The United Nations Climate Change Conference, more commonly known as COP28, held in Dubai this year, is not only important for advanced and developing economies but also for the Kurdistan Region.
For the Kurdistan Regional Government (KRG), which has built its economic foundation on developing fossil fuels, especially crude oil and natural gas, COP28 is of paramount importance. Despite a temporary halt in the KRG's oil exports, the Region continues to produce around 250 bpd (barrels per day) for internal use. If exports resume, oil production could experience a substantial increase.
It must be noted that the Kurdistan Region is part of a federal country which is heavily reliant on oil, with 90 percent of its revenue deriving from international oil exports. The climate goals set at COP21, held in Paris in 2015, have already influenced investments in the Kurdistan Region's most valuable asset - oil.
The goals outlined in COP21 aim to reduce carbon emissions to a defined level, controlling Earth's temperature below 2.0 degrees Celsius above pre-industrial levels. This has led the Kurdistan Region to reconsider its oil-centric economy and transition towards a more environmentally friendly model. While this shift presents challenges, the Region, as a developing entity, can leverage opportunities and green investment initiatives discussed at COP28 by taking a proactive stance in the discussions.
Until recently, the primary income for the KRG came from the direct sale of crude oil in the international market. Even if the KRG receives its full budget share from Baghdad, it is obligated to produce 400 bpd, requiring continuous investment in the sector. Operating oil and gas fields has become increasingly difficult due to environmental concerns, and adherence to environmental standards will raise operational costs. On the sidelines of COP28, 50 oil companies, representing nearly half of global production, pledged to achieve near-zero methane emissions and end routine flaring in their operations by 2030, indicating a more restrictive future for the oil and gas sector.
Kurdistan Region's oil and gas producers, like their international counterparts, must address emissions through various measures, including methane emission reduction, eliminating non-emergency flaring, electrifying facilities with low-emission electricity, implementing carbon capture technologies, and incorporating low-emission hydrogen in refineries. These solutions require substantial additional investment. Therefore, the Kurdistan Region, after resolving issues with Baghdad, must focus on a new framework for optimizing oil and gas operations in an environmentally acceptable way, aligning with global standards and recommendations.
As emphasized by French President Emmanuel Macron at COP28, renewable energy production alone is insufficient to meet global energy demand and transition away from fossil fuel production. Kurdistan Region's policymakers should prioritize maintaining fossil fuel production while facilitating renewable energy projects for the private sector, outlining clear guidelines and incentives in its long-term economic interest.
Shifting subsidies from fossil fuels to renewable energy, providing tax and tariff exceptions for companies importing new technologies in renewable energy, can rapidly transform the investment landscape in the Kurdistan Region. While the KRG may currently appear financially fragile, it can explore two potential sources for financing green projects - local sources through Iraqi central banks, private banks, and Iraqi federal government green promotions, and international sources announced at COP28.
Regarding local financing, the announcment Iraq's Minister of Environment, Nazar Amedi, at the Arab ministerial meeting in COP28 was very important. Amedi said that Iraq is opening up to green economy investments aimed to be worth up to $100 billion by 2030 and 2035.
The Kurdistan Region can formally request funding from the United Arab Emirates (UAE), especially for solar energy and advanced green hydrogen projects, considering the close and strategic alliance between the two. The UAE said on Friday that it was launching a new $30 billion private investment fund focused on climate projects in developing countries. The oil-rich host of the crucial UN COP28 climate negotiations said it hoped the fund, called Alterra, would leverage $250 billion in investment by 2030.
Additionally, the World Bank, announcing an increase in annual spending on climate-related projects, offers another funding source. The Kurdistan Region can produce green energy and sell it as carbon credits through the World Bank mechanism.
Furthermore, the KRG can seek funds from the US and other capable G7 members, leveraging its close alliances. For example, Kurdish leaders are known to have good relations with John Kerry, US Special Presidential Envoy for Climate, who has a flexible mechanism for funding green projects via US International Development Finance Corporation (DFC) .
With the world's focus shifting towards reducing greenhouse gas emissions, it is time for the KRG to engage in negotiations with its allies to fund precisely defined and valuable green projects while enhancing the environmental efficiency and acceptability of its oil industry based on new global standards.
Omer Ahmed is the Editor-in-Chief of Rudaw Media Network's Economy Desk
