COP28: New deals and evasive tactics

COP28 was the biggest to date. It was held at the end of a year when the effects of climate change were undeniable and presented a clear and evident danger. The decision to host the conference in the UAE and to appoint Sultan Ahmed Al Jaber, the head of the state’s major oil company, as COP president had left many dumbfounded. However, Mr Al Jaber promised that COP28 would be an inclusive conference and result in all-party assurances. It ended with a landmark but compromise deal that has divided opinion – some have welcomed the first direct call out of fossil fuels, although others have lamented a lack of specificity and funding commitments.

COP26 president Alok Sharma famously fought back tears as he apologised about a small but significant change of wording in the Glasgow summit’s closing deal in 2021. China and India had insisted that the commitment to the “phase-out” of coal power be diluted to “phase-down”.

The distinction between these two forms of words – “phase-out” and “phase-down” – has become central to the broader debate about the future of fossil fuels. The argument around “abated” and “unabated” fossil fuels has become similarly charged.

COP28 saw that war of words escalate. António Guterres, secretary-general of the UN, made his position clear, calling for the total phase-out of fossil fuels: “Not reduce. Not abate. Phase out.” Former US vice-president Al Gore insisted: “There is only one measure of success for COP28: will it include a commitment to phase out fossil fuels or not.”

Meanwhile, Mr Al Jaber, head of the UAE’s state-owned oil company, ADNOC, was reported to have questioned whether a phase-out of fossil fuels was essential to limiting the global temperature rise to 1.5°C. At a press conference during COP28, he insisted that his remarks had been misrepresented and that “the phase-down and the phase-out of fossil fuel is inevitable”. John Kerry, the US special presidential envoy for climate, seemed to add to the dilution lexicon, with his remark that the US “largely” supported a phase-out of fossil fuels.

Other attempts to reframe the language around the fate of fossil fuels gained traction at COP28. Colombia joined a growing alliance of countries calling for a fossil-fuel non-proliferation treaty. The country’s president, Gustavo Petro, argued that the treaty was essential to prevent the “omnicide of the world, of planet Earth”. There was at least consensus and minimal editing at the conference on the need to triple renewable energy capacity to 11 terawatts (TW) by 2030.

Ultimately, the conference’s final agreement dodged the phase-out or phase-down decision, with almost 200 countries agreeing to “transition away” from fossil fuels. This obvious fudge received a mixed response but it was, at least, the first COP agreement that explicitly called for a shift away from fossil fuels.

EY View:

“Critics of the COP28 outcome may say it doesn’t go far enough, or that the words used may even leave the door open for the expansion of emissions-intensive fossil fuels for some nations, but the fact this is the first time they’ve explicitly been cited in the text means, to quote Simon Stiell, the UNFCCC executive secretary, that this outcome ‘is the beginning of the end’ for fossil fuels.

“Alongside this, the commitments by 120 countries to triple renewable electricity capacity and double energy efficiency by 2030 was an early, important, win. The series of action-orientated declarations now present governments and business with significant to-do lists, not to mention investment requirements for them to be achieved.

“Against a backdrop of economic and geopolitical headwinds, the menu of options to drive the transition away from fossil fuels before 2030 included nuclear and hydrogen. Needed reforms of current subsidies were called out, but alongside support for transition fuels – i.e. gas, or other low-carbon fuels, to help bridge the gap for countries where the transition challenge of energy security and affordability is very real. This continues to highlight the competing challenges of matching ambition with the right policy, infrastructure and political environment.”

Matthew J. Bell, EY Global Climate Change and Sustainability Services Leader

Mr Al Jaber had sought to make climate finance a key focus of COP28, and the conference started with an early win: the establishment of a fund for “loss and damage” was agreed at the opening session.

There had been lobbying for such a fund, to compensate developing nations for the adverse impact of climate change, for over three decades. And developed nations have finally agreed to start paying up. The fund will be managed by the World Bank, which has said that it could be ready to start dispersing finance by next year. There will not be all that much to manage, however. The US$700m pledged to the fund so far covers less than 0.2% of what is needed.

There have been efforts to accelerate the uptake of new climate instruments. For instance, development banks will soon be launching a "debt-for-nature" swap task-force to scale up schemes that will allow developing countries to swap debt for commitments to protect vital ecosystems.

There was also some progress on energy transition financing. Singapore’s central bank, for instance, announced two pilot “transition credit” projects, which will mean the early retirement of two coal power plants in Asia.

EY View:

“Finance is the critical anchor in negotiations and several early announcements at COP, including Loss & Damage, mobilized finance toward decarbonization efforts at unprecedented rates. In the first week of COP28 $83bn was pledged toward climate action, although the final text crucially noted the growing gaps in climate finance for developing nations. Crucially a large proportion of the new finance is designed to scale up private finance even further. There were new climate instruments and blended finance opportunities announced, such as the UAE’s US$30bn ALTERRA Climate Fund and US$22.6bn committed by multinational development banks. Debt for nature swaps were another mechanism featured, joining up mitigation, adaptation and climate finance objectives by enabling countries to write off debt in return for protecting nature and the environment. Increasingly finance is also being targeted at Emerging Markets and Developed Economies (EMDEs).  This is crucial – not just in the context of closing the financing gap, but also, as the scale of finance provided to the Global South for mitigation and adaptation activities grows, the burden later down the line for ‘loss and damage’ will reduce.”

