Fossil fuel phaseout discussions heat up at COP28
While COP28 president and oil baron Jaber stirs controversy, investors hope that some kind of phaseout deal is still within reach
Even though burning coal, oil and gas is the main cause of global warming, the Paris Agreement makes no mention of fossil fuels
However, there is still a chance that COP28 delivers some form of agreement on phasing out fossil fuels: even one with low ambition will be historic.
Despite increasing pressure, climate conferences have so far failed to agree on a suitable path to phaseout fossil fuels.
More than 100 countries already support a phaseout of “unabated” fossil fuels – those where the resultant emissions are not captured – and whether the final COP28 agreement calls for this or uses weaker language such as “phasedown” is a contentious issue at the summit.
Former US vice-president Al Gore said a commitment to phase out fossil fuels would be COP28’s only measure of success.
“This may turn out to be the surprise of COP28,” said Lucian Peppelenbos, climate & biodiversity strategist at Robeco. “If anyone can broker a deal, it's going to be an insider.”
The summit is presided by Dr. Al Jaber, who is CEO of the Abu Dhabi National Oil Company. However, Jaber has already come under fire for claiming there is “no science out there, or no scenario out there, that says that the phaseout of fossil fuel is what’s going to achieve 1.5C”.
Forced to defend himself, he later softened his position, saying “the phasedown and phaseout of fossil fuel is inevitable. In fact, it is essential”.
“If anything, judge us on what we will deliver at the end [of Cop28],” he added.
Peppelenbos added that the hosts have been convening discussions with countries as well as companies to come up with a statement on phasing out emissions from fossil fuel use.
“While not as good as a goal of phasing out production of fossil fuels, by itself such statement would already be historic, as it gets fossil fuels into the language of the Paris Agreement,” he added.
Efforts to get fossil fuels into the texts of the COP26 agreements at Glasgow two years ago failed due to resistance and vested interests.
A bad outcome of COP28 would entail kicking the “phaseout” can down the road to the next COP.
Fossil fuel subsidies
Finding ways to reduce fossil fuel subsidies while increasing support for clean energy is an important part of the phaseout debate.
The all-time high of $7 trillion of fossil fuel subsidies in 2022 tends to be seen as a response to the energy crisis.
However, some worry that this ostensibly short-term trend is morphing into a long-term strategy.
“What concerns me is that this short term reaction is being used to move into a long to medium term strategy to not address this issue,” said Faith Ward, chief responsible investment officer at Brunel Pension Partnership. “Whether we phasedown or phaseout fossil fuels, it’s not going to happen unless we get the policy framework right.”
As a member of the Investor Agenda – a global alliance that advocates for clear and consistent climate policymaking – Ward argued that the market needs some “very, very clear signals” from policymakers to make the transition happen.
Making moves to ween economies off fossil fuels – not making them cheaper via subsidies – in one such signal, as is setting a carbon price. Another is bolstering comprehensive and "systems-wide" support for renewables.
From an investment perspective, policy shapes the decisions made by investors and by companies on where they allocate and where they do not allocate capital.
Public policy also shapes the terms on which capital is allocated, including factors such as the cost of capital, the risk premia that are applied, the security or collateral that is needed, the duration of the investment, and the target returns.
Progress is more difficult when governments continue to “faff about” with fossil fuels, Ward added.
Oil and gas overproduction
While the science is clear, and some progress has been made, policy at the global level continues to point in the wrong direction.
This is especially obvious when one considers that governments plan to produce twice as much fossil fuels in 2030 as is consistent with 1.5C, according to a new report from Climate Analytics.
Broken down, that comes to 29% too much oil, 82% too much gas, and 460% too much coal.
To limit warning to 1.5C, coal needs to phaseout by 2040, and oil and gas needs to fall by at least 75% by 2050.
“Phaseouts are not going anywhere near fast enough,” said Claire Fyson, co-head of the Climate Policy Team at Climate Analytics. “The significant production pipeline for new coal and gas is especially worrying.”
However, Fyson also said that there was glimmer of hope that China could hit peak emissions in 2024, and peak coal in 2025 while global emissions could peak as soon as 2023, according to International Energy Agency data.
Accelerating the phaseout requires governments to “stop propping up fossil fuel industries”.
A messy geopolitical puzzle
One major factor that weakens government’s climate policymaking is the fact that fossil fuel subsidies are popular, especially at times of high energy prices.
There is also a significant difference between the capacity of the Global North and the Global South to manage the transition. In many emerging markets, for example, coal remains the cheapest energy source.
“Phasing out fossil fuels is deeply political, it’s about power, and vested interests,” said Tasneem Essop, executive director at Climate Action Network International. “If we don’t craft a political strategy to shift the current Dynamic, then we won’t achieve it.”
That political strategy has to be big on “justice” in order to win the hearts and minds of people from diverse backgrounds, addressing not only the physical science of climate change but also the human science of poverty, inequality, access to energy, and, in the global south, the colonial legacy.