of these transitional policies will require an effort to diversify the economies of GCC member states and to change their polity and social contracts.

Appendix

1.1 Optimal Economic Growth Model

In this section we describe the optimal economic growth model as introduced first in [51].

1.1.1 Economic Structure and Variables

We regroup the world countries in three “coalitions" j called BRIC (Brazil, Russia, India and China), OECD (Organization for Economic Co-operation and Development) and ROW (Rest of the world), respectively. In each group, we represent an economy where a general economic good is produced with three inputs: labor $L_0$, capital $K_0$ and energy $E_0$.

The energy input $E_0$, or useful energy, can be obtained from two kinds of inputs: fossil $enf_0$ and renewable $enr_0$. The fossil energy input $enf_0$ is obtained from two factors, respectively the fossil fuel power plants $K_1$ and the fossil primary energy $enp_1$. The renewable input $enr_0$ is produced by zero-emission plants, represented by the capital $K_2$. CO$_2$ emissions are associated with the fossil energy primary source $enp_1$. Negative emissions v can be produced by CDR/DAC technologies using three production factors, labor $L_3$, capital $K_3$ and useful energy $E_3$. The energy mix, fossil vs. renewable, is supposed to be common to energy input for the general productive economy $E_0$ and the DAC/CDR sector $E_3$.

We consider a time set $t \in \{0,1,\dots , T\}$, where each period corresponds to a number of years Ny. In this application, we take 10-year periods ($Ny=10$). Period 0 is centered on the year 2020, Period $T=12$ is centered on 2120. The dynamic model has:

• Five state variables, which are the capital stocks $K_i(t,j); i=0,1,2,3,$ and the remaining emission budget b(t, j), for coalition j at period t;

• Five control variables, which are the annual investment levels $I_i(t,j); i=0,1,2,3,$ and the annual supply $\omega (t,j)$ of emission permits by coalition j at each period t.

1.1.2 Objective Function

In this model, the performance criterion $\Phi =\sum _j\phi (j)$ is maximized under the dynamic constraints to obtain a desired scenarios. For each coalition j the expression $\phi (j)$ represents the discounted sum of utility derived from consumption for its population.

$$\begin{aligned} \phi (j)=\sum _{t=0}^{T-1}\beta (t)PV\cdot L(t,j)\log (C(t,j)/L(t,j)), \quad j=\textrm{BRIC,OECD,ROW}, \end{aligned}$$

(1)

where $PV=\sum _{s =1}^{Ny}(1+r)^{(1-s)}$ is the present value factor and $\beta (t)=1/(1+r)^{Ny\cdot t}$ the periodic discount factor, with $r=3\%$, at each time t. L(t, j) refers to the population of coalition j at time t. In (1) the expression $\log (C(t,j)/L(t,j))$ represents the utility derived from per-capita consumption; C(t, j) is the consumption level by coalition j at period t, given by

$$\begin{aligned} C(t,j)=Y(t,j) -\sum _{i=0,1,2,3}I_i(t,j)-\pi (t,j)enp_1(t,j), \end{aligned}$$

(2)

where Y(t, j) is the quantity of output and $\pi (t,j)$ is the price of primary fossil energy.

To compare different scenarios, we also use another welfare criterion W(j) for each coalition j. It corresponds to the discounted sum of per-capita consumption, net of the revenue from permit trading, over the whole horizon 2020-2160. For coalition j, we have

$$\begin{aligned} W(j)=\sum _{t=0}^{T-1}\beta (t)PV\,\frac{C(t,j)+p(t)(\omega (t,j)-emf(t,j))}{L(t,j)}, \end{aligned}$$

(3)

where $\omega (t,j)$ is the supply of permits by coalition j and p(t) is the permit price on carbon market, at period t.

