Philippe Van Loock holds a Master's degree in Applied Economics (Katholieke Universiteit Leuven). He also holds the Belgian ABAF-BVFA Financial Analyst accreditation and is a certified European Financial Analyst (CEFA). After his studies, Philippe gained 20 years of experience at a large Belgian Private Bank as Financial Analyst and more recently as Portfolio Manager of an impact fund. Philippe joined Econopolis Wealth Management on April 1st, 2022.
Climate Crossroads: Navigating the Challenges and Opportunities of COP28
COP 28
After a year marked by extreme weather events and numerous broken climate records, COP28 is in full swing. Delegates from nearly 200 countries are convening in Dubai, with an unprecedented attendance expected to reach around 70,000. This gathering will see the evaluation of numerous new pledges, projects, and initiatives. However, as this COP represents the midpoint between the 2015 Paris Agreement and the year 2030, a key focus will be assessing how current efforts measure up against the pledges made eight years ago. In this Long Read, we aim to provide insights into the topics that are likely to receive the most attention during COP28. But what exactly is COP?
Conference of the Parties (COP)
The Conference of the Parties, commonly known as COP, is an annual meeting where member states of the United Nations gather to review progress in addressing climate change. These meetings are key to formulating and advancing global climate action strategies within the framework of the United Nations Framework Convention on Climate Change (UNFCCC). The term 'COP' specifically refers to the Conference of the Parties of the UNFCCC.
The host country rotates on a geographical basis. The first COP was held in Berlin in 1995. Last year’s COP27 was held in Sharm El Sheikh, Egypt and this year’s COP28 is being held in Dubai, United Arab Emirates from November 30th till December 12th under the presidency of Sultan Al Jaber, who happens to be also the CEO of the Abu Dhabi National Oil Company. The latter of course brings the necessary controversy, questioning whether the CEO of a large oil conglomerate can be an honest broker of such an important climate deal.
The Paris Agreement is working
When the historic Paris Agreement was inked at the end of COP21 in 2015, all its signatories voluntarily pledged to reduce greenhouse gas emissions and outlined those commitments in what was called a NDC (Nationally Determined Contribution). Many doubted however that these NDCs, being voluntary, would be enough to combat climate change.
COP28 will mark the first time we will get a real picture, a global stocktake, of where the world stands in terms of tackling the climate problem.
Although sobering news is expected from the COP28 meeting, the situation is not entirely bleak. Everybody knows by now that preliminary data indicates we are lagging in meeting the goals set out in the Paris Agreement. According to the UN Intergovernmental Panel on Climate Change (IPCC), we are currently heading for over two degrees of global warming. However, when we look back, we see that the Paris Agreement has inspired significant progress in global mitigation and adaptation action and support. The projected temperature rise by 2100 has gone down from 3.7 to 4.8°C in 2010 to 2.4 to 2.6 °C in 2022 forecasts, thanks to existing promises. It could even hit 1.7 to 2.1 °C if long-term net zero goals are fully implemented.[1]
Further to go
In order to get on track for the internationally agreed target of 1.5°C, 22 billion tonnes of CO2 must be cut from the currently projected total in 2030, a UN Environment Program (UNEP) report said. That is 42% of global emissions and equivalent to the output of the world’s five worst polluters: China, US, India, Russia and Japan.
The goal of the global stocktake is to develop a comprehensive plan that outlines the steps countries must take to achieve the 1.5°C target. It will then be the responsibility of governments to translate this global plan into national policies and targets, which they are required to submit to the U.N. by 2025. Despite the intentions, few believe that strong, bold actions will be taken but more effort and concrete action can be expected from energy transition plans.
Political momentum is strong
One of the primary goals of COP28, as strongly emphasized by its presidency, is to triple the global renewable energy capacity to 11,000 Gigawatt (GW) by 2030. A GW is one billion watts, and is comparable with the power generated by 2.469 million photovoltaic (PV) panels or 310 utility-scale wind turbines.
The objective of tripling renewable energy capacity by 2030 has already garnered significant political support, as evidenced by the commitment of G20 members to this aim in the 2023 G20 New Delhi Leaders' Declaration. Moreover, a market value of more than USD 12 trillion is represented among the more than 250 non-state actors that have signed an open letter endorsing this objective.[2] However not all countries are onboard yet.
“Phase out or phase down”
China and India are not yet fully onboard. Some nations, including the European Union, might also still respond negatively. These nations want to build upon the momentum gathered at COP27, wishing to combine their commitment to increase renewable energy with the phase out of fossil fuels. Others would rather scale up technologies such as carbon capture to reduce their climate effect. So whether the final text may call for a phase out or a phase down of unabated fossil fuels might have a significant impact on the energy sector.
In each case the International Energy Agency’s (IEA) research has demonstrated that the objective of tripling global renewable energy capacity is attainable and crucial for ensuring a more secure future.
Renewables are cheap
In recent years, the world has seen a profound shift in the cost-competitiveness of renewable energy, which is now cheaper than any other form of power generation in virtually every market and geography—even before externalized costs of energy are taken into account. Globally, the levelized cost of electricity from solar projects fell 85% between 2010 and 2020. Investment in clean energy has risen 40% since 2020, with more than USD 1 billion per day being spent on solar deployment.
