The COP28 climate summit wrapped up a compromise agreement that calls on nations to move away from fossil fuels. Countries pledged to wean their economies off fossil fuels in a “just, orderly and equitable manner” this decade; triple their uptake of renewables by 2030; restrict methane emissions; and halt carbon emissions by midcentury. It is the first such agreement to reduce fossil fuel use in the roughly three decades of the multinational negotiations. Despite the language, the deal allows oil countries to continue drilling for oil and gas and China and India to continue to build coal-fired plants, for the agreement does not include language to outlaw construction of new coal power plants. In fact, the world is forecast to break oil, gas, and coal consumption records this year. The agreement also does not contain specific commitments to help finance poorer nations’ energy transitions. According to Ishaq Salako, Nigeria’s environmental minister, “Asking Nigeria, or indeed, asking Africa, to phase out fossil fuels is like asking us to stop breathing without life support.” In places like Africa, Latin America and Southeast Asia, developing nations are facing soaring interest rates that have made it difficult to finance new renewable energy projects.
The deal presents a huge challenge on funding the green-energy shift for both countries and investors. One estimate suggests that trillions of dollars in investment is needed to transition to renewable fuel sources like wind and solar. The United Nations estimates that developing countries will need roughly $5.9 trillion this decade to transition to renewable energy sources like wind and solar and non-carbon nuclear. According to some analysts, private investment will be key to achieving the climate goals. The United Arab Emirates said it would team up with investment giants BlackRock, Brookfield and TPG on a $30 billion climate fund. And Vice President Kamala Harris announced $3 billion for a similar fund aimed at helping poorer countries make the transition. Despite that, the sums that have been committed fall well short of what is needed to reach the goals.
The deal is not legally binding. And according to some, the deal contains loopholes that would give countries producing fossil fuel incentives to continue oil exploration, including allowing room for “transitional fuels” like natural gas. The Abu Dhabi National Oil Company plans to spend at least $150 billion to expand drilling over the next five years. Prince Abdulaziz bin Salman, the Saudi energy minister, insisted that Saudi Arabia’s oil exports would not be affected. Nigeria just opened a major refinery last week and is banking on fossil fuels to power its economy. Oil production in the United States is rising, and European countries are spending billions on new terminals to import liquefied natural gas. The final agreement contains language recognizing that transitional fuels can play a role in the transition to “clean energy” and ensuring energy security. “Transitional fuels” is widely seen as code for natural gas, something that gas-producing countries like Russia and Iran had called for.
Further, investors did not appear worried about what the pledge might mean for the fossil fuel industry as shares in Chevron and Exxon Mobil were up slightly in premarket trading right after the meeting. The S&P 500’s energy sector index climbed by nearly 1.3 percent, amid a wider market rally, even as oil demand appears to be weakening as the world economy weakens.
As the real issue is to reduce greenhouse gas emissions, Saudi Arabia and oil and gas companies argued that the talks should focus on emissions instead of fossil fuels, arguing that technologies such as carbon capture and storage could trap and bury greenhouse gases from oil and gas and allow their continued use. The final text calls on nations to accelerate carbon capture “particularly in hard-to-abate sectors,” but currently the technology is not commercially available.
“This is not a transition that will happen from one day to the other,” Susana Muhamad, Colombia’s environmental minister, said. “Whole economies and societies are dependent on fossil fuels. Fossil capital will not disappear just because we made a decision here.” But, she added, an agreement sends “a strong political message that this is the pathway.” That political message will be a call for President Biden and his climate czar, John Kerry, to push for more incentives and interventions to move toward net zero carbon dioxide and for more hardships for Americans as the cost for that transition gets higher and higher as it becomes more difficult to reduce those additional emissions. The United States has a stellar record on emission reductions, but even as the United States shrinks its emissions, the developing world is consuming more energy and producing more emissions.
Whether countries will adhere to the agreement is yet to be seen as history shows. In 2021, nations struck a deal in Glasgow to “phase down” coal-fired power plants. But Britain approved a new coal mine just one year later and global coal use has since soared to record highs. Oil, gas, and coal account for about 80 percent of the world’s energy, and projections vary widely about when global demand will hit its peak. This year, carbon dioxide emissions are expected to hit 36.8 billion tons, the highest level ever.
Conclusion
The COP28 agreement allows countries to choose their own pathways to reduce greenhouse gas emissions, despite words to triple renewable use and to wean economies off fossil fuels. The agreement, approved by diplomats from nearly 200 countries, even suggests a role for natural gas in “facilitating the energy transition.” Whether countries adhere to the agreement or not will depend on numerous factors, such as investment funds, reliability of their energy systems, national security, economics, and, of course, politics. The menu of options agreed to at COP28 illustrates the formidable gap between aspirations and the practical challenge of cutting carbon emissions while ensuring that energy remains affordable, reliable and secure.
Regardless of what other countries do, Biden and Kerry will push the U.S. toward the COP goals as they will see this as a roadmap they must reach, regardless of the cost it will occur for American consumers and taxpayers. As summed up in Real Clear Energy by Frank Lasee, “Biden, Kerry, and other Democrats do not care about our unprecedented $34 trillion debt or the massive interest payments. They do not care about the energy inflation caused by their expensive climate energy policies. They do not care that we are sending 100s of billions of dollars to China. The do not care about social justice. They do not care about your family making ends meet. They care more about climate ideology than people.”
