It is far from what the world really needed, yet it is the first time the governments unite around the need to transitioning away from fossil fuels.
COP28 marked the conclusion of the first global stocktake
COP28 marked the conclusion of the first global stocktake, the primary mechanism through which progress under the Paris Agreement is assessed. The 2023 NDCs Synthesis Report from the UNFCCC revealed a mere 2% projected reduction in global emissions between 2019 and 2030 — far below the 43% needed to limit global warming to 1.5˚C. The UN Environmental Programme’s Emissions Gap Report 2023 further highlighted the disparity, with current NDCs putting us on a path to 2.5˚C to 2.9˚C warming.
The latest Global Carbon Budget shows that 2023 will be another record year for emissions. This report is the world’s leading scientific assessment of CO2 emissions, and it shows that under current emission trajectories the remaining carbon budget for 1.5˚C will last for less than 7 years (under IPCC scenario C1 from AR6).
Source: Global Carbon Budget, University of Exeter, 2023
The science is clear. In its 2022 report, the Intergovernmental Panel on Climate Change (IPCC) explored thousands of possible climate futures – including those limiting warming to 1.5C, both with and without a temporary temperature “overshoot”. The IPCC figure below illustrates the future changes in the energy system under seven illustrative pathways through this century. It shows the total energy supply (black line) and the split between renewables (blue shading), biomass (pale blues), fossil fuels (red) and nuclear (orange). In the three most ambitious illustrative pathways (IMP-SP, IMP-LD and IMP-Ren) – which match the category of limiting warming to 1.5C with a likelihood of more than 50% with no or limited overshoot – the contribution of fossil fuels declines steadily and decisively through the entire century [1] .A decisive phase-down of fossil fuels as an energy source is absolutely necessary based on the available technology and given the immense ongoing social cost.
Source: IPCC, Sixth Assessment Report, AR6, 2022
The Core Issue: Fossil Fuels Insufficient Commitments
As the IPCC states, the energy supply in all three shows a de-facto “phase-out of fossil fuels”. The long-awaited COP28 text from the presidency avoided the terms “phase out” or “phase down”, which have been key sources of contention at this conference.
The contested text (paragraphs 28-b and d) goes as follows: “(b)Accelerating efforts towards the phase-down of unabated coal power; (d)Transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science;”
The language is unclear on whether just thermal coal is included and fossil fuels are mentioned only in reference to energy systems without the explicit call for reducing both their consumption and production. This is not enough and lacks clarity. The only positive is that, in the text before these paragraphs 1.5˚C target and 2050 as a timeline are clearly stated.
Moreover, concerning is the acknowledgement in paragraph 31 that states: “ (…) findings of the NDC synthesis report that GHG emission levels in 2030 are projected to be 5.3 per cent lower than in 2019 (…)”. Again, according to the IPCC scenario, C1 from AR6, to keep in line with 1.5˚C emissions, would have to decrease by 43% by 2030 relative to 2019..
Hence, the vague language falls short of the decisive action required to address climate change. However, this COP will be remembered as no previous COP text had explicitly mentioned transitioning away from fossil fuels, the foundation of the global economy for decades.
Although the outcome did not fully meet some countries’ expectations, governments clearly indicated the global agenda for the energy transition. Hitherto, besides the text caveats of the first global stock take ratified text, there have been some developments in the right direction.
The Positive Outcome: Energy Transition is Unstoppable
COP28 presidency launched the Global Decarbonization Accelerator (GDA), a series of landmark initiatives designed to speed up the energy transition and drastically reduce global emissions.
Source: COP28, Global Decarbonisation Accelerator Factsheet, 2023
Global Renewables and Energy Efficiency Pledge: more than 120 governments committed to tripling renewable energy production and doubling energy efficiency improvements by 2030. A target to triple global renewable energy capacity by 2030, aiming to increase capacity to at least 11,000 gigawatts, a 20% increase over current projections. This goal aligns with the Paris Climate Accord’s objectives but presents significant challenges. First, this is just a pledge and not a hard commitment. Second, according to Reuters, the renewable energy sector faces supply shortages, labour shortages, and spiralling project costs. Achieving this target necessitates a doubling of investment in renewables to over $1.2 trillion annually by 2030.
