Carbon Pricing in the Arab Gulf: Pathways to Linkage with the EU Emissions Trading System

This chapter aims to outline the major role of carbon pricing and related trade mechanisms as accelerators of an emission-free economy in the Gulf Cooperation Council (GCC). It seeks to explain why the use of carbon pricing can incentivize a paradigm shift for the energy mix of the Arabian Gulf economies. It focuses on how use of a regulated cap-and-trade system of the sort of European Union Emissions Trading System (EU ETS) as blueprint can provide much needed guidance for the introduction of an equally inclusive cap-and-trade scheme across the GCC, initially at the national level and, soon after, at the regional level. This chapter argues that GCC member states can benefit from the design and scope of an inclusive cap-and-trade system such as the EU ETS for the creation of national cap-and-trade schemes emulating the EU ETS and, potentially, for the medium-term organization of a regional scheme linked with the EU ETS. It moreover argues that linkage of prospective national cap-and-trade schemes in the GCC with one another, and subsequent organization of a regional carbon pricing scheme emulating the EU ETS and linked with it, would offer the GCC countries a cost- effective “way out” of awkward measures of the sort of a carbon border adjustment mechanism (CBAM). Implementation of the latter by the EU aims to reduce the risk of carbon leakage for a specific number of energy-intensive industries by putting a price on the carbon content of imports. It is hence a measure that will severely affect exports of oil, gas, and other energy-intensive exports from the Gulf to Europe.