The COVID-19 pandemic has revealed the need for sustainable digitization of the economy, and the UAE is accepting the challenge.
The United Arab Emirates is the world’s sixth-largest oil producer and one of the richest countries in the world, with a gross domestic product per capita of above $43,000 as of 2019, according to the World Bank. As per its “Vision 2021,” Iis petroleum- and natural-gas-reliant economy is committed to sustainable development in order to emerge as the Gulf Cooperation Council’s, or GCC’s, most diversified economy. This includes the digitization of the economy, which has become a priority during the COVID-19 pandemic.
Related: Not like before: Digital currencies debut amid COVID-19
A green economy for sustainable digitization
The first virtual Abu Dhabi Sustainability Week Summit 2021 was broadcast live around the world in English and Arabic on YouTube, receiving over 100,000 views during the event from participants hailing from over 175 countries, and it featured over 500 influential global leaders from government, business and technology who explored the social, economic and technological opportunities supporting a sustainable green recovery from the pandemic.
At the summit, GCC leaders reconfirmed their decarbonization pledges “to save the equivalent of 354 million barrels of oil through the deployment” of renewable energies. This represents a 23% reduction in oil consumption to reduce the power sector’s carbon dioxide emissions by 22%, according to the latest figures from the International Renewable Energy Association.
In his opening address, Sultan Ahmed Al Jaber — the UAE’s minister of industry and advanced technology, special envoy for climate change, and chairman of clean energy company Masdar — pointed out that with the COVID-19 pandemic, society is now witnessing the implementation of artificial intelligence, machine learning and the digitization of different spheres of life all over the world. Accordingly, electrification, decarbonization and digitization initiatives have become increasingly important across all industries.
Masdar’s solar energy initiatives
New digital technologies require a high consumption of electricity, which in the UAE is currently produced predominantly using fossil fuels that adversely impact the environment. Given the UAE’s vast hydrocarbon resources, Masdar is aiming to become a major blue hydrogen producer and contribute to the nation’s efforts to cut polluting carbon emissions by nearly a quarter. Masdar recently reached an agreement with Abu Dhabi’s Department of Energy and five additional institutions to develop clean hydrogen fuel solutions.
But the UAE’s Paris Agreement commitment to zero emissions by 2050 is heavily reliant on solar energy to diversify Abu Dhabi’s energy sector into renewable sources. Solar energy is seen as an anchor to Masdar’s renewable strategies from many perspectives. In Abu Dhabi, it is building the world’s largest solar power plant, as deserts are some of the best places to harvest solar power. They are never short of sunlight and are rich in silicon — the raw material for the semiconductors from which solar cells are made. Another benefit to installing solar panels in the desert, according to a 2018 study, is that it may create a more humid environment that causes vegetation to spread to combat desertification.
Masdar City: The UAE’s aerospace and green technology zone
Developed by Masdar, Abu Dhabi’s Masdar City is one of the world’s most sustainable urban communities, offering a strategic base through which companies can build their networks locally and globally and can explore multiple investment opportunities and test innovative new technologies from inception through to implementation to help the UAE diversify its economy.
Housing a free zone area, the city has more than 900 organizations, from international conglomerates to startups, developing innovative technologies in the areas of energy, water efficiency, mobility, space, blockchain technology and artificial intelligence to address the world’s most critical sustainability challenges in more than 30 countries.
UAE Space Agency
Based in Masdar City, the UAE Space Agency contributes to supporting a sustainable national economy by developing satellites used in natural resource mapping, environmental monitoring, land-use planning and security, and it has also launched a probe to Mars.
Digital economy
The UAE government has made the digitization of its economy a priority in order to bring efficiency to government, creativity to industry, and build international leadership. To accomplish this goal, the UAE has established in Masdar City the world’s first graduate-level, research-based artificial intelligence university, Mohamed bin Zayed University of Artificial Intelligence, which welcomed its first students in January 2021.
