As COP28, the global high-profile climate gathering under the leadership of COP28 President Sultan Al Jaber, comes to a close, the level of success has exceeded expectations. In a historic move, the final agreement of COP28 includes a commitment to transition away from fossil fuels, leaving no room for anything but optimism. Despite initial skepticism from international media, who questioned the choice of Dubai as the host country due to its association with oil, the appointment of ADNOC leader Sultan Al Jaber as COP28 President has proven to be a wise decision.
COP28 will make its mark in history books as the "return of realism COP," shifting away from unrealistic strategies that dominated previous COPs. The expected division between the Global North and South was absent, thanks to Al Jaber's political acumen. Al Jaber and his team brokered an agreement urging countries to transition their energy systems away from fossil fuels in a just and orderly manner. This inclusion allowed critics and skeptics to sign the deal. Al Jaber's political prowess brought the USA, the European Union, Arab oil producers, and OPEC+ members, including Saudi Arabia, to the table.
The main outcome of COP28 signifies a new realism in global politics and economics. Al Jaber emphasized, "Together we have confronted the realities and set the world in the right direction." While some proponents of climate change may feel that the outcome is not sufficient, it is important to recognize the significance of including the "phase-out" of fossil fuels. This marks the first time a COP agreement explicitly mentions moving away from oil and gas, the primary fuel of the global economy.
Power Politics in Climate Change Negotiations
The true impact of COP28 will become evident in the coming months. Following the diplomatic negotiations and power struggles among Western, Arab, and Asian powers, as well as the Global South led by African countries, concrete actions must be implemented and voted upon. Investors, industries, consumers, and national governments must follow through on the commitments that have been made. These include tripling renewable energy production by 2030, further phasing out hydrocarbon fuels, and securing the necessary trillions of US dollars for the Loss and Damage Fund.
When we examine previous COPs, particularly the high-profile COP held in Glasgow, it becomes clear that much work remains. The Glasgow COP, which focused on reducing coal consumption, serves as a stark reminder of significant setbacks and failures. Over the past two years, global coal consumption and mining have substantially increased, without any sign of reaching a true tipping point. Despite numerous declarations of coal's demise, we must avoid repeating the same mistake with other fossil fuels.
As Al Jaber stated, "An agreement is only as good as its implementation. We are what we do, not what we say." The current agreement is a significant step forward, but reality needs to align with the ideas being presented. The global energy system is predominantly based on hydrocarbons until 2050 in all scenarios, making it difficult to be overly optimistic. COP28 participants have agreed to major renewable energy projects, committing to triple the deployment of renewable power and double the rate of efficiency gains by 2030. To mitigate the impact on the Global South, a Loss and Damage Fund has been established, which is a significant step forward in assisting developing countries in battling climate change.
The Outcome of COP28: A Long List of Agreements and Financial Funds
The outcome of COP28 has, as expected, resulted in a long list of new agreements, including the establishment of new financial funds, global alliances, and sub-sector agreements. However, the main emphasis for the global energy sectors should be on the intricate push to reduce reliance on fossil fuels. The inclusion of a phase-out (or transition) is seen as a sign on the wall by climate scientists, climate advisors, and NGOs. These groups already claim that the "end of oil or fossil is near," but the reality is quite the opposite.
The evidence suggests that both "King Oil" and "King Fossil Fuel" are still very much alive and thriving, without any hint of illness. The COP28 language lacked clarity on transitioning away from fossil fuels and did not provide a specific timeline. However, since all parties, including oil and gas producers, agreed to reduce fossil fuel usage or emissions, it should prompt investors and institutional investors to reassess their strategies and risk assessments. Nevertheless, it will not force a reduction in fossil fuel investments.
As previously suggested, the challenge for the success of COP28 lies in implementing the agreement. Al Jaber emphasized the importance of actions over words, stating "We are what we do, not what we say," and there is certainly a risk that each party may interpret and incorporate their own ideas and strategies into the implementation process. The final text of COP28, influenced by pressure from OPEC and African producers, mentions a transition approach instead of a phase-out. It calls on signatories to move away from fossil fuels without specifying a firm deadline or schedule. Simon Stiell, Executive Secretary of the UNFCCC, stated that the outcome in Dubai marks the beginning of the end of the fossil fuel era, but the reality may be more complex.
