The 28th Conference of the Parties to the United Nations Framework Convention on Climate Change (“COP28”) recently concluded in Dubai on December 13th, 2023. Unique to this year’s conference was the inclusion of a Global Stocktake, intended to reflect on global progress towards climate goals set forth in the 2016 Paris Agreement. Parties acknowledged that while collective progress has been made towards limiting global temperature increases since the 2016 Agreement (current projections now forecast a decrease in the range of 2.1–2.8°C versus a previously modeled 4°C increase), the world is falling short of proposed pathways for meeting the end goal of limiting global temperature increases to 1.5° Celsius1.
Throughout the two-week conference, negotiators leveraged several scientific publications, particularly research from the Intergovernmental Panel on Climate Change’s (“IPCC”) Climate Change Synthesis Report, to inform suggestions. The IPCC’s findings indicate that human activity has “unequivocally”2 caused global warming and suggest that global greenhouse gas emissions should be cut 43% by 2030 (relative to 2019 levels), 60% by 2035 (relative to 2019 levels), and reach net zero by 2050 to limit global warming to 1.5°C1.
While the consistency of the conclusions around climate change challenges was expected, the more substantial question coming out of COP28 continues to be the extent to which there will be concerted action taken to achieve these aims. To that end, there was agreement on actions needed to minimize human impact on this planet3, including:
- Renewable Energy & Energy Efficiency: The final agreement called for a need to triple the world’s installed renewable energy capacity to at least 11,000 GW by 2030. Further, the agreement calls for a doubling of the global average annual rate of energy efficiency improvements from around 2% to over 4% every year until 20301.
- Methane Commitment: The decision recognizes the adverse effects of inefficient oil and gas operations, such as venting and flaring, underscoring the agreement to reduce methane emissions by 20301.
- Fossil Fuels: The agreement to “transition away from fossil fuels” made headlines as it marked the first explicit reference to the industry's direct contributions to climate change. The agreement calls for a transition that is just, orderly, and equitable. Additionally, it suggests a phase out of inefficient fossil fuel subsidies that do not address energy poverty or just transitions1.
- Push to prove out zero/low carbon technologies: Agreements to accelerate zero/low emissions technologies, such as hydrogen and nuclear, were mentioned. As investors look for innovative technologies to support the climate commitments of hard to abate sectors, these technologies may be at the forefront of the energy transition1.
Other notable agreements to come out of the 14-day conference that support progress towards Stocktake goals include:
- Oil and Gas Decarbonization Charter: 50 companies, representing 40% of global oil production, signed on to the charter, committing to net zero operations by 2050 at the latest, ending routine flaring by 2030, and near-zero upstream methane emissions4.
- Declaration to Triple Nuclear Energy: More than 20 countries from 4 continents launched the declaration, with the goal of tripling nuclear energy capacity globally by 20505.
- Climate Finance Goals: The agreement set a ‘new collective quantified goal on climate finance’ in 2024, considering the needs and priorities of developing countries. The new goal, which will start from a baseline of USD 100 billion per year, is intended to be a building block for the design and subsequent implementation of national climate plans that need to be delivered by 20251.
Implications for the Private Sector
COP28 leaders cited the need to invest $5–7 trillion annually to “green” the global economy by 2030 and achieve collective climate goals6. Private sector investment will be critical in advancing all pledges, such as the tripling of renewable energy by 2030 or the doubling of energy efficiency improvements. The clean energy industry has seen elevated levels of private investment over the past few years, and this trend is expected to continue in the long term, despite short-term macroeconomic shifts, as governments and businesses aim to meet climate goals and capitalize on advancements in the sector.
Despite COP28’s calls for fossil fuel use reductions, global demand for liquid fuels is expected to remain constant (and possibly grow) through 20507. Natural gas is expected to play a particularly critical role in the energy transition, as it is a less carbon intensive alternative to coal, and demand for this fuel may be quite sticky as a consequence. There are benefits to the traction that natural gas has found displacing coal - the market-driven shift from coal to natural gas in the United States resulted in an estimated reduction of 532 million metric tons in CO2 emissions from 2005 – 2022, which is the equivalent of more than 10% of 2021 US greenhouse gas emissions8. This trend is likely to continue as the agreement highlighted a global need to accelerate efforts to phase down unabated coal power. Continued investment in oil and natural gas will be needed to maintain current production levels over the upcoming decades.
Nuclear power remains comparatively underutilized relative to the broad deployment of renewables alternatives such as solar and wind. Cost, safety, and spent fuel storage remain key barriers for expanded deployment. While aspirational, the Declaration to Triple Nuclear Energy should serve as a tailwind3 for businesses across the supply chain in the medium to long-term and could serve as a catalyst for policy change globally.
It is clear a shift in the market is necessary to galvanize climate investment on a scale commensurate with COP28 aspirations. It remains to be seen how individual businesses and governments will translate these pledges into action resulting in tangible outcomes. Investors should anticipate increased funding directed towards COP28 initiatives, reshaping investment strategies for nations, corporations, and stakeholders alike as the international community strives to fulfill the objectives of the Paris Agreement in the years to come.
- https://unfccc.int/sites/default/files/resource/cma2023_L17_adv.pdf
- https://www.ipcc.ch/report/ar6/syr/downloads/report/IPCC_AR6_SYR_LongerReport.pdf
- Not indicative of all actions published
- https://unfccc.int/sites/default/files/resource/Summary_GCA_COP28.pdf
- https://www.energy.gov/articles/cop28-countries-launch-declaration-triple-nuclear-energy-capacity-2050-recognizing-key
- https://www.cop28.com/en/climate_finance_framework
- EIA, International Energy Outlook (2023)
- https://www.mckinsey.com/industries/electric-power-and-natural-gas/our-insights/the-role-of-natural-gas-in-the-move-to-cleaner-more-reliable-power