The UAE also adopted the Emirates Blockchain Strategy 2021 and The Dubai Blockchain Strategy, which have undertaken several blockchain projects. SustVest is a crowd-investing blockchain-based platform that lets people invest in solar projects and earn returns from consumers who use their funding to install solar panels. The company is based in the Dubai Silicon Oasis Authority and has built its solution on the Nem blockchain. Its founder, Hardik Bhatia, explained:
“The global rooftop solar segment is booming with opportunities, and is valued at over $66 billion. Emerging economies are looking to transition to solar as it offers a green and cheap alternative to conventional energy sources. SustVest enables this transition in emerging economies by crowdfunding rooftop solar projects in emerging economies on its platform. We tokenize solar projects granular to the level of individual solar cells, and investors purchasing these tokens can earn dividends generated by the sale of electricity from these individual solar cells. We are opening the gates for retail investment into solar space, and we do so by tokenizing the projects to reduce the barrier of entry and creating a secondary marketplace for providing liquidity to investors.”
The Central Bank of the United Arab Emirates, along with the Saudi Central Bank, is developing a state-backed bilateral central bank digital currency, “Aber.” Aber is initially set to help the UAE and Saudi Arabia make more cost-effective bank-to-bank, cross-border payments and financial settlements using blockchain technology on a probationary basis, and according to official statements, it will be exclusively available to a limited number of banks. Eventually, Aber will be used globally on China’s blockchain-based service network, or BSN, which will support future CBDCs from various countries such as the UAE.
Related: The United Arab Emirates chase crypto and blockchain adoption
Crypto-asset regulations in the UAE
The UAE prioritizes blockchain and distributed ledger technology and has launched various related ventures, especially since the COVID-19 pandemic. Nevertheless, cryptocurrency regulation in the nation remains limited.
Toward the end of 2020, the UAE’s Securities and Commodities Authority, or SCA, published “The Authority’s Chairman of the Board of Directors Decision No. (21/R.M) of 2020 Concerning the Regulation of Crypto Assets.” The SCA’s decision lays out its licensing regime for anyone who wishes to offer crypto assets within the UAE, including exchanges, crowdfunding platforms, initial coin offerings, custodians, and other services that use crypto assets.
The Financial Services Regulatory Authority, or FSRA, of the Abu Dhabi Global Market considers crypto assets to have characteristics like those of shares, meaning they are to be treated as securities and are subject to information disclosure requirements related to risk and transactions. On the other hand, utility tokens and non-fiat cryptocurrencies are considered commodities and are not subject to market regulations. Law No. 20 of 2018 on Anti-Money Laundering defines laundered funds to be assets in whatever form, including digital currencies. Article 3 of Law No. 8 of 2017 on value-added tax imposes a 5% tax on imported and exported commodities. This tax may apply to utility tokens and non-fiat cryptocurrencies, as the FSRA considers them to be commodities.
The UAE does not have a signed tax treaty agreement with the United States. However, according to the Conduct of Business Rulebook, crypto-asset businesses are obligated to declare international income for tax purposes according to the requirements of the intergovernmental Foreign Account Tax Compliance Act agreement between the UAE and the United States.
Conclusion
A green recovery is an absolute imperative for a sustainable social and economic future in the post-pandemic world, as pointed out by Alok Sharma, president of the 26th United Nations Climate Change Conference of the Parties — better known as COP26 — who praised Masdar’s undertakings in developing green energy technologies.
Related: The need to report carbon emissions amid the coronavirus pandemic
Finding financing for this green transition will likely not be too challenging, according to Khaldoon Khalifa Al Mubarak, managing director and group CEO of Mubadala Investment Corporation. Because a tectonic paradigm shift has occurred since the COVID-19 pandemic, with the markets pricing climate risk into the value of securities, there is a fundamental reallocation of capital toward sustainable investing to ensure a green recovery in a post-COVID-19 world. As Laurence Fink, chairman and CEO of BlackRock — the world’s largest asset manager — pointed out:
“I believe that the pandemic has presented such an existential crisis — such a stark reminder of our fragility — that it has driven us to confront the global threat of climate change more forcefully and to consider how, like the pandemic, it will alter our lives. It has reminded us how the biggest crises, whether medical or environmental, demand a global and ambitious response.”
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