1.1.3 Dynamics for Capital Stocks and Emissions

The state equations for capital stocks $K_i(t,j); i=0,1,2,3,$ are given in (4)-(5), where $\mu _j=4.5\%$ is annual depreciation rate for capital in coalition j. In (5) the parameter $IB_3(t,j)$ is an upper bound for investment in DAC technology that limits the speed of accumulation of this capital over time.

$$\begin{aligned} \begin{aligned} K_i(t,j)&= {} K_i(t-1,j) (1-\mu _j)^{Ny}+Ny\cdot I_i(t-1,j),\\ K_i(j,0)&= {} K_i^0(j),\quad i = 0,1,2,3,\quad \forall t,\quad \forall j, \end{aligned} \end{aligned}$$

(4)

$$\begin{aligned} I_3(t,j) \le IB_3(t,j), \end{aligned}$$

(5)

The parameter $\theta _j\in [0,1]$ is the share of the remaining Safety Emissions Budget SEB given to the coalition j; one must have $\sum _j \theta _j=1$. We assume the parameters $\theta _j$, $j=BRIC,OECD,ROW,$ summarize in this model the climate negotiations and are fixed.

The remaining SEB b(t, j) for each coalition of countries will decrease by the amount of emissions permits $Ny\cdot \omega _i(t-1,j)$ supplied by the coalition, if there is a carbon market or, more directly by the emissions level $Ny\cdot em(t-1,j)$ of the coalition. The remaining SEB will be replenished by the amount of negative emissions $Ny\cdot v(t-1,j)$. In summary the SEB dynamics is, for all coalitions j

$$\begin{aligned} b(t,j)= {} b(t-1,j)-Ny\cdot \omega _i(t-1,j)+Ny \cdot v(t,j) \quad t=1\dots T, \end{aligned}$$

(6)

$$\begin{aligned} b(0,j)= \theta _j B, \end{aligned}$$

(7)

if a carbon market market exists, or

$$\begin{aligned} b(t,j)= {} b(t-1,j)-Ny\cdot em(t-1,j)+Ny \cdot v(t,j),\quad t=1\dots T, \end{aligned}$$

(8)

$$\begin{aligned} b(0,j)= \theta _j B, \end{aligned}$$

(9)

$$\begin{aligned} \sum _j b(t,j)\ge & {} 0, \quad t=1\dots T, \end{aligned}$$

(10)

if there is no market. By imposing a global remaining SEB that remains nonnegative (Eq. 10), we impose a climate constraint with no overshooting. We prohibit overshooting for each coalition if we impose $b(t,j)\ge 0,\, \forall t$.

1.1.4 Constraints for Production Functions

The nested CES production functions are introduced in the following constraints (for coalition j and period t)

1.1.5 General Economic Good Production

$$\begin{aligned} Y(t,j)-A_0(j)tg(t,j)\left[ \alpha _{0K} K_0(t,j)^{\frac{s_0(j)-1}{s_0(j)}} + \alpha _{0\,L} {L_0(t,j)}^{\frac{s_0(j)-1}{s_0(j)}} \right. \\ \left. \mathop{+} \alpha _{0E} {E_0(t,j)}^{\frac{s_0(j)-1}{s_0(j)}} \right] ^{\frac{s_0(j)}{s_0(j)-1}} \le 0. \end{aligned}$$

(11)

where Y(t, j) is the annual output of the general economic good that can be consumed or invested, $\alpha _{0K}$, $\alpha _{0L}$ and $\alpha _{0E}$ are the input share parameters, $A_0(j)$ the factor productivity parameter, $s_0(j)$ the elasticity of substitution between inputs and tg(t, j) a disembodied technical progress.