One Major Step Forward: Commitments Made to Fund Climate Action
The recent talks have resulted in significant progress, with commitments of over $85 billion dedicated to funding climate action. The main plans aim to limit temperature rises to 1.5C and include addressing emissions, bridging the gap on adaption, reimagining global finance, and delivering on loss and damage.
The UAE has emphasized the importance of mobilizing financing for success. This is evident in the launch of Alterra, which has received an initial investment of $30 billion and aims to mobilize $250 billion. However, the current financial commitments made by global parties are only scratching the surface, as the cost of energy transition and global warming prevention measures are much higher.
In addition to financial commitments, several other agreements have been signed. The Global Decarbonization Accelerator (GDA) aims to triple renewables to at least 11,000 GW. Another significant development is the Oil and Gas Decarbonization Charter (OGDC), which commits to zero methane emissions and ending routine flaring by 2030. The OGDC, established by 52 major oil and gas companies, represents over 40% of global oil production and commits to net zero operations by 2050. Reducing methane emissions is a clear win-win situation. Methane emissions pose a greater danger than carbon dioxide emissions, making their reduction a crucial goal. Moreover, the capture of methane presents a commercially attractive opportunity.
The Complexity of Climate Change Phrases and the Impact of Fossil Fuel Subsidies
Climate experts and NGOs have primarily focused on key phrases related to addressing climate change, such as a "phase down" (not out) of unabated coal and the phasing out of subsidies for fossil fuels. These phrases are included in the COP28 text, which calls on developing countries to take the lead in these efforts. However, the text is not entirely clear or straightforward. Regarding the removal of subsidies, the text acknowledges the phrase "that do not address energy poverty or just transitions," which allows for interpretation.
The ongoing global debate on the push against fossil fuel subsidies, which amount to trillions of US dollars per year, is important to note. Most subsidies for fossil fuels, particularly natural gas, serve a dual purpose by lowering energy costs for industries and large consumers, thus keeping consumer products affordable. Removing all the so-called "fossil fuel subsidies," which are not direct subsidies in the traditional sense, could significantly increase overall consumer costs and harm society.
The Role of Emerging Polluters and the Need for Inclusive Climate Action
The real elephant in the room, however, has once again not been addressed. Although there has been significant attention given to fossil fuels, subsidies, financing, and the potential transition away from hydrocarbons, the discussion about new major polluters or emitters has been lacking.
The previous discussion on the division between the Global North and Global South, often portrayed as a conflict between the West and the rest of the world (ROW), has failed to acknowledge the current and future leaders in emissions. While historically, the West or OECD region has been responsible for the majority of emissions, there are now emerging players that far surpass the USA and Europe. Unfortunately, the role of China, India, Russia, and other countries has not been given due attention in recent discussions.
The commitment and implementation of the Paris Agreement by these Asian countries are crucial for the success of the energy transition policies of the OECD. While the world has been focused on the statements made by OPEC leaders and hydrocarbon producers, the real determining factor lies in the hands of the Asian nations. The exponential growth of hydrocarbon fuels, particularly coal, in countries like China, quickly undermines any perceived positive effects of global initiatives, such as the European Green Deal.
Even the global greens, NGOs, and environmentalists have not fully addressed the main issue. The reactions from the Greens regarding COP28 have been disappointing, with some claiming it has "failed profoundly" by not committing to a phase-out of fossil fuels. However, COP28 has exceeded expectations by including a transition away from fossil fuels in the final text. This is commendable considering the pressure from OPEC (+) and countries like Saudi Arabia to focus solely on cutting carbon. There are still loopholes to address and ambitious, economy-wide emissions reduction targets that cover all greenhouse gases need to be implemented. COP28 also recognizes the importance of including all parties, not just the Global/Rich North, but also considering the challenges and future of the Global South.
