COP28: finally political will and bravery over protectionism?

As global leaders convene at COP28 in Dubai amidst climate crises and political challenges, hope lies in the recent surge of green technology and renewable capacity, crucial for a successful climate response.

With the increasing impact of climate change visible and severe predictions for the future, global leaders will gather at COP28 in Dubai from 30 November – 12 December. Well-founded concern over the strength of the fossil fuel lobby and protectionist policies between the superpowers might hamper the discussions. However, competition between the superpowers has also recently resulted in the significant expansion of green technology and renewable capacity, providing hope for the transition. Some technical key themes will dictate how successful COP28 will be in meeting the challenges of climate change.

Climate injustice still at the forefront of the discussions impacting geopolitics

For COP28 to make progress it will be crucial for developed countries to build trust by meeting the priorities of emergent nations. These priorities relate to adaptation and climate finance and loss and damages. The Nairobi Declaration from the Africa Climate Summit, in September called developed countries to honour the commitment to provide $100 billion in annual climate finance and to ‘swiftly operationalise the Loss and Damage facility agreed at COP27’ [African Union].

Key targets of the UAE’s Presidency include replenishing the Green Climate Fund and the Adaptation Fund [COP28].

But discussions will move beyond adaptation financing. According to the IMF only $630 billion a year is provided in climate finance globally with only a fraction going to developing countries while the needs of emerging economies are vast [International Monetary Fund, Speech by Deputy Managing Director Bo Li]. The latest Adaptation Gap Report found that global adaption needs are over 50% higher than previously anticipated with a financing gap of US$194 -366 billion a year [Adaptation Fund at COP 28] (with only US$ 21 billion provided in 2021 and estimated costs only piling up due to global warming continuing to worsen).

Although it is feared key issues relating to the Loss and Damage Fund could be hard fought, adaptation and climate finance will also be important in winning support for mitigation from emergent nations. This will, ultimately benefit society at large, as both global warming and supply chain risks can be better mitigated. Finally, it might also create blended finance opportunities, as the fund will integrate both public and private contributions.

Superpowers in sight: competition vs collaboration. How will they position during the conference? Can we expect strong support for the broader renewables industry?

In the lead up to COP28 it seems clear that competition has helped to power the clean energy transition although the same competition, driven by growth and energy security, has not heralded the immediate and meaningful phasedown of fossil fuels, highlighting the crucial need for adaptation finance.

China is the superpower investing most heavily in the transition – aiming to make the world dependent on it for clean energy and technologies. China was the largest green bond issuer in 2023 and is also the world’s largest investor in clean energy. In 2022 it issued green bonds with a total value of US$85 billion in comparison to US$64.4 billion dollars for the US [Statista]. In 2022 the biggest growth in renewable capacity was in China which added 141 GW capacity compared to 57.3 GW increase in Europe and 29.1 GW increase in the US [International Renewable Energy Agency]. Carbon pricing mechanisms are additionally gradually being implemented.

China’s policies do not suggest that it is currently on target to meet the mitigation goals of the Paris Agreement [Climate Action Tracker]. China’s support for fossil fuels continues apace: according to the Global Energy Monitor, the government approved the equivalent of two new coal plants a week in 2022 [Global Energy Monitor]. Analyses suggest China’s fossil fuel emissions are likely to remain at high levels for the rest of the decade [See for example Climate Action Tracker and Brueghel].

China has historically focused on adaptation over mitigation, and with reason: Asia is already the most disaster-prone region and climate change impacts are increasing there [UN]. More adaptation funding is now imperative in China and worldwide – it is estimated that US$77 billion is required by China over the next 5 years to sufficiently address adaptation [World Resources Institute]. There are however huge benefits to adaptation finance: the World Bank have found that every US$1 invested in resilient infrastructure in low- and middle-income countries yields US$4 in net benefits [World Bank].

The US position on the green transition, like China’s, seems pragmatic. The recent meeting of President Biden with President Xi Jinping highlighted that ‘the United States and China are in competition’ [The White House]. As the US Department of Energy states, one of the key goals of the Inflation Reduction Act (IRA) was ‘securing America’s position as a world leader in domestic clean energy manufacturing’ [Energy]. However, unlike China, it will be more difficult for the US to pass significant domestic climate investment legislation in the future, due to likely changes to the political composition of the Senate, linked to the representation of the fossil fuel industry. The recent meeting between the leaders provided some hope, as both underscored the importance of collaboration to counter climate change and to accelerate efforts this decade. Given current tensions, we believe such statements should not be underestimated.

The European Union too seeks to benefit from the transition. The conclusions of the European Council in 2019 after the launch of the European Green Deal were that: ‘the transition to climate neutrality will bring significant opportunities, such as potential for economic growth’ [European Council]. The negative side of such competition is protectionism, which could impact the swift roll out of new technologies. Europe for example has launched an anti-subsidy investigation into electric vehicles from China and whether to impose punitive tariffs, to protect the EU auto sector [European Commission]. Tensions between the EU and US have also been rising due to the so-called outright 'Buy American' provisions of the IRA. These provisions resulted in EU fears of relocation of corporate investments and hampered EU exports due to massive tax breaks and subsidies offered.