1.1.6 Negative Emissions Production

Annual negative emissions v(t, j) are represented through a CES function with three factors (capital, labor and energy), an elasticity of substitution equal to $s_3(j)$ and a disembodied technical progress represented by tgv(t, j):

$$\begin{aligned} v(t,j) - &A_3(j)tgv(t,j)\left[ \alpha _{3K}(j) {K_3(t,j)}^{\frac{s_3(j)-1}{s_3(j)}} \right. \\ & \left. \mathop{+} \alpha _{3\,L}(j) {L_3(t,j)}^{\frac{s_3(j)-1}{s_3(j)}} + \alpha _{3E} (j) {E_3(t,j)}^{\frac{s_3(j)-1}{s_3(j)}} \right] ^{\frac{s_3(j)}{s_3(j)-1}}\le 0. \end{aligned}$$

(12)

1.1.7 Labor Use

Labor supply L(t, j) is always greater or equal to the labor demand:

$$\begin{aligned} L(t,j) \ge L_0(t,j)+ L_3(t,j). \end{aligned}$$

(13)

1.1.8 Bounds on Sequestration

The negative emissions v(t, j) must be stored. The sequestration potential BCCS(j) can be limited in the different regions of the world:

$$\begin{aligned} v(t,j) \le BCCS(j). \end{aligned}$$

(14)

1.1.9 Useful Energy Production

Annual useful energy production is represented by a CES function that combines renewable energy and secondary fossil energy:

$$\begin{aligned} E_0(t,j)+E_3(t,j) - A_e(j)& \left[ \alpha _{Ef}(j) enf(t,j)^{\frac{s_e(j)-1}{s_e(j)}} \right. \\& \left. \mathop{+}\alpha _{Er}(j) enr(t,j)^{\frac{s_e(j)-1}{s_e(j)}}\right] ^{\frac{s_e(j)}{s_e(j)-1}} \le 0. \end{aligned}$$

(15)

1.1.10 Fossil Secondary Energy Production

Fossil secondary energy production is represented by a CES function that combines capital and primary fossil energy:

$$\begin{aligned} enf(t,j) - A_1(j)\left[ \alpha _{1K} (j)(tgenf(t,j)K_{1}(t,j))^{\frac{s_1(j)-1}{s_1(j)}} \right. \\ \left. \mathop{+} \alpha _{1em}(j){enf_{1}(t,j)}^{\frac{s_1(j)-1}{s_1(j)}} \right] ^{\frac{s_1(j)}{s_1(j)-1}} \le 0. \end{aligned}$$

(16)

1.1.11 Renewable Secondary Energy Production

Finally, renewable secondary energy is supposed to be produced only with capital:

$$\begin{aligned} enr(t,j) - A_2 (j)(tgenr(t,j)K_2(t,j))^{s_2(j)} \le 0. \end{aligned}$$

(17)

The parameters tg(t, j), tgv(t, j), tgenf(t, j), tgenr(t, j) are exogenously defined productivity growth factors.

1.1.12 Constraints for Carbon Market Equilibrium

The constraints describing the international carbon market are given below. The strategic variable, for each coalition j, is the annual quantity of emission rights $\omega (t,j)$ they supply to the market at period t. On the carbon market the total supply of permits must be greater or equal to total emissions. The firms, in each coalition, will set their emission at a level where carbon price equals the marginal productivity of emissions (or marginal abatement cost). These two sets of conditions determine the market equilibrium:

1.1.13 Emissions from Primary Fossil Energy (for coalition j at period t)

$$\begin{aligned} em(t,j)=Coeff(j) \times enf_{1}(t,j), \end{aligned}$$

(18)

where the emission rate is evaluated at $Coeff(j)=0.004$ GtCO$_2$ per EJ of fossil energy source.

1.1.14 Total Supply of Permits Is Greater or Equal to Total Emissions (at period t)

$$\begin{aligned} \sum _j\omega (t,j)-\sum _j em(t,j)\ge 0. \end{aligned}$$

(19)

1.1.15 Efficiency (at period t)

$$\begin{aligned} p(t)= \frac{\partial Y(t,j)}{\partial em(t,j)}\end{aligned}$$

(20)

$$\begin{aligned}= \frac{\partial Y(t,j)}{\partial E_0(t,j)}\frac{\partial E_0(t,j)}{\partial enp_1(t,j)}\frac{\partial enp_1(t,j)}{\partial em(t,j)}. \end{aligned}$$

(21)

1.2 Game-Theoretic Model

In this section, we describe the meta-game model as introduced first in [22].