In all of this, another notable initiative of the GDA includes the Oil and Gas Decarbonization Charter which see 50 oil & gas companies aiming to eliminate methane emissions and routine flaring by 2030, targeting net-zero for scope 1 and 2 emissions but excluding scope 3 emissions (which account for around 85% of fossil fuel producers’ emissions).
New Strategic Direction
Despite its shortcomings, COP28 did include for the first time reference some broader issues, including food systems and health. Moreover, climate finance and carbon markets took the stage as well. Some notable outcomes in these areas show a clear trajectory.
Climate Finance: Establishing the Loss and Damage Fund and the ALTÉRRA investment fund signals a growing focus on climate finance. However, the size and mobilization mechanisms of these funds remain voluntary. For example, the UAE announced a US$30b investment via Alterra alongside BlackRock, TPG, and Brookfield. The fund aims to mobilize US$250b globally by 2030. This said, according to an Alterra statement, out of the US$30b investment, US$25b will steer institutional capital towards climate investments and serve as an anchor investor and co-investor whereas only US$5b will provide risk mitigation capital to catalyse additional investment flows. Thus, a soft blended finance structure is in place.
Food & Agriculture: More than 150 countries (including US and China), accounting for 70% of global food production, signed the Emirates Declaration on Sustainable Agriculture, Resilient Food Systems and Climate Action. It’s the first-time nations have committed to adapting their food systems to limit climate change during a COP, including setting targets within their NDCs and national adaptation plans (NAPs) by 2025.
Health: COP28 also staged its first Health Day, when more than 120 countries signed the UAE Climate and Health Declaration to “place health at the heart of climate action” and support the development of climate resilient, sustainable and equitable health systems. The announcement comes as annual deaths from polluted air hit almost 9 million, heat-related illness and death on the rise, and as 189 million people are exposed to extreme weather-related events each year.
Carbon Markets: The UN Supervisory Board of the Article 6.4 of the Paris Agreement failed to agree on guidance for international cooperation on carbon crediting. Nevertheless, the major independent crediting programmes announced a collaboration to increase the impact of activities under their standards. The voluntary carbon market has been lacking a supervisory body for too long and UN level regulation for the Voluntary Carbon Markets (VCM). Despite these efforts remain to be seen how these initiatives will effectively address the issues around transparency, permanence, double counting and additionality to infuse trust into the market.
Conclusion: Embracing the Inevitable Transition
Before COP28 started, Sultan al-Jaber, the UAE Minister of
Industry and the head of the UAE national oil company ADNOC, and president-designate
of COP28 outlined in his letter
to the parties the need for making finance more available, affordable, and
accessible. Featured prominently was the need to “radically scale up climate
financing” by “delivering on old promises” and “setting the framework” for new
finance.
The letter mentioned private capital in the following
passage: “We need to enable the formation and deployment of new private capital
to help countries take a path of private sector and technology-led growth that
is consistent with the Paris Agreement. To accelerate progress, we need to reform
and harmonize regulatory systems, including agreeing on definitions for
transition finance and disclosure of climate-related data, and unlock voluntary
carbon markets.”
COP28 did not fully deliver on the most important promise
(fossil fuel phase-out agreement), but it has brought to the attention of
investors the reality that the global energy transition needs a systemic
approach, and it’s not a question of ‘if’, it’s just a matter of ‘how soon’. Whether
we are witnessing the start of the decline of the fossil fuel era hinges on
subsequent actions and the financial mobilisation needed to realise these
goals. The energy transition remains the investment opportunity of the century.
Moreover, topics such as food and agriculture, health and voluntary carbon markets
are increasingly becoming central in the climate policy debate and, thus, for
climate finance.
