COP28 reaction: A ‘shuffle’ rather than a step forward

COP28 has been beset with controversy since it was first announced that the international gathering to consider reducing fossil fuels was to be hosted in the heartland of fossil fuel production.

Yet, after days of wrangling, the conference did produce the first ever agreement to transition “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 agreement signals the beginning of the end of the fossil fuel industry – a major win for climate purists,” according to Ehsan Khoman, Director at MUFG. “This is the first time that debate surrounding oil and gas has made it into the final agreement.”

However, he goes on to say that the agreement’s language of “transitioning away” rather than “phasing down/out” of fossil fuels “is a concession to hydrocarbon producers, as it puts the onus on the consumer through the demand-side of the equation”. He adds: “We see these outcomes as better than feared, but less than needed.”

Susanne Marttila, ESG officer at KGAL agrees. “Dubai’s summit president, Sultan al-Jaber, calls the COP28 agreement a ‘historic package to accelerate climate action’, but a closer look at the text reveals a typical COP compromise and only a small step forward for climate protection,” she says.

Rebecca Craddock-Taylor, director of sustainable investment at Gresham House, says the inclusion of a “transition away” from fossil fuels “remains a step forward”, but she points out that “130 states wanted the agreement to go much further, including a commitment to phase out fossil fuels”.

She says: “This step forward is more like a shuffle forward and only represents a mere recognition that continuing to burn fossil fuels may be a problem. It remains insignificant and already loopholes are being identified that will allow the continued use and development of fossil fuels.”

In Khoman’s view, “the most crucial part of the agreement was a dimension that has perhaps been overlooked – the 2030 date of tripling renewable energy capacity globally and doubling the global average annual rate of energy efficiency improvements”. He says: “Notwithstanding qualifiers, this has the potential to spark the electrification of the global economy.”

Nakul Zaveri, partner and co-head of climate investment strategy at LeapFrog Investments, says: “COP28 hopefully marks the start of green investment wave for emerging markets. The rapid pace of climate change is increasing the urgency of investors to find solutions and back companies which are supporting green growth.”

But Zaveri also points to the scale of the challenge. “Around $330bn a year, or $3.3trn by 2030, is needed to deliver a green transition across energy, mobility, agriculture and built environment in growth markets. Current investments account for about 5% of this annual total, leaving a significant funding gap and investment opportunity.”

Simon Montague, director of corporate affairs at the Global Infrastructure Investor Association, welcome moves to bridge that gap by harnessing private capital. “It is encouraging to witness the mobilisation of private finance at COP28 through numerous announcements – notably, the commitment of $5bn in public and private financing as unveiled at the Business & Philanthropy Forum, which signifies a pivotal shift towards integrating private capital in climate action.”

Montague adds: “This, along with the establishment of a climate finance think tank and international agreements for private capital collaboration, demonstrates a progressive and collaborative approach with private investors towards addressing climate challenges.”

Just transition commitment. What next?

The inclusion of a commitment to a “just transition” was also crucial to development investors who have long been calling for it. Amal-Lee Amin, managing director and head of climate, diversity and advisory at the UK’s development finance institution British International Investment (BII), says: “The world must now ensure that the transition is inclusive, and that climate finance is significantly increased to achieve a just energy transition for low-income countries and communities.”

BII will be focused on delivering renewable energy as well as the necessary grid infrastructure in Africa through Gridworks, a platform that it set up to develop and invest in transmission, distribution and off-grid electricity across the continent.

Martilla says: “The concrete results of COP28 are rather disappointing, but that was to be expected.” Nevertheless, she remains optimistic. “Recent data on the growth of renewable energy shows that no matter how much resistance there is from climate-damaging industries, the trend towards clean energy can no longer be stopped – it can only be delayed. It is up to society, the economies and the financial industry to keep up the pace.”

So, what happens next? A lot according to Craddock-Taylor: “2023 is the highest emissions on record, but to minimise the effects of climate change, emissions have to reduce by 43% in just six years. It is unlikely that this agreement is going to help us get anywhere near this level of emission reductions. The next key date will be 2025 when countries have to come back with their next [nationally determined contributions].”