The Importance of Transitional Fuels and Hydrocarbon Production in Global Energy Transition
The UAE Consensus, also known as the COP28 final agreement, is expected to be recognized as a significant accomplishment. One key aspect of the agreement is the inclusion of actions to transition away from fossil fuels in energy systems. This transition is intended to be just, orderly, and equitable, with the goal of achieving net zero emissions by 2050. While this inclusion may be subject to discussion, it also serves as a foundation for cooperation.
The recognition of "transitional fuels, such as natural gas," is highly important for most Global South parties as it plays a crucial role in their near and mid-term economic development options. To achieve a feasible and rational situation, as well as consensus among all parties, a combination of tripling global renewable energy by 2030 and continuing or accelerating the development of low-emission technologies like nuclear power, green hydrogen, or CCS is necessary.
Hydrocarbon production plays a vital role for oil and gas producers, as well as emerging countries. It not only ensures a stable energy supply and security but also generates the necessary revenue to support economic growth, diversification, and ultimately, energy transition or low-carbon industrial development. Without the commercialization of natural resources, economic development and potential energy transition will not be viable options. This is particularly crucial for Africa, the Middle East, vast parts of Asia, and Latin America.
Global energy demand is expected to increase due to population growth, industrialization, mining, and electrification. Achieving the ambitious goal of tripling renewable energy capacity poses significant challenges, especially in the supply chain. While the market may have the necessary funds, supply chain issues present substantial obstacles. Insufficient mining, manufacturing, and maritime transport capacity can lead to delays in implementing renewable energy plans. Moreover, geopolitical factors, geo-economics, or third-party interference can further hinder progress.
A Positive Outcome from All Sides for the MENA Region
From a purely Arab perspective, regardless of the energy transition that is to be implemented, or even if there are delays due to internal or external factors, there is a win-win situation on the horizon for the MENA region.
The ongoing national and regional energy transition projects, such as the solar and wind projects in Saudi Arabia, UAE, and Egypt, are ready to jumpstart a new chapter. Additionally, there are growing investments in green hydrogen and green ammonia in Arab Gulf countries, Egypt, and others. The combination of conventional and renewable energy sources will be the basis for diversifying their economies and building a sustainable foundation for economic growth.
The outcome of COP28, as presented by Sultan Al Jaber and supported by the UAE government, is a major step forward in the existing renewable energy strategy of the Emirates and is aligned with its neighboring countries. Rather than pushing for a complete phase-out of fossil fuels, Arab countries, along with their Global South counterparts, can continue to benefit from producing hydrocarbons for global markets, not just as fuel but also as products.
It is important to note that completely phasing out fossil fuels would have significant consequences, as it would not only affect the oil and gas industry, but would also impact sectors like plastics, fertilizers, supply chains, and various products. To maintain the current supply levels of 100 million bpd (barrels per day), it would be necessary to discover an additional 7 million bpd production field every year. However, this is currently not feasible with renewables alone.
A Needed Transition to Fossil Fuel-Free Energy Systems
To achieve the goal of increasing or tripling renewable power generation by 2030, it is important to acknowledge that the demand for oil and gas will continue to rise. The construction, manufacturing, and transportation industries heavily rely on hydrocarbon-based products, including vessels and mining operations. While the realism of COP28 may not be crystal clear, the need for a transition towards fossil fuel-free energy systems is undeniable. This transition is crucial for the environment and to end the unsustainable use of finite resources as fuel.
Hydrocarbons should no longer be used as fuels, but a viable alternative energy system on a scale comparable to the current oil-gas-coal mix is necessary. Until such a system is in place, the MENA region will continue to play a significant role in the current energy discussion. Additionally, by investing prudently in current hydrocarbon windfalls, MENA countries and sovereign wealth funds can pave the way for a new OPEC format called OGEEC (Organization of Green Energy Exporting Countries).
Over the coming decades, OPEC and OGEEC will work together to establish the Middle East as the true kings of energy. MENA sovereign wealth funds and mining giants, like Maaden, are already making global investments in mines and concessions. The combination of hydrocarbons, renewables, and mining has the potential to dwarf the power position of the current OPEC powers.
