Introduction

The energy sector remains the backbone of Gulf Cooperation Council (GCC) economies. Yet its role is undergoing a stark transformation. Gulf states are expanding into downstream industries such as petrochemicals and leveraging state-owned energy champions such as Saudi Aramco, ADNOC, and QatarEnergy, as the linchpins of broader industrial ecosystems. These national oil companies (NOCs) are being recast as integrated energy-industrial conglomerates, tasked not only with extracting resources but also with driving climate-aligned industrial transformations—all while turning into global corporate entities that are investing abroad.

This strategy has yielded undeniable short-term gains in terms of foreign direct investment inflows, downstream job creation, and international visibility as “low-carbon producers.” Yet it also faces structural vulnerabilities that threaten its long-term viability. Distortionary energy pricing structures, overreliance on associated gas, an absence of binding climate laws, and fragmented institutional frameworks are all undermining both industrial resilience and the global credibility of the Gulf states’ climate alignment efforts.

This policy note argues that the Gulf’s bid to recast hydrocarbons as engines of climate-linked industrial growth will falter without a regionally harmonized, legally enforceable climate governance framework. Absent such reforms, industrial policy risks becoming a sophisticated and repackaged extension of rentierism, attractive in optics but fragile in the face of international trade and climate scrutiny.

Recasting the Gulf’s Energy Sector

Saudi Arabia, the United Arab Emirates, and Qatar are moving decisively to monetize hydrocarbons beyond crude oil and liquefied natural gas (LNG) exports, by promoting industrial clusters in petrochemicals, specialty chemicals, and blue hydrogen. Examples include:

• Saudi Arabia: Petrochemicals giant Sabic’s pivot into advanced polymers and specialty chemicals is intended to pivot the Kingdom further down the value chain.¹
• UAE: State energy firm ADNOC’s Ruwais industrial hub integrates petrochemicals, hydrogen, and carbon capture into a value-added export platform.²
• Qatar: QatarEnergy continues to prioritize expanding LNG output, but increasingly frames exports in terms of low-carbon LNG and hydrogen derivatives.³

In parallel to these downstream ventures, Gulf NOCs are repositioning themselves globally. They are expanding into international assets, spinning off subsidiaries, modernizing operations, and even launching initial public offerings (IPOs). In doing so, they are adopting strategies once characteristic of international oil companies, and reversing decades-old strategies of resource nationalism.

Natural gas remains central to this industrialization drive. Framed as a “bridge fuel,” it underpins energy-intensive manufacturing and is being recast as low-carbon LNG and as a feedstock for blue hydrogen.⁴ However, this strategy is under intensifying scrutiny. Successive climate summits, particularly COP28 in Dubai, have increasingly sought to phase down fossil fuel use, rather than simply rebranding hydrocarbons under low-carbon narratives.⁵ The broader trajectory is clear: Gulf states are seeking to redefine themselves as value-added energy hubs as opposed to mere oil and gas exporters. Yet the credibility of this ambition depends on structural reforms that extend beyond industrial optics.⁶

Gaps in Energy and Climate Governance

Despite headline pledges and flagship projects, Saudi Arabia, the UAE and Qatar share systemic governance weaknesses. These include:

Limited Institutionalization of Climate Commitments

None of the three states has yet codified climate targets into comprehensive, enforceable legislation.⁷ This is not to deny that they have taken meaningful steps to advance their climate agendas: the UAE has introduced mandatory greenhouse gas (GHG) disclosure requirements for businesses and pledge to reach Net Zero by 2050; Qatar has adopted the QNE Climate Strategy with sectoral targets; and Saudi Arabia has anchored its ambitions in the Saudi and Middle East Green Initiatives, alongside a 2060 Net Zero pledge.⁸

Yet while these frameworks demonstrate clear momentum, they remain primarily strategy-driven and dependent on executive authority. As a result, while these countries’ respective leaderships have accelerated early action, the absence of legally binding structures leaves implementation vulnerable to shifting fiscal or political priorities.

Challenges in MRV Standardization

Monitoring, Reporting, and Verification (MRV) systems are at different stages of development and integration across the region. Qatar has yet to establish a centralized national MRV framework. In the UAE, recent federal legislation has strengthened economy-wide MRV requirements, but implementation remains distributed among emirate-level authorities and sectoral regulators. Saudi Arabia’s MRV framework continues to evolve, with limited public transparency regarding methodologies and coverage. As climate commitments increasingly intersect with international trade and disclosure regimes, gaps in Paris agreement-aligned MRV standards could harm the credibility of Gulf states’ Nationally Determined Contributions (NDCs) and complicate compliance with emerging measures such as the European Union’s Carbon Border Adjustment Mechanism (CBAM). As a result, MRV is rapidly becoming an economic and trade issue, and lack thereof, a potential vulnerability.