1.2.1 Model’s Equations

Variables and Parameters

$j\in \{1,\dots ,m\}$ :

index of coalition;

$t\in \{1,\dots ,T\}$ :

time periods;

$\delta (t)$ :

duration of time period t;

B :

global safety emission budget over the time horizon [0, T];

$\theta _j$ :

share of the global emission budget allocated to coalition j;

$b_j=\theta _jB$ :

cumulative emission budget for coalition j at period 0;

$b_j(t)$ :

remaining emission budget for coalition j at end of period t;

$\nu _j(t)$ :

K-T multiplier for global budget constraint of coalition j at period t;

$\omega _j(t)$ :

supply of emission permits at period t by coalition j;

$\Omega (t)$ :

total supply of emission permits at period t;

$v_j(t)$ :

negative emission activity (CDR) by coalition j at period t;

$v_j(0)$ :

negative emission activity (CDR) by coalition j at period 0;

$\kappa _j(v_j(t),t)$ :

cost of CDR for coalition j at period t;

$q_j(t)$ :

abatement level by coalition j at period t;

$\epsilon _j(t)$ :

BaU emission level by coalition j at period t;

$e_j(t)$ :

emission level by coalition j at period t;

$e_j(0)$ :

emission level by coalition j at period 0;

$\varpi _j(q_j(t),t)$ :

Abatement cost for coalition j at time t;

$\textbf{e}(t)$ :

vector of all m emission levels at period t;

$\pi _j(\textbf{e}(t),t)$ :

Net abatement cost (including changes in the terms of trade) for coalition j at time t;

$\gamma _j(\sum _{k=1}^m q_k(t),t)$ :

gains from the changes in terms of trade for coalition j at time t;

$\beta _j$ :

discount factor for coalition j equals 3%;

Emissions from Abatement

This equation relates the abatement and emission levels relative to BaU

$$\begin{aligned} e_j(t)=\epsilon _j(t)-q_j(t) \end{aligned}$$

(22)

Emission Budget Constraints

Let $b_j(\tau )$ denote the remaining emission budget, for region j at the end of period $\tau$, $\tau =0,\dots ,T-1$. We approximate the integral of net emissions up to period $\tau$, using the trapezoidal method. The part of the emissions budget remaining at period $\tau$ is thus defined as

$$\begin{aligned} 0 \le b_j-(\frac{1}{2}\sum _{t=0}^{\tau -1}\delta (t+1)(\omega _j(t)+\omega _j(t+1)-v_j(t)-v_j(t+1))),\\\quad j=1,\dots ,m, \quad \tau =0,\dots ,T-1. \end{aligned}$$

(23)

By imposing non negative remaining budgets, we eliminate the possibility for each “player" to perform short-selling of the future DAC activities.

This expression can also be rewritten

$$\begin{aligned} b_j-(\frac{1}{2}\delta (1)(\omega _j(0)-v_j(0))+\frac{1}{2}\sum _{t=1}^{\tau -1}(\delta (t)+\delta (t+1))(\omega _j(t)-v_j(t))\\ +\frac{1}{2}\delta (\tau )(\omega _j(\tau )-v_j(\tau )))\ge 0,\quad j=1,\dots ,m, \quad \tau =0,\dots ,T-1. \end{aligned}$$

(24)

Net-zero Emissions in the Final Period

At the end of the planning horizon one must reach a net-zero emission regime. So there should be a coupled constraint of the form.

$$\begin{aligned} \sum _j (v_j(T)-e_j(T))\ge 0. \end{aligned}$$

(25)

However, this constraint will probably be redundant with the emission budget constraints and we will not consider it.

