COP28: clean energy gets shot in the arm as 60 countries embrace renewables deal

Proposals to triple renewable energy in the next ten years are backed by more than 60 countries, including the EU, US and COP28-host United Arab Emirates, it has emerged.

The deal, which aims to replace the use of coal with clean energy sources, and thereby tripling the use of renewable energy, was introduced by the EU and US and comes just weeks before the COP28 climate summit is kicking off in the UAE.

A leaked draft text states that ramping up the use of renewables must be accompanied by "the phase down of unabated coal power." A vital element is ending the financing of new coal-fired power plants, according to the deal.

Moreover, the text includes a commitment to double energy efficiency efforts worldwide, to 4% per year until 2030.

Worldwide support

Importantly, a number of fast-growing, emerging countries which currently depend heavily on fossil fuels, including Nigeria, South Africa and Vietnam, have agreed to support the accord, multiple sources have told Reuters.

Other countries on board include Australia, Japan, Canada, Peru, Chile, Zambia and Barbados.

The agreement will now be made part of official agenda of COP28, which is taking place from 30 November to 12 December in Dubai. 

The EU and US reportedly plan to urge COP28 host and other participants to include the deal in the final outcome of the gathering of world leaders, scheduled for 2 December.

So far, China and India have not yet agreed to support the goals as text out in the text but "negotiations are quite advanced," a source told Reuters.

Investment impact

While the deal could signify a potential breakthrough for renewables funding, countries have not yet specified whether they intend to fund the increase of their renewables capacity through public or private investments. 

While the US and the EU have taken on significant additional lending to fund the green energy transition, countries across the globe now face a sharp rise in government borrowing costs which could set back the scope for additional public sector borrowing. In turn, this could lead to greater reliance on private sector investments, an approach taken among others by the UK government. 

Institutional investors will closely consider any additional policy incentives for investing in renewables as shares in renewables firms have seen a sharp downturn over the past year. 

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COP28

The deal comes to some observers as somewhat of a surprise, as earlier it was reported that the COP28 host, the UAE, planned to avoid tabling a range of sensitive net zero-related issues, most notably fossil fuel burning.

In a document that was welcomed by some in the oil and gas industry, the UAE government compiled "a comprehensive list of touchy and sensitive issues" that should not be brought up during the conference.

The paper, leaked in August, sets out "strategic messages" from the UAE government, to be used in media requests, which ranges from increased oil and gas production by the UAE and fossil fuel burning to the war in Yemen and human trafficking.

A key COP28 message in the document stated that “we need to reduce emissions in the systems we depend on today." A statement which has been denounced by a former UN climate chief as “dangerous” - namely by merely focussing on emissions, rather than the burning of fossil fuels.

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Climate finance and the ability to get private investors to free up more funds for clean energy and other net zero investment initiatives will be a key item, the organisers have indicated.

Some experts have argued that risk-sharing strategies, which blend public and private funds, may make institutional investors more willing to embrace climate projects.

Others, on the other hand, are pushing hard to expand the role of dedicated funds, such as the Green Climate Fund, to increase the flow of capital into the green finance space.

Another topic the investment community and other stakeholders will look out for is multilateral bank reform.

The COP28 presidency is expected to present proposals that will “unleash more concessional dollars, lower risk, and attract more private finance for vulnerable communities.”

Similar ideas were floated last year with the Bridgetown Initiative, which put forward a plan for richer countries and the private sector to provide more money to MDBs.

Meanwhile, watchdogs worldwide have started to make greenwashing a priority and the expectation is this topic will be further discussed at COP28.

The European Union leads the pack in this respect, as it recently implemented the Sustainable Finance Disclosure Regulation, in March. The new regulation aims to enhance transparency of so-called green investing.

In addition, World Bank President Ajay Banga recently endorsed carbon credit offsets and stated boldly that the World Bank could serve as an arbiter for their validity.

Another agenda item many look out for is the sensitive topic of subsidies and the protection of domestic markets.

A number of green investors, primarily from Scandinavia and Japan, have urged governments at COP28 to make a commitment to end all forms of support, including subsidies and international finance, for oil, gas, and coal developments.

However, with many governments, notably those of the largest markets in Europe and North America, keeping fairly quiet on this subject, it is extremely unlikely a breakthrough will be reached.

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