COP28 key takeaways

There’s more than one measure of success. Our team was there and witnessed an organisational triumph. The sheer scale of COP28 signalled an event of global interest – over 100,000 attended, bigger than this year’s Burning Man music festival, compared with about 10,000 at Kyoto in 1997. And it was inclusive – virtually every country and interest group on the planet was represented.

COPs are about achieving consensus, so disagreements are always part of the game. Where COP28 has proved exceptional is in reaching a consensus at all with wars raging in Ukraine and Gaza, and blocs and countries with such diverse agendas as the Middle Eastern nations, China, the US, the EU, the UK, South Korea, Japan and many others. Everyone stayed in the room to work things through. It hasn’t solved all the problems, no COP does; COP29 in Azerbaijan can continue the progress made over the last 20 years.

The big news from the conference was that the concluding statement called for “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”. Some countries said the statement did not go far enough. But it is still a significant moment: the first time the governments of the world have agreed on a goal to reduce consumption of oil, gas and coal.

The global stocktake that concluded at Dubai was a reality check. No major country is on track to achieve emissions reductions to meet the Paris goal of limiting global warning to well below 2 °C. With the window closing fast, the focus in international negotiations is increasingly shifting to emphasise adaptation to climate change. But the “UAE consensus” is a signal that the pressure to shift the global energy system away from fossil fuels will continue.

Here are our team’s initial thoughts.

Pressure mounting on fossil fuels

The wording of the statement was tightened in the final round of negotiations to include an agreement to transition away from all fossil fuels – oil, gas, and coal. The COP28 presidency came under intense pressure from some developed countries and from vulnerable nations to strengthen the language on fossil fuels, in the face of opposition from leading oil and gas producers. The direction of travel is clear, with the calling out of oil and gas for the first time a step towards phasing out unabated fossil fuels. This debate will be a hot topic again at COP29.

The commitment to triple renewables capacity, and statements in support of hydrogen, nuclear power, carbon capture and storage (CCS), and demand-side technologies (including road transport) also reflect the momentum building towards a low-carbon energy system.

Implications: A phase-out of unabated fossil fuels by 2050 may be achievable. But it will require building low-carbon supply at twice the rate of energy demand growth and a rapid acceleration of CCS. Though governments recognise the urgency, slow progress in recent years reflects the difficulty of attracting investment. A potential shift in the US back to a Republican administration in the 2024 election could swing the balance of priorities from low-carbon supply towards fossil fuels.  

The final text specifically calls out the role of “transitional fuels” in facilitating the transition to lower-carbon technologies while ensuring energy security. Good news for natural gas, which can play a role in balancing intermittent renewables while the next generation of dispatchable technologies such as hydrogen power and new nuclear capacity ramps up in the 2030s.  

Solar and wind capacity already increased four-fold since 2015; tripling from today’s level by 2030 is achievable (and broadly in line with WoodMac’s net zero scenario) but extremely challenging. It also must be supported by rapid expansion of grid infrastructure. Long lead times present a major challenge to the necessary build-out of hydro, geothermal and bioenergy by 2030.

The scale of renewables build-out will put enormous pressure on the supply of metals and critical minerals. The supply gap by 2030 is wide enough in our base case forecast and is likely to be unbridgeable at the much faster rates of demand growth in a scenario aimed at net zero by 2050.

Finance

The agreement included US$725 million of financing for the Loss and Damage Fund, launched at COP27 in Egypt. It was an important symbolic success, but a tiny amount relative to the scale of the problem.

The final text acknowledges the gap in climate finance and the growing needs of developing countries. The ‘New Collective Quantified Goal,’ intended to replace the present, insufficient US$100 billion a year from governments, needs to be decided on at COP29, the Finance COP. One of the objectives will be to crowd-in private financing.

Implications: We struggle to see how the finance for mitigation and adaptation efforts, which may cost US$4 trillion to US$5 trillion a year, can be made available quickly at affordable cost. The current increases in renewables development costs due to the higher cost of capital and supply chain bottlenecks are amplifying the challenge.

Global institutions can help. The World Bank and the IMF maintain the special drawing rights (SDRs) that can be allocated to climate mitigation and adaptation projects. The IMF could use the same approach as during the peak of the Covid pandemic, when it released US$650 billion to developing countries.

Implementing a global carbon price is also an option, which would help create a level playing field to shift capital away from fossil fuel projects and accelerate the deployment of low-carbon technologies. Otherwise, these lofty climate goals will unlikely move the needle on emissions reduction.

Nature-based solutions

A headline breakthrough was on nature protection with around US$2.7 billion in finance. Multilateral banks committed to principles for nature-positive finance and pledged US$100 billion by 2027. A “mangrove craze” resulted in several bilateral initiatives. Many countries expanded the scope of their nationally determined contributions –70% now include oceans and blue carbon).

Implications: Is this enough? Earlier in the week, a UN report said that US$7 trillion is spent a year to destroy nature – that’s 30 times the amount spent on nature-based solutions.

Carbon markets

No agreement has been reached on the implementation of Article 6.4 of the Paris Agreement, which is a big disappointment for international carbon markets. Article 6.4 was supposed to provide clarity on whether carbon market exchanges should count towards national emissions reduction goals, and what types of credits should be allowed.

Implications: There is mounting scepticism on whether the Article 6 mechanism will ever bring the requisite guidance and higher standards to the market.

Methane

The Oil and Gas Decarbonisation Charter (OGDC) is a voluntary commitment to net zero oil and gas operations by 2050. It was signed initially by 50 leading companies: 27 NOCs, 17 Independents and six out of seven Majors. Chevron, the only Major without a comprehensive corporate net zero target, opted out. The signatories pledged to eliminate routine flaring and deliver near-zero methane emissions by the end of the decade.

Implications: Positive message, broad scope, modest impact. To have a tangible impact the OGDC needs to significantly expand its membership to cover an even larger share of oil and gas emissions, commit to deeper and more rapid emissions cuts, and expand its scope to become the central, unifying oil and gas decarbonisation initiative.

Thanks to: Prakash Sharma and David Brown (Energy Transition), Elena Belletti (Carbon Research), Ed Crooks (Vice Chair Americas), Chris Seiple (Vice Chair P&R), Steve Knell (Consulting P&R), Robin Griffin and Nick Pickens (Metals), Luke Lewandowski (P&R Research)

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