Emissions Trading

An international carbon market determines a price and emissions levels.

$$\begin{aligned} p(t)= \frac{\partial }{\partial q_j(\cdot )}\varpi _j(q_j(t),t)=- \frac{\partial }{\partial e_j(\cdot )}\varpi _j(\epsilon _j(t)-e_j(t),t) \end{aligned}$$

(26)

$$\begin{aligned} \Omega (t)= {} \sum _{k=1}^m e_k(t); \quad j=1,\dots m. \end{aligned}$$

(27)

The price and emission levels are thus functions of the total permit supply $\Omega (t)$, thus denoted $\tilde{\textbf{e}}(\Omega (t),t)$ and $\tilde{p}(\Omega (t),t)$, respectively.

The derivatives w.r.t. $\Omega$ of price and emission levels are given by

$$\begin{aligned} \tilde{p}^\prime (\Omega ,t)= {} \frac{1}{\sum _{j=1}^m \frac{1}{\frac{\partial ^2\varpi _j(q_j,t)}{\partial q_j^2}}} \end{aligned}$$

(28)

$$\begin{aligned} \tilde{e}_j^\prime (\Omega ,t)= {} \frac{1 }{\sum _{k=1}^m \frac{\frac{\partial ^2\varpi _j(q_j,t)}{\partial q_j,^2}}{\frac{\partial ^2 \varpi _j(q_k,t)}{\partial q_k^2}}} \end{aligned}$$

(29)

respectively. Since $\Omega (t)=\sum _{j=1}^m\omega _j(t)$ the derivatives w.r.t. $\omega _j(t)$ are the same as the derivatives w.r.t. $\Omega (t)$.

Payoffs

The periodic net cost to coalition j includes the abatement cost plus the cost of buying permits on the market (negative if selling) and is given by

$$\begin{aligned} \psi _j(t)= [\pi _j(\tilde{\textbf{e}}(\Omega (t),t)+\kappa _j(v_j(t),t)-\tilde{p}(\Omega (t),t)(\omega _j(t)-e_j(\Omega (t),t))], \end{aligned}$$

(30)

where

$$\begin{aligned} \pi _j(\textbf{e}(t),t)=\varpi _j(q_j(t),t)-\gamma _j(\sum _k p_k(t),t). \end{aligned}$$

(31)

The payoff coalition j is defined by the integral of the discounted periodic costs

$$\begin{aligned} J_j(\cdot )=\frac{1}{2}\delta (1)\psi _j(0)+\frac{1}{2}\sum _{t=1}^{T-1}\beta _j^t (\delta (t)+\delta (t+1))\psi _j(t) +\frac{1}{2}\beta _j^T \delta (T)\psi _j(T),\\ \quad j=1,\dots ,m. \end{aligned}$$

(32)

We assume that the supply of permits and the DAC activities of each coalitions are strategically defined as the open-loop Nash equilibrium for the game defined by payoffs (32) and constraints (22)-(29).

1.2.2 Nash Equilibrium Conditions

We write now the first order conditions for a Nash equilibrium solution. The existence of a solution is implied by the convexity of the cost functions. Denoting $\nu _j(t)$ the K-T multiplier of the emission budget constraint (24) for coalition j, we may write the Lagrangian for each player j as given by

$$\begin{aligned} \mathcal{{L}}_j(\cdot )=\frac{1}{2}(\delta (1)\psi _j(0) +\beta _j^T\delta (T)(\psi _j(T)) + \frac{1}{2}\sum _{t=0}^{T-1}\beta _j^t (\delta (t)+\delta (t+1))(\psi _j(t)+\\\nu _j(t)(b_j-\frac{1}{2}\sum _{s=0}^{t-1}\delta (s+1)(\omega _j(s)+\omega _j(s+1)-v_j(s)-v_j(s+1)))\\ \quad j=1,\dots ,m. \end{aligned}$$

(33)