Administrative Organization of Climate Policy

Apex institutions, including NOCs and energy ministries, play central roles in shaping climate and industrial policy across the GCC. Yet responsibilities related to climate action are distributed across multiple departments, from environment to planning and economic development ministries. This can create challenges in coordination, policy design and implementation. In several cases, mandates are shared across institutions or not fully delineated, contributing to variations in execution and administrative coherence.⁹ Subnational engagement remains limited in most GCC states—although the UAE’s federal structure represents a partial exception, in which emirate-level authorities have developed distinct regulatory initiatives.

Channels for Non-Governmental Input

Non-governmental input is typically channeled through structured, state-led platforms rather than open consultative processes. Examples include expert advisory roles for universities and think tanks in national climate strategies, industry participation through chambers of commerce and sectoral working groups, and targeted consultations with financial institutions and large corporates on disclosure and transition planning. While these mechanisms allow for technical input aligned with national priorities, they offer limited scope for independent monitoring. They also allow civil society actors to help set the agenda from the bottom up.¹⁰

Country Differentiation

While the three countries share certain structural challenges, their institutional approaches to climate governance vary in important ways:

 UAE

The UAE has one of the region’s more advanced climate governance frameworks. In August 2024, it passed Federal Decree-Law No. 11 on the Reduction of Climate Change Effects, which took effect on 30 May 2025.¹¹ The law mandates that all public and private entities, including those in Free Zones, report on their GHG emissions and submit emissions-reduction plans. Full compliance is required by 30 May 2026, with penalties (up to AED 2 million, around $545,000) for non-compliance. The UAE also continues to pursue its Net Zero by 2050 initiative, supported by regulatory entities in specific emirates such as Abu Dhabi and Dubai.

Implementation capacity varies across emirates, and aligning those efforts under a consistent federal framework remains a work in progress. While the decree significantly strengthens transparency, reporting, and enforcement capacity, it does not codify binding national emissions targets or carbon budgets into law. Instead, the UAE continues to pursue its net zero target through executive strategy and sectoral initiatives, supported by emirate-level regulators in Abu Dhabi and Dubai. Implementation capacity varies across emirates, and aligning these efforts within a fully integrated federal framework remains an ongoing process.

 Qatar

As of late 2025, Qatar had not enacted a standalone climate law to codify binding, economy-wide greenhouse gas emissions targets into legislation. Climate governance is instead guided by strategy- and plan-based instruments, including the National Environment and Climate Change Strategy (2021), the National Climate Change Action Plan (NCCAP 2030), and framework legislation such as Law No. 30 of 2002.¹² Institutional developments, including the establishment of the Ministry of Environment and Climate Change and changes to inter-ministerial climate committees, reflect growing administrative capacity. However, enforcement mechanisms and fully integrated national MRV systems remain under development, with implementation largely dependent on executive coordination rather than statutory mandates.

 Saudi Arabia

The Kingdom has made high-profile climate commitments, notably a 2060 Net Zero pledge, and its Saudi Green Initiative (SGI) aims to reduce emissions by 278 million tons of CO2 equivalent per year by 2030 under its NDC. The SGI and the Circular Carbon Economy framework demonstrate the country’s growing investment in renewables, carbon capture, and energy-efficiency reforms. To date, no comprehensive climate law with legally enforceable emissions targets has been enacted. Saudi Arabia is expanding MRV practices and improving transparency, but legal enforcement and institutional decentralization remain under development.

Collectively, these trajectories illustrate a spectrum: the UAE with comparatively advanced institutional measures but internal fragmentation; Qatar with a strategy-led and centralized model as it continues to build technical capacity; and Saudi Arabia with high-profile commitments but evolving institutional structures.

Industrial Policy, Climate Governance, and Global Trade

Gulf industrial strategies are increasingly shaped by external trade, regulatory, and climate governance pressures, rather than purely domestic policy objectives. A growing body of EU regulations, alongside evolving World Trade Organization (WTO) disciplines and domestic structural constraints, is redefining the conditions under which Gulf energy and industrial exports compete. These pressures have prompted a set of strategic policy responses aimed at preserving competitiveness while adapting to a more carbon-constrained global economy.

