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New Energy World
New Energy World embraces the whole energy industry as it connects and converges to address the decarbonisation challenge. It covers progress being made across the industry, from the dynamics under way to reduce emissions in oil and gas, through improvements to the efficiency of energy conversion and use, to cutting-edge initiatives in renewable and low carbon technologies.
The UN's annual Conference of the Parties (COP28) will take place in the United Arab Emirates (UAE) in November and December. Rachel Kyte CMG HonFEI, Dean Emerita of The Fletcher School at Tufts, a director of the Private Infrastructure Development Group (PIDG), an advisor to private, public and philanthropic capital on climate transitions, and a member of the G20 Independent Expert Group on multilateral development bank reform, presents her thoughts.
For most of 2023, discussions around COP28 have focused on the selection of a petrostate as host and an energy executive, Dr Sultan Al Jaber, as COP President-elect. But these choices beg a more important question for the UAE – with the COP President deeply engaged in both fossil fuel and renewable energy, can the UAE be the leader that brings together the energy world in a way that pushes forward the energy transition?
In September, the UN published a Global Stocktake (GST) and a synthesis report. A mandate of the Paris Agreement, the GST is the first scheduled, periodic assessment of progress. While energy transitions are underway, the GST is transparent that we are not on track. And a principal conclusion is that we must phase out all unabated fossil fuels and end exploration by 2030. This explicit conclusion on fossil fuel phase-out and findings that we must treble renewable energy and double energy efficiency by 2030 means that the UAE must deliver an ambitious energy package at COP28.
What could a Dubai energy package look like?
While it's not in the power of the COP28 presidency to manage global economic policy, the President can urge member states for policy coherence in support of climate goals. Two issues need high-level political attention to gain traction. It is time to put some political heft behind the phase-out of fossil fuel subsidies. And it's time to push forward effective carbon pricing.
Why now? For three reasons:
- The IMF has reported that fossil fuel subsidies soared to $7tn in 2022, surging because of energy price spikes following Russia's invasion of Ukraine and the economic slowdown following COVID. That's $13.3mn a minute.
- Since the invasion, the fossil fuel industry has benefited from windfall profits.
- The cost-of-living crisis in the West and sluggish global economic growth means new green incentives will not support the speed of transition needed alone. Redirecting harmful subsidies can spur affordable clean energy and investment in energy infrastructure in emerging markets and developing economies.
It is also time for political attention on carbon pricing. Again, the IMF has called for floor prices to spur the transition without undermining competitiveness, and effective pricing drives innovation and investment in clean energy.
The industry needs to be at the table as the energy transition speeds and scales, but in a constructive way. COP28 offers an opportunity for the industry to reset its narrative.
Five critical elements
But beyond using the COP28 Presidency as a bully pulpit, there are five critical elements of a Dubai energy package, hopefully accompanied by an ambitious set of finance commitments.
Firstly, there should be specific commitments to end methane emissions. The Global Methane Pledge of 2021 has broad support but soft teeth. The industry can do more, and quickly, and pledge funds to help developing countries with technical support if necessary.
Secondly, to respond to the GST call for phase-out, industry leaders should commit to numerical targets in a more significant shift in capital allocation towards clean energy, in line with International Energy Agency (IEA) recommendations.
Thirdly, the industry can work with petrostates to redirect a share of their windfall profits to climate action. The IEA estimated that in 2022, the industry's windfall was $4tn. Just 1% is $40bn, and the IEA estimates that the cost of closing the energy access gap is around $30bn. That builds resilience for some of the most vulnerable in the world. This tax or fee has support from some countries, the UN Secretary-General António Guterres, former UK Prime Minister Gordon Brown, and some oil and gas executives. It's time for the UAE to secure a coalition of the working and get it done.
Fourthly, COP28 marks the beginning, not the end, of the UAE's presidency. We can expect announcements on finance and growing renewable energy in addition to the $4.5bn investment package announced at the recent Africa Climate Summit. The UAE should provide a place for the industry to unite to drive action.
Industry climate leadership has focused on listed majors, but the differences between European firms, US firms and leadingnational oil companies (NOCs) have slowed progress. But at the same time, most NOCs still need to meet to discuss managed transitions involving the fossil fuel phase-out. Climate is just one item on the agenda when they convene, whether in Houston or Vienna. The UAE could provide an explicit platform for intensive and comprehensive industry transition.
Finally, COP28 should mark a change in the industry's approach to transparency and trust. How the industry engages with governments, individually and through industry associations, is still far from the behaviour of an industry committed to net zero goals. Past behaviour is a matter for the courts as strategic litigation challenges countries and firms on how they act based on science. But in the future, responsibility for a change in behaviour lies in the boardroom.
The industry needs to be at the table as the energy transition speeds and scales, but in a constructive way. COP28 offers an opportunity for the industry to reset its narrative. The science is clear. The stocktake is clear. The UAE understands the industry