Complementarity conditions for $\omega _j(t)$

$$\begin{aligned} 0\le {} \beta _j^t \frac{\partial }{\partial \omega _j(t)}[\pi _j(\tilde{\textbf{e}}(\Omega (t),t)-\tilde{p}(\Omega (t),t)(\omega _j(t)-e_j(\Omega (t),t))] +\nu _j\end{aligned}$$

(34)

$$\begin{aligned} 0\le {} \omega _j(t) \end{aligned}$$

(35)

$$\begin{aligned} \begin{aligned} &0=\omega _j(t)\left\{ \beta _j^t \frac{\partial }{\partial \omega _j(t)}[\pi _j(\tilde{\textbf{e}}(\Omega (t),t)-\tilde{p}(\Omega (t),t) (\omega _j(t)-e_j(\Omega (t),t))] \right. \\&\left. \quad \quad \mathop{+}\nu _j \right\} .\quad t=1\dots T \end{aligned} \end{aligned}$$

(36)

Develo** the expression

$$\begin{aligned} \frac{\partial }{\partial \omega _j(t)}[\pi _j(\tilde{\textbf{e}}(\Omega (t),t)-\tilde{p}(\Omega (t),t) (\omega _j(t)-e_j(\Omega (t),t))]=\\ \frac{\partial }{\partial \sum _k q_k(t)}\gamma _j(\sum _k q_k(t),t)\frac{\partial }{\partial \omega _j(t)}(\sum _{k=1}^m e_k(\Omega (t),t)) \\ -(\frac{\partial }{\partial q_j(t)}\varpi (q_j(t),t)-\tilde{p}(\Omega (t),t))\frac{\partial }{\partial \omega _j(t)}e_j(\Omega (t),t))\\ -\tilde{p}(\Omega (t),t)-\frac{\partial }{\partial \omega _j(t)}\tilde{p}(\Omega (t),t)(\omega _j(t)-e_j(\Omega (t),t)), \end{aligned}$$

(37)

and using the relations $\frac{\partial }{\partial q_j(t)}\varpi (q_j(t),t)=\tilde{p}(\Omega (t),t)$ and $\sum _{k=1}^m e_k(\Omega (t),t)=\Omega (t)$ that hold on the emission permit market the complementarity condition (36) can be rewritten more simply

$$\begin{aligned} \omega _j(t)\left\{ -\beta _j^t [-\frac{\partial }{\partial \sum _k q_k(t)}\gamma _j(\sum _k q_k(t),t)+\tilde{p}(\Omega (t),t) \right. \\ \left. +\frac{\partial }{\partial \omega _j(t)}\tilde{p}(\Omega (t),t)(\omega _j(t)-e_j(\Omega (t),t))]+\nu _j \right\} =0. \end{aligned}$$

(38)

Complementarity conditions for $v_j(t)$

$$\begin{aligned} 0\le \beta _j^t \frac{\partial }{\partial v_j(t)}\kappa _j(v_j(t),t)-\nu _j\end{aligned}$$

(39)

$$\begin{aligned} 0\le v_j(t)\end{aligned}$$

(40)

$$\begin{aligned} 0= v_j(t)\left\{ \beta _j^t \frac{\partial }{\partial v_j(t)}\kappa _j(v_j(t),t)-\nu _j \right\} . \end{aligned}$$

(41)

Complementarity conditions for $\nu _j(t)$

$$\begin{aligned} 0&\le {} b_j-\frac{1}{2}\sum _{s=0}^{t-1}\delta (s+1)(\omega _j(s)+\omega _j(s+1)-v_j(s)-v_j(s+1))\end{aligned}$$

(42)

$$\begin{aligned} 0\le \nu _j(t) \end{aligned}$$

(43)

$$\begin{aligned} \begin{aligned} 0&=\nu _j(t)\left\{ b_j-\frac{1}{2}\sum _{s=0}^{t-1}\delta (s+1)(\omega _j(s)+\omega _j(s+1)-v_j(s)-v_j(s+1)) \right\} \\&\quad , j=1,\dots ,m. \end{aligned} \end{aligned}$$

(44)