What does the
COP 28 agreement to transition away from fossil fuels actually mean? Well,
that depends on who is asked. The rule is non-binding so it likely won’t be
enforced, even though some, like Carbon Tracker founder Mark Campanale, think
new coal and oil & gas projects will face lawsuits. Among anti-fossil fuel
activists, many are putting forth the same tired old arguments. Anti-fossil fuel
activist and climate scientist Michael Mann thinks developing countries should
“leapfrog” from inadequate energy to clean energy. Biden climate envoy John
Kerry has said the same in the past. Stanford anti-fossil fuel academic and
atmospheric physicist Mark Jacobson, like many others, is saying that fossil
fuel companies want to capture carbon and reduce their emissions by other means
as well just to stay in business. Of course, this is true. Why would any
business not want to stay profitable and relevant? Basically, their argument is
that by not actively oppressing or banning fossil fuel projects they are able to
maintain their profitability. Others often say that clean energy solutions to
replace them are readily available at an acceptable price. The market generally
disagrees, even with increased subsidization. The market favors profitability
and fossil fuels are more profitable than clean energy. Fossil fuels are also
more versatile so replacing them is not easy and includes not only clean energy
generation but storage and transmission upgrades, both at significant and
expensive levels.
Since wind,
solar, and other low-carbon energy sources have yet to fully supply demand
growth, they have yet to even begin to ‘replace’ fossil fuels. Instead, they
are covering most of the demand growth. But, since global energy use is still growing,
that means fossil fuel use is also still growing. When renewables take over
that demand growth, they begin to replace fossil fuels.
The clean
energy sector has been facing sustained financial pressure from inflation with projects
being canceled and metrics like levelized costs of electricity rising. Supply
chain issues continue to slow down solar and wind deployment. Transmission and
storage inadequacies also continue to slow deployment. Capacity auction terms,
capacity payments, and other issues can favor or disfavor renewables. Most now,
I believe, do favor renewables. Capacity payments favor baseload energy sources
and storage. The point is that variable generation renewables are accommodated
as much as possible onto power grids, while full integration takes time, money,
more transmission more storage, and more demand response from fossil sources.
COP28 Results
Despite the
failure to fully condemn fossil fuels, it seems that most are viewing the results
of COP28 positively. The non-binding statement on transitioning away from fossil
fuels is seen by many as a triumph, but by some as a mere aspiration. Oil &
gas guru Daniel Yergin often referred to IEA goals as aspirational. Obviously, many
net-zero goals are indeed aspirational. Are global carbon emissions peaking?
The data suggest they pretty much are, but it is unknown when they will begin
to drop. They could plateau for a while. Forecasts for the peaking of fossil
fuel use generally range from 2030-2040. Optimists say 2030. Realists suggest
2035 or later.
Over 100,000
people attended COP28 and there were more fossil lobbyists than usual. They were
still far outnumbered by climate activists. Indeed, the increasing attendance of
fossil fuel companies and the venue in the UAE presided over by a leader of a
state oil company was cause for complaint by many activists. However, it is the
Big Oil companies that now have significant renewable energy ventures, methane emission
reduction protocols, and carbon capture and storage projects. They are among
the biggest private funders of decarbonization.
The statement
called for “transitioning 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”. Wood MacKenzie reported that “With
the window closing fast, the focus in international negotiations is
increasingly shifting to emphasise adaptation to climate change. But the “UAE
consensus” is a signal that the pressure to shift the global energy system away
from fossil fuels will continue.” I think it is good that adaptation is
being given more emphasis. They also noted that while a phase-out of unabated
fossil fuels by 2050 is possible, it will require consistently doubling energy demand
growth with renewables. We have yet to meet demand growth with renewables, let
alone double it.
Another goal
from COP28 is to triple renewables deployment by 2030. That may be feasible since renewables deployment was quadrupled from 2015-2023. Dropping inflation, better
supply chain management, and increased transmission and other infrastructure would
help. Will we be able to meet energy transition metals demand after 2030?
WoodMac suggests that it depends on how fast we decarbonize.
Focus on nature-based
solutions for carbon offsetting continues to grow as a way for nations to
contribute to emissions reduction. Unfortunately, carbon offsetting can be difficult to quantify and verify and
has been disputed by auditors in the past.
Focus on adaptation is good. A $725 million
Loss and Damage Fund, launched at COP27, has now been financed to help affected
countries but many say that won’t be enough.
A voluntary commitment
to achieve net-zero emissions by 2050 was agreed by oil & gas majors with
goals to eliminate routine flaring and reduce methane emissions. According to
WoodMac:
“The Oil and Gas Decarbonisation Charter (OGDC) is a
voluntary commitment to net-zero oil and gas operations by 2050. It was signed
initially by fifty leading companies:27 NOCs, 17 Independents, and six out of
seven Majors. Chevron, the only Major without a comprehensive corporate
net-zero target, opted out. The signatories pledged to eliminate routine
flaring and deliver near-zero methane emissions by the end of the decade.”
I would still caution that any mandates for emissions
reductions need to be achievable and not overly expensive. There is room, I
think, for some reasonable mandates, but I think voluntary reductions should be
emphasized.
EQT CEO Toby
Rice delivered his steady message of unleashing LNG, particularly U.S. LNG, to
reduce emissions relative to coal. This has been the best means to decarbonize
in terms of actual emissions and this should continue and grow.
Utility Dive summarizes
other features of the COP28 document as follows:
“The document also calls for countries to adopt other
decarbonization strategies to better mitigate climate risk. The agreement
includes recommendations of phasing down unabated coal power; phasing out
inefficient fossil fuel subsidies; ramping up production of zero- and
low-emission technologies like carbon capture and storage; and switching over
to zero- and low-carbon fuels.”
Fossil fuel companies and groups like OPEC helped to
derail any binding agreement that would “hinder the continued production and
use of oil, gas and coal, urging them to “proactively reject any text or
formula that targets energy i.e. fossil fuels rather than emissions.”
Unlike climate
activists, I believe that these meetings will be more realistic and have more
legitimacy when more fossil fuel companies and groups are included. Fossil fuel
abatement will clearly be a big part of emissions reduction going forward as
will carbon offsetting, reforestation, slowing deforestation, and renewables
deployment.
References:
COP28 key takeaways:
The challenges in accelerating the energy transition. Wood MacKenzie. December 14,
2023. COP28
key takeaways | | Wood Mackenzie
Landmark COP28
agreement calls for ‘transitioning away’ from fossil fuels. Zoya Mirza. Utility
Dive. December 13, 2023. Landmark
COP28 agreement calls for ‘transitioning away’ from fossil fuels | Utility Dive
OPEC head urges
members to reject fossil fuel phase out proposal at COP28. Zoya Mirza. Utility
Dive. December 11, 2023. OPEC
head urges members to reject fossil fuel phase out proposal at COP28 | ESG Dive
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