The Challenges of EU Regulations

A new wave of EU regulations on methane emissions, carbon border measures, corporate disclosure, supply-chain due diligence, and labor standards will directly affect the operating environment for Gulf exports. The most notable of these regulations are:

• Methane Regulation (Reg. (EU) 2024/1787): Establishes monitoring, reporting, and reduction obligations for methane emissions within the EU energy sector. For imports of oil, gas, and coal, companies will need to provide methane intensity data through contractual clauses and reporting, with verified data mandatory from 2028 onward.¹³
• Carbon Border Adjustment Mechanism (CBAM): From January 2026, EU importers must purchase CBAM certificates covering the embedded carbon emissions in listed commodities. This will directly affect key Gulf exports such as aluminum, fertilizers, and hydrogen.¹⁴
• Corporate Sustainability Reporting Directive (CSRD) and European Sustainability Reporting Standards (ESRS): Expands Environmental, Social, and Governance (ESG) disclosure requirements for EU companies. Gulf suppliers will increasingly be asked to provide Scope 3 emissions data and related ESG information to enable compliance.¹⁵
• Corporate Sustainability Due Diligence Directive (CSDDD, Dir. 2024/1760): Enters into force in 2026, with phased application through 2029. It obliges large EU companies to identify and address environmental and human rights risks across their supply chains, creating indirect compliance pressures for Gulf exporters.¹⁶
• Forced Labor Regulation (Reg. (EU) 2024/3015): Adopted in December 2024. It bans the placing or exporting of products made with forced labor on EU markets. Enforcement is expected to start from 2027 or 2028, once customs and investigation systems are operational.¹⁷

 WTO Subsidy Disciplines

In addition to the challenges posted by new EU regulations, the Gulf should pay close attention to WTO subsidy disciplines. Preferential feedstock pricing, free emissions allowances, and other implicit support mechanisms may be vulnerable to challenge under WTO subsidy disciplines such the Agreement on Subsidies and Countervailing Measures, particularly as climate-linked trade measures expand. Energy-intensive industries in the Gulf benefit from below-market gas and power tariffs, which support domestic production but risk being viewed internationally as trade-distorting measures. As global scrutiny of subsidies increases (particularly in the context of decarbonization), maintaining these regimes could expose Gulf exporters to dispute settlement cases or countervailing duties.

The Gulf’s Domestic Structural Dilemmas

Beyond external pressures, domestic energy pricing structures may present a challenge to reform. These pricing structures are closely tied to long-standing social and economic arrangements (i.e. social contracts) across the Gulf, making reform politically sensitive even as global competitiveness increasingly favors rationalized pricing and transparent carbon costs. Policymakers face a core dilemma: sustaining low-cost energy at home while adapting pricing structures to meet the demands of global trade rules and decarbonization pressures abroad.

The Gulf’s Response: Repositioning Hydrocarbons and Developing Carbon Markets

In response to tightening trade rules, disclosure requirements, and scrutiny over subsidies, Saudi Arabia, the UAE, and Qatar have increasingly positioned hydrocarbons within lower-carbon industrial and energy strategies, including through blue ammonia, LNG, and downstream petrochemicals. This seeks to align their economies with evolving ESG frameworks and climate-related trade and disclosure requirements, while supporting continued participation in global energy and industrial markets.  

Better Gulf-wide policy coordination could strengthen this response. For example, harmonizing core elements (such as MRV standards, sectoral definitions, and climate-related disclosure requirements) across the region would reduce transaction costs for firms operating across multiple GCC jurisdictions and enhance the credibility of regional climate commitments internationally. At the policy level, coordination could also strengthen the Gulf’s collective negotiating position in climate-linked trade and regulatory forums, including on mechanisms such as the EU CBAM, while preserving national flexibility in implementation. Over time, such alignment could support more efficient capital allocation, facilitate cross-border infrastructure planning, and reinforce the GCC’s role as a coherent regional bloc.

Another key component of the Gulf’s response is the development of national and regional carbon markets. Saudi Arabia’s Regional Voluntary Carbon Market Company and the UAE’s emerging carbon credit frameworks reflect a growing effort to integrate carbon pricing and offset mechanisms into broader industrial and trade strategies. These initiatives aim to provide flexibility for emissions-intensive sectors, support investment in mitigation projects, and position Gulf producers to respond to rising disclosure, traceability, and carbon-accounting expectations in international markets.

