(MENAFN - Arab News) The ambitious development plans of the GCC countries are driving transformative change in a number of areas. Economic diversification is fostering new industries and physical infrastructure while the dynamic demographic profile of the region has created massive housing needs.
For instance, Saudi Arabia has redoubled its efforts to overcome shortages in this area through initiatives ranging from a commitment to build 500,000 new affordable housing units to the adoption of comprehensive mortgage legislation.
As necessary and desirable as they are, these developments come at a cost, chief among them rapidly mounting energy use.
Access to cheap energy is a key comparative advantage of the region but efforts to capitalize on it have made industry the source of some 20 percent of domestic hydrocarbons consumption in Saudi Arabia.
New housing, similarly, poses challenges as residential use already accounts for more than half of the electricity generated by Saudi Electricity Company.
Problematically, the GCC economies have become steadily more energy intensive in recent years and the trend looks set to continue.
The numbers speak for themselves. Saudi power consumption has grown nearly twice as fast the overall economy - some 7 percent a year (doubling each decade) as opposed to average GDP growth of 4 percent (2000-2010).
Per capita oil consumption has increased by a third over the past decade and is among the highest in the world.
The reasons for this are well understood.
They include growing prosperity and the increasingly resource-intensive life styles of today's consumers.
But demand is further underpinned across the board by the internationally and historically low cost of energy and other utilities.
This offers few incentives for consumers or industrial users to rationalize or limit their energy consumption.
This mounting energy intensity has in turn created considerable challenges for supply security.
As much as there has been growing discussion of alternative energy and nuclear power, the reality at least for the near term remains one of heavy reliance on hydrocarbons and especially oil.
Although new resources have been channeled into gas exploration and development, Saudi Arabia still faces acute constraints; not only does it consume all of its domestic gas but the current production levels are insufficient to meet the needs.
Imports from the rest of the region are complicated by the subsidized prices which, moreover, pose a potential risk for new domestic developments going forward.
Overall, close to 37 percent of domestic hydrocarbons production is now consumed at home and Saudi Aramco recently suggested that the Kingdom could lose a third of its oil export capacity by 2028.
The sustainability implications of Saudi Arabia's energy consumption patterns have become the subject of growing debate.
However, at least part of the solution may be closer to the problem than many appreciate.
Just as much as the ongoing transformation of the economy is driving energy demand, the rapid expansion of the physical infrastructure also entails opportunities to embrace new, economically superior solutions.
The massive construction pipeline offers a chance to embody better energy efficiency standards in the Kingdom's physical infrastructure. Even if upgrading existing buildings may take time, it is possible to begin to push the average energy efficiency levels in the right direction thanks to the planned and ongoing construction of new residential districts, economic cities, and industrial areas.
After all, the potential for improvement is obvious.
Much of the energy consumption is direct waste due to often inefficient air conditioning and poor building standards.
Better AC technology could reduce demand by up to 25 percent, while proper insulation can cut electricity consumption by up to 40 percent.
At the same time, the infrastructure boom should lead to better technology for power generation, smarter grids, and greater regional integration that enable demand volatility to be accommodated in a more flexible way.
Who will pay for it all? As much as the energy-related problems entail massive costs, the solutions do not come cheap either. Better and smarter buildings or new AC technology cost money.
The search for answers will undoubtedly engender a great deal of debate.
Paradoxically in view of the current fiscal sustainability considerations, increased government spending may provide at least a partial solution.
Meaningful change in this area has been stimulated through tax incentives in many other parts of the world.
The much smaller tax system in the GCC limits the opportunities for similar measures but the use of subsidies, essentially negative taxes, may provide an alternative.
The key objective surely must be to ensure that sustainability is not economically disadvantaged, especially in cases where the true benefits clearly outweigh the costs.
In practice, ensuring an adequate supply of alternative energy means that its price must be meaningfully equalized with the subsidized hydrocarbons.
Wanting households to install solar panels may require concrete support for them, perhaps even donations.
The US Department of Energy has an active weatherization program subsidizing the adoption of more energy efficient solutions.
Targeted tax cuts should naturally be considered where appropriate.
Similarly, stricter regulations create an opportunity to penalize waste while some leniency can be applied in the case of genuine need.
Better buildings standards could perhaps also be linked to government loans for housing and other purposes.
Incentives can also potentially be used to support modern day 'infant industries' in areas of need: better air conditioning, water desalination, solar energy, etc.
Where the longer-term economic needs are obvious, the ongoing efforts to boost local know-how and production merit all the support they can get.
- Jarmo T. Kotilaine is chief economist at the National Commercial Bank, Jeddah
