Is Saudi Arabia lagging behind in developing alternative energy sources? Undoubtedly. Not only because the mere fact Saudi Arabia is still far behind many countries such Germany and the United States in researching and developing alternative energy sources, but also because Saudi Arabia, a global energy power house, is behind when it should be in lead.
In 2010, Germany’s reached a milestone by generating 20% of its electricity through renewable energy sources becoming the world first renewable energy economy. Similarly, the United States renewable energy’s contribution to electricity generation was about 12%.
One might question whether this poses a problem of concern for such an oil rich country. And the answer would be yes. Even if we disregarded the environmental concerns from carbon emissions as insignificant, Saudi Arabia’s economy cannot sustain its growth rate while depending solely on fossil fuels.
On one hand, if less oil is exported to compensate for domestic demand and consumption the country will experience substantial opportunity costs. Consequently, significant revenue will be forgone, which will hinder the domestic and international trade activities due to the country’s dependency on oil.
On the other hand, if oil exportation levels are preserved to sustain the global demand, Saudi Arabia’s revenue will maintain a balanced budget through the foreseeable future. However, this means less oil will be deployed to generate energy for domestic demand, and, as a result, the economy will start contracting.
It’s a lose-lose situation.
Drilling for more oil may seem as a sound solution for such a problem, however, it’s a little more complicated. Holding the assumption that Saudi Arabia’s have the technical capability, not to mention the political capacity to increase global supply of oil, such an action will cause a huge shock in the oil market. The impact will lower oil prices, subsequently; the lower prices will offset any benefits from growth in sales volume.
And this is only the small part of the problem. The major concern should be the fact that many developed economy, which are major consumer of oil, are investing heavily in alternative energy sources. As they develop and achieve significant breakthroughs in renewable energy technologies, their demand for fossil fuel will decline sharply impacting oil-based economies, where Saudi Arabia is one of which.
Also, every time a country achieves a breakthrough or a milestone in renewable and alternative energy technologies, is a time where Saudi Arabia, and other oil-based economies, loses absolute, as well as comparative advantage in energy, impacting the stability of their economic outlook significantly. Thus leading in renewable and alternative energy should be a top priority of Saudi Arabia. A plausible initiative towards maintaining these advantages and mitigating the economic consequences of such an event is heavy investments in renewable energy research and development.
It cannot be dismissed that Saudi Arabia is actually investing on renewable energy. However, the investments are heavily allocated towards developing the required infrastructure by foreign companies, as opposed to allocating investments towards researching and developing by domestic companies. The fact that foreign countries are contracted to develop and establishes energy in Saudi Arabia should be a flag to Saudi policy makers to rethink their position in the global energy industry.
The fact is that until today Saudi Arabia still did not deploy any alternative energy infrastructure to generate renewable energy in the economy, nor allocated proper investments into research and development of renewable energy.