At the same time, the effectiveness of these carbon market initiatives depends heavily on the credibility of underlying MRV systems, clear governance arrangements, and alignment with international standards.¹⁸ Without robust verification, transparent registries, and consistency with evolving Article 6 guidance and WTO disciplines, carbon credits risk being discounted by buyers or challenged as implicit subsidies. As carbon-related trade measures and due diligence requirements expand, the role of regional carbon markets is likely to grow. Yet their ability to support competitiveness will hinge on whether they are perceived as credible compliance tools rather than discretionary policy instruments.

Toward Enforceable Climate Governance

As climate commitments increasingly intersect with trade rules, financial disclosure regimes, and industrial competitiveness, the distinction between strategic ambition and enforceable governance has become more consequential for the Gulf states. While Saudi Arabia, the UAE, and Qatar have articulated detailed climate strategies and launched high-profile initiatives, the durability and external credibility of these efforts depend on the extent to which they are embedded in binding legal, regulatory, and institutional frameworks. In the absence of enforceability, climate policy remains vulnerable to shifting fiscal priorities, commodity cycles, and political recalibration, particularly in economies where hydrocarbons continue to account for the bulk of economic growth and state revenue.

Against this backdrop, the Gulf’s ability to reconcile industrial ambition with climate credibility depends on moving from high-level pledges to enforceable governance. This policy note advances a single overarching recommendation: translate existing strategies into binding, durable frameworks that institutionalize climate accountability.

This shift would rest on several mutually reinforcing elements:

• Legislation of Decarbonization Targets: Codifying net-zero pledges and sectoral strategies into law, to ensure continuity beyond political cycles and fiscal pressures.
• Rationalized Pricing and Carbon Instruments: Phasing out distortionary subsidies while introducing WTO-compliant carbon pricing mechanisms, paired with targeted support to maintain industrial competitiveness.
• Independent Gas Strategies: Developing non-associated gas resources at home and abroad to decouple supply from oil output, supporting downstream diversification and energy security.
• Credible Standards and Verification: Strengthening systems for MRV, low-carbon certification, and ESG compliance, in order to meet external trade requirements and bolster export credibility.

Together, these measures would embed emissions integrity within domestic governance, giving Gulf industrial diversification agendas both durability and international credibility.

Conclusion

Saudi Arabia, the UAE, and Qatar are each working to recast hydrocarbons as the foundation of a climate-aligned industrial order. Their strategies are leveraging deep state capacity, substantial financial resources, and the central role of NOCs to generate momentum and attract investment. Yet structural constraints remain: distortionary energy pricing, the absence of binding climate laws, underdeveloped MRV systems, and growing exposure to external regulatory regimes.

The policy imperative is clear: The GCC states must transition from aspirational strategies to enforceable governance: Codifying climate commitments into law, institutionalizing transparent MRV systems, and ensuring compatibility between industrial reforms and emerging international trade requirements. All this would give credibility to diversification programs while preserving access to export markets. Absent such a transition, Gulf industrial policy risks being seen abroad as a rebranded extension of hydrocarbon-centric policies.

At the same time, the Gulf is uniquely positioned to demonstrate that hydrocarbon-heavy economies can chart a path toward climate-compatible industrialization. By embedding emissions integrity at the center of domestic governance, the region can sustain its competitiveness, reinforce investor confidence, and strengthen its voice in global trade and climate negotiations. The stakes extend beyond regional diversification. Success would provide a model for other hydrocarbon exporters navigating the similar pressures. Failure would leave the Gulf vulnerable to policy shocks beyond its control.

Endnotes

¹ “The Gulf looks to carbon capture and hydrogen to drive the energy transition,” Oxford Business Group,  August 10, 2022, https://oxfordbusinessgroup.com/articles-interviews/the-gulf-looks-to-carbon-capture-and-hydrogen-to-drive-the-energy-transition.

² “Ruwais LNG Project,” ADNOC, accessed December 14, 2025, https://www.adnoc.ae/en/our-projects/ruwais-lng.

³ QatarEnergy LNG, Sustainability Report 2024: 40 Years of Excellence (Doha: QatarEnergy LN, November 2025), https://www.qatarenergylng.qa/Portals/0/DNNGalleryPro/uploads/2025/11/12/QatarEnergyLNGSustainabilityReport2024-EN.pdf.