Renewables seeing increased deployment
The widespread adoption, accessibility, and maturation of renewable energy sources and energy storage technologies demonstrate their significant cost reductions and commitment to sustainable energy and domestic energy security. Between 2022 and 2023, there was a significant 19% increase in wind and solar generation. This growth rate is in line with the ambitious goal of tripling capacity by 2030, as reported by the Ember Global Electricity Review 2023. In 2023, energy storage installation reached its highest point ever. This upward trajectory is expected to continue, with total installed capacity projected to reach 650GW by 2030.
To achieve the desired 1.5°C target, a substantial boost in renewable investments is required. By 2030, we need to double the amount of investments we witnessed in 2022 (approximately 500 billion euros)[3]. We must prioritize investments in solar, wind, and hydro energy sources, as well as allocate significant resources to improving the grid infrastructure. Additionally, we must continue to expand our storage installation capabilities to meet the growing demand.
Nuclear got a moral boost
In addition to solar, wind and hydro, focus was also put on nuclear at the COP28 climate summit.
There are currently approximately 420 nuclear reactors worldwide that generate electricity. However, roughly 200 of the mentioned working reactors are planned to be decommissioned before 2050. In addition, there are about sixty commercial reactors currently being built in 17 different countries, with China accounting for over one-third of this total.
Due to significant expenses in constructing reactors, challenges with obtaining permits, and widespread public opposition, nuclear power capacity has remained stagnant in many Western countries.
However, at the COP28 climate summit, the global nuclear industry received a significant boost as over 20 nations pledged to triple their capacity by 2050.
The declaration emphasized the importance of countries mobilizing investment and encouraging financial institutions to support nuclear power. It also pledged to enhance the longevity of current plants and embrace new technologies such as nuclear fusion but also small modular reactors.
Currently, there are approximately 80 small modular reactor (SMR) models in development. However, the majority of these projects are facing significant challenges and may not progress further. In the United States, for example, NuScale was the only company to have its SMR design approved by the U.S. Nuclear Regulatory Commission, but they have halted their project.
It is evident that achieving the goal of tripling nuclear capacity will necessitate the industry to overcome numerous hurdles, financing obstacles, fuel bottlenecks, and public safety concerns.
Difference in speed worldwide
Despite being one of the largest emitters in the world, China has pledged that its CO2 emissions will peak before 2030. The country’s target of net zero by 2060 is likely to be achieved a decade earlier than previously assumed, and perhaps earlier than in Europe. The International Energy Agency says China accounts for 60% of all new solar and wind power being installed across the world this year and next. The China Electricity Council gives as an example that China will add 210 GW of solar this year, twice the entire solar capacity installed in the US to date. From a climate perspective this is important and should be applauded, but geopolitical tensions are building around the impact of the strong value chain that China has build in its bet on clean-tech dominance.
Just transition and the climate damage fund
The difference in speed certainly comes to the fore when looking at the impact of emissions on developing countries.
During COP27, countries made already the significant decision to create and put into action a fund for loss and damage to aid nations that have experienced irreversible harm from climate change consequences including drought, floods, and rising sea levels.
Notably absent from last year's negotiations however were specific discussions regarding the contributors to the fund, the sources of funding, and the countries that will receive the benefits.
According to estimates, adapting to the climate crisis could cost these countries a staggering amount of money annually, ranging from 145-310 billion euros by 2030 and potentially up to 515 billion euros by 2050 if climate change worsens. Given this context, the ability of nations to reach a consensus on how to implement this fund will be a crucial aspect to monitor at COP28.
Today we see that representatives from industrialized and developing nations have tentatively agreed on its design, but it will remain a key point to watch out for in the final text.
Implementation of Article 6
One of the elements that could help fund the above-mentioned fund is the implementation of Article 6.
Let’s take a step back first. In essence Article 6 of the Paris Agreement enables countries and governments to engage in the trading of emission reduction credits, aiding them in achieving their climate targets. The market mechanism that permits governments and businesses to effectively exchange carbon credits is outlined in Article 6.4.
Although the framework of Article 6 of the Paris agreement, was agreed upon during COP26, the progress of negotiations at COP27 has been sluggish, resulting in crucial details being left undefined and subject to interpretation. Ensuring the practical details are in place is a top priority for COP28, as countries and the private sector prepare for the implementation of the Article.
If Article 6 is effectively designed and implemented, it has the potential to efficiently allocate resources to developing countries, enabling them to significantly and fairly reduce greenhouse gas emissions. It has the potential to be a valuable tool in addressing the finance gap and channeling resources to where they are most needed.
Introduction of health in the debate
As COP28 will be the first conference to address the vital link between climate change and global health trends, it will be intriguing to see the outcomes related to this topic. It's important to note that, according to the UN Intergovernmental Panel on Climate Change (IPCC), nearly half of the world's population, approximately 3.5 billion people, live in areas highly vulnerable to climate change. Consequently, reducing greenhouse gas emissions is not only crucial for environmental reasons but also to mitigate the health impacts of global warming.
Conclusion
In conclusion: there are many exciting new deals to look out for, but the devil will probably be in the details.
[1] Source: United Nations synthesis report on the technical dialogue of the first global stocktake, 08/09/2023
[2] Source: https://www.energyconnects.com/news/renewables/2023/september/more-than-250-organisations-call-for-transformative-target-to-triple-renewable-power-capacity-by-2030/
[3] Source: BloombergNEF: Tripling Global Renewables by 2030
About the author
Philippe Van Loock