Alongside these tensions, the current economic situation for green stocks is difficult. While the momentum for future renewables deployment is still present, many companies have significantly underperformed, primarily offshore wind, largely driven by inflation, interest rates and supply issues. Fossil fuel advocates could exploit this situation to steer the decisions of policymakers to reduce commitments to renewables. However, the World Energy Outlook 2023 highlights major shifts that are underway today, which are set to result in a very different global energy system by the end of the decade. The superpowers clearly intend to ramp-up production, suggesting continued support. The recent statement on ‘Enhancing Cooperation to Address the Climate Crisis’ between China and the US, for example, supported the G20 Declaration to triple renewable capacity by 2030. However, effective policy decisions and incentives, like the action plan for the wind industry announced by the European Commission, are needed to mitigate the adverse impact of the global macroeconomic situation, to bring the sector back on track.

To sum it up, the aim of all the superpowers to be at the forefront of the transition suggests that renewables and green technologies will receive support, although the political situation in the US might impact the government’s ability to do so at scale, hindering its ambitions for more fossil fuel restrictions. This is also true for China, as its quest for growth drives its reliance upon, and investment in, fossil fuels.

Swimming with sharks

If you swim with sharks, make sure you have the appetite of a whale. As the impacts of climate change have been felt more in 2022 and 2023 than ever before there is hope this will spur COP28 to action: to make ambitious climate commitments as opposed to empty pledges. There is, however, concern that the fossil fuel lobby might act to water down climate commitments, focusing on the energy dilemma of security and affordability over sustainability. The Abu Dhabi National Oil Company - of which Sultan Al Jaber, COP28’s President, is head - intends to increase oil production in the coming years. In addition, an analysis by Global Witness found more than six hundred fossil fuel lobbyists at COP27, a rise of more than 25% from the previous year [Global Witness].

The UAE’s Presidency is advocating ‘a pragmatic global energy transition’, where ‘an energy system free of all unabated fossil fuels is inevitable and essential’ [COP28 UAE]. As a result, abatement technology and other tech solutions are likely to figure at COP. As a recent analysis from PwC states: ‘the need for climate technology continues to rise’ and ‘innovation capital in much larger amounts than today’s sums, will therefore be vital for decades to come’ [PWC, State of Climate Tech 2023]. While the fossil fuel lobby is pushing abatement, carbon capture technology is, to date, only proven to capture 90-95% of emissions in certain situations and according to the IEA’s Net Zero Energy Scenario significant cuts in demand for all fossil fuels are still required between 2022 and 2050 [Imperial College London – Grantham Institute]. COP28 will need to continue to focus on the complexity of the energy trilemma, which includes sustainability as a key pillar, and move beyond short termism pushed by the fossil fuel lobby. The discovery, on Monday 27th of November, of the UAE’s plans to use COP28 as an entry point for fossil fuel expansions and collaborations with China, Columbia and Germany, amongst others, justifies these concerns [BBC, Justin Rowlatt, November 27, 2023].

Other key questions: let’s get technical

Geopolitics will be central to the debates, including the key question: whether the ‘phasedown’ of fossil fuels will become a ‘phaseout’ or whether the terms of the debate are being changed. The EU and US have set out their COP28 position for a phaseout but targeting unabated fossil fuels [Submission of the US on the Elements for Consideration of Outputs Component of the First Global Stocktake]. China’s climate envoy however, in September, said that phasing out unabated fossil fuels was ‘unrealistic’ [China Dialogue]. Reaching an agreement might significantly impact societal perception on the success of the COP, while investors and corporates might gain more clarity on the stability of the renewables and carbon capture investment environment.

Decisions on creating a credible global carbon market pushed back from COP27 are to be addressed. This includes the definition, metrics and role of carbon removal. Knowing the rules and methodologies have been agreed on by the Supervisory Board of the UN Framework Convention on Climate Change, they will now be presented for approval. It is likely that any tangible steps to creating a global carbon market should benefit renewables [Carbon Credits] and clear out concerns around removals and reversal risk.

The assessment of progress toward mitigating global warming since the Paris Agreement in 2015 will be presented for the first time, the so-called Global Stocktake. Revised Nationally Determined Contributions led by the Synthesis Report from the First Global Stocktake ending at COP28 will need be published in advance of COP30. Legislation to reach these goals could likely trigger what Global Europe describes as a ‘race’ in promoting climate-friendly investments [Global Europe].

Finally, a latest glimpse on the numbers ahead of the start

Emissions continue to rise according to the World Meteorological Organization, and so does global temperature. We are now at 1.25C, last year’s policies and plans put us on course of a 2.4 to 2.8C global warming trajectory according to the assessment by UN Environmental Program [2022, 2023]. This year it has changed its outlook to a more pessimistic 2.5C to 3C range. As stated above, adaptation needs are estimated at $194-366 billion according to the same institution, while the International Energy Agency (IEA) states we continue to invest over USD$1 trillion a year in fossil fuels.

On the opposite side, the IEA also estimates fossil fuels will peak before 2025 [IEA], with Climate Analytics even estimating a 70% chance of peaking in 2023 [Climate Analytics]. This is mainly driven by the rapid expansion of solar and wind power, next to heat pumps and electric vehicles.

It is clear that sustainable finance will continue to play a key role in the transition.