⁴ Kolahchian Tabrizi, Mehrshad, Caecilia R. Vitasari, Davide Bonalumi, and Stefano Campanari, “Blue hydrogen can be low-carbon: A techno-economic-environmental analysis,” Energy Conversion and Management 348, A (January 2026), https://doi.org/10.1016/j.enconman.2025.120608.

⁵ Justin Dargin, The Gulf’s Climate Reckoning: Decarbonization, Development, and the Future of the Petro-States (Cambridge: Cambridge University Press, 2025), 167–179.

⁶ Ibid.

⁷ Damian Regan, “Mandatory Sustainability Reporting in the Middle East: ISSB Standards and Climate Disclosure,” Anthesis Group, accessed December 14, 2025, https://www.anthesisgroup.com/me/insights/mandatory-sustainability-reporting-in-the-middle-east/.

⁸ PwC Middle East, UAE Climate Change Law: What It Means for Entities and How to Prepare (UAE: PwC Middle East, July 2025), https://www.pwc.com/m1/en/media-centre/2025/docs/uae-climate-law-article.pdf; Ministry of Environment and Climate Change (Qatar), Qatar National Environment and Climate Change Strategy 2024–2030 (Doha: Ministry of Environment and Climate Change, 2024), https://cdn-website-prod.azureedge.net/static/wp-content/uploads/2023/08/environmental-climate-Change-Strategy-Book-EN.pdf; Saudi Green Initiative, Saudi Arabia’s Global Climate Impact (Riyadh: Saudi Green Initiative, 2024), https://www.sgi.gov.sa/saudi-global-climate-impact.

⁹ Dargin, The Gulf’s Climate Reckoning, 240–243.

¹⁰ Marie van den Bosch, “In the Gulf, Is Civil Society Fighting for Climate?” Arab Gulf States Institute in Washington, February 7, 2024, https://agsi.org/analysis/in-the-gulf-is-civil-society-fighting-for-climate/.

¹¹ United Arab Emirates, Federal Decree-Law No. (11) of 2024 on the Reduction of Climate Change Effects, Official Gazette No. 782, (2024), https://uaelegislation.gov.ae/en/legislations/2558.

¹² These laws and regulations can be found at: “Environmental Laws and Regulations,” Ministry of Environment and Climate Change (Qatar), accessed December 14, 2025, https://www.mecc.gov.qa/English/LawsandAgreements/Pages/LawsandRegulations.aspx.

¹³ European Union, Regulation (EU) 2024/1787 of 13 June 2024 on the reduction of methane emissions in the energy sector and amending Regulation (EU) 2019/942, Pub. L. 1787 (2024), https://eur-lex.europa.eu/eli/reg/2024/1787/oj.

¹⁴ “Carbon Border Adjustment Mechanism: The EU’s environmental policy tool for fair carbon emissions pricing,” European Commission Directorate-General for Taxation and Customs Union, accessed December 14, 2025, https://taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en.

¹⁵ European Union, Directive (EU) 2022/2464 of 14 December 2022 amending Regulation (EU) No 537/2014 and Directives 2004/109/EC, 2006/43/EC and 2013/34/EU as regards corporate sustainability reporting, Pub. L. 322 (2022), http://data.europa.eu/eli/dir/2022/2464/oj.

¹⁶ European Union, Directive (EU) 2024/1760 of 13 June 2024 on corporate sustainability due diligence and amending Directive (EU) 2019/1937 and Regulation (EU) 2023/2859, Pub. L. 1760 (2024), https://data.europa.eu/eli/dir/2024/1760/oj.

¹⁷ European Union, Regulation (EU) 2024/3015 of 27 November 2024 on prohibiting products made with forced labour on the Union market and amending Directive (EU) 2019/1937, Pub. L. 3015 (2024), https://data.europa.eu/eli/reg/2024/3015/oj.

¹⁸ This paper is one of the few systematic analyses of a region-wide Gulf carbon market architecture. For more on the importance of harmonized MRV systems, coordinated implementation, and the role of sufficient regional scale in mitigating risks related to leakage and market credibility, see: Justin Dargin, The Development of a Gulf Carbon Platform: Mapping out the Gulf Cooperation Council Carbon Exchange, Dubai Initiative Working Paper No. 1. (Cambridge, MA: Dubai Initiative, Harvard Kennedy School, May 2010), https://ciaotest.cc.columbia.edu/wps/isp/0020260/f_0020260_17134.pdf.