'A critical inflection point in moving away from using fossil fuels': What COP28 means for issuers

It has been a year of further record-breaking temperatures and extreme weather events which have reached every corner of the world.

These climate-induced disasters are causing frequent and intense economic damages that are disproportionally affecting emerging markets and developing economies relative to developed markets – despite the fact they have caused little of that damage. Many countries that have experienced flooding, droughts and wildfires do not have the financial resources to cope with the damage and destruction these extreme weather events cause.

The latest UN Conference on Climate Change (COP28) began with a historic agreement on a loss and damage fund to help developing countries cope with the effects of climate change. 'Loss and damage' refers to the irreversible costs of extreme weather such as sea level rise, ocean acidification and glaciers melting caused by an increasing global temperature.

Several countries have pledged money to the fund, including the United Arab Emirates, Germany, and the United States and initial contributions of around $700 mn were pledged. There was no commitment made to increase levels of funding and many were surprised at the US contribution figure of $17.5 mn, considering the country is the largest contributor to cumulative greenhouse gas emissions. The total pledged is equivalent to less than 0.2 percent of the irreversible losses developing nations face from climate disasters each year - so a drop in the water in terms of the estimated costs.

While the fund is a promising step forward to address the loss and damage issues, it needs to be viewed as an obligation as part of a wider set of solutions rather than an optional charitable donation. The bills for damage related to extreme weather events will continue to rise if we do not invest into adaption and mitigation. The details in the first global stock take are also an important factor to consider for these regions.

After a controversial first draft of a global climate agreement caught much media attention, nearly every country in the world agreed to ‘transition away from fossil fuels’ – which are the main driver of climate change – at the climate summit. It is the first time such an agreement has been reached in 28 years of international climate negotiations and is being regarded as one of the biggest ‘wins’ from COP in 2023.

While the COP Presidency has succeeded in declaring for the first time that the burning of fossil fuels is at the heart of the climate crisis, however, many are disappointed with the language used and state that it fails to send a clear message about the relentless pace of the energy transition.

While the usage of the words 'phase out', 'phase down' and ‘transition’ of coal in the document received significant attention, there were less headlines surrounding what actually lies beyond those words in the text and what that means for the bigger picture. While the final agreement is a positive move, it does leave room for continued expansion of fossil fuels.

The agreement proposes eight steps to keep the global temperature rise within the limit of 1.5 degrees. It calls for tripling renewable energy capacity globally and doubling the global average annual rate of energy efficiency improvements by 2030. It also includes substantially reducing non-CO2 emissions, including methane emissions globally by 2030.

Another significant declaration at COP committed to tripling global renewable power capacity by 2030 which is a crucial step in reducing carbon emissions. Interestingly, China has emerged as a leader in nuclear power expansion plans to install between six and eight reactors annually. The country has added over 30 nuclear reactors in the past decade making it a major player in the global nuclear energy landscape.

While nuclear is considered controversial by some, it plays a vital role as a backup for renewable energies like wind and solar and it plays a key role in tackling the threat that intermittency poses to the security of the power grid. It was announced that the first ever nuclear energy summit will be held in March 2024 in Brussels to highlight the role of nuclear in addressing the global challenges to reduce the use of fossil fuels and improve global energy security.

While the irony of thousands of people flying huge distances from all over the world to attend a conference to solve a climate crisis is not lost on me, this year’s COP was a critical inflection point in moving away from using fossil fuels. While the ‘doing’ happens outside of COP, it is an important event that encourages collaboration, negotiations and commitments that keep us on track for our global net zero goals.