Gill Lofts, EY Global Financial Services Sustainable Finance Leader

Food systems – which account for over a third of global greenhouse gas emissions – were finally on the table at COP28. More than 130 heads of state endorsed the Agriculture and Food Declaration, a first step in ensuring that food system interventions are incorporated into climate policy action. This means that food and land use targets will feature in the Nationally Determined Contributions (NDCs) and National Adaptation Plans (NAPs) that are set to be updated in 2025. Just four countries assessed in Economist Impact’s 2021 Food Sustainability Index, for instance, prioritise agriculture in their NDCs.

Changing the ways in which our food is produced, as well as the way in which many higher-income countries consume food, can play a critical role in efforts to limit global warming to 1.5°C. Assessments by Climate Action Tracker found that changing farming practices could reduce CO₂ emissions by 0.6 GtCO₂e/year, and combining this with a shift away from dairy- and beef-heavy diets could result in reductions of 3 GtCO₂e/year.

EY View:

“The UAE Agriculture and Food Declaration was signed by 77% of national governments, accounting for 73% of the food we eat, and 78% of emissions linked to food systems. Achieving the ambition will be no small feat, but its inclusion demonstrates the shift toward balancing action for mitigation and adaptation, and the interconnection of climate action with nature. Land use is a new frontier, with competing forces including feeding growing populations, demand for non-food crops, and requirements to reduce or change land use. On the sidelines, a new First Movers Coalition model for food systems aggregating a US$10bn-20bn demand for sustainably produced, low-emission and nature-positive agri-food commodities by 2030, demonstrated the potential for new solutions and markets that respond to transition demands.”

Matthew J. Bell, EY Global Climate Change and Sustainability Services Leader

Around 2,400 oil and gas representatives attended COP28, four times the number present at COP27. COP28 president Mr Al Jaber prioritised “inclusivity”, insisting that engagement with the fossil-fuel industry is critical to meeting climate change targets.

The decision to host COP28 in the UAE has raised difficult questions about how to include oil-rich countries and the fossil-fuel industry in negotiations around the energy transition. Al Gore is now pushing for reforms to the COP decision-making process so that petrostates can no longer veto COP agreements.

The debate about whether and how the fossil-fuel industry has a hand in the design of its own demise is only going to grow more heated.

EY View:

“The COP28 presidency made a strong feature of inclusion of the energy sector in the talks building up to the summit and the spotlight remained on oil and gas throughout. Agreement by 50 oil and gas companies to reduce methane emissions and eliminate routine flaring by 2030 was also important, as part of the wider Oil and Gas Decarbonization Charter. Although it is non-binding, signatories must submit plans by 2025, and a fund will be established for methane abatement projects.

“For the energy sector more broadly, while EY analysis showed that renewable energy is changing at a faster pace than anticipated, there is not one energy transition, but multiple transitions unfolding across different regions. This progress on renewables is not fast enough to substitute fossil energy sources, however, and therefore won’t keep global warming to the 1.5°C target. This makes it necessary to put in place accelerators for change in generation, infrastructure and consumption including carbon pricing, technology and regulation, if we have any hope of shifting from old to new energy.”

Matthew J. Bell, EY Global Climate Change and Sustainability Services Leader

The debut global stocktake is an effort to accurately gauge how near or far we are from meeting targets set under the Paris agreement and was designed to underpin negotiations at COP28. It is not going well and we did not need the GST, as it is tagged, to tell us that. The UN’s latest Emissions Gap Report shows that current policies put us on track for a 2.8°C temperature rise by the end of the century, and countries are off track in meeting their NDCs. The Adaptation Gap Report revealed that the current adaptation financing gap is now estimated at US$194bn-366bn per year, while adaptation efforts seem to be plateauing. The State of Climate Action 2023 report found that just one of the 42 indicators of sectoral climate action is on track to be met: electric vehicle sales.

The one positive is that the GST will be a critical tool and benchmark for developing future climate action plans. If you want to go from x to y, you need have a granular understanding of x. And the GST gives us something close to that.

EY View:

“In the context of the global stocktake gap, action and delivery will be the real measure of the success of COP28, not the number of declarations achieved. Climate change is impacting us now. No business or person is immune, and the issues are as wide-ranging as they are complex. On adaptation, it’s estimated the gap for developing countries on adaptation alone is US$215bn-387bn annually up to 2030, requiring not just acceleration of funding, but new types of financing mechanisms too.

“Progress on a just transition challenges society and business on gender-inclusive policymaking, decent work, human rights and health. Given the scale and speed required in investment, technology solutions, research and development, as well as skills transformation, how governments engage with business and finance to shape not just ambitious but credible NDCs to 2035 is a crucial question for 2024. The long-term measure of success must be an economy that thrives within the planetary boundaries, with opportunities for prosperity for all.”

Amy Brachio, EY Global Vice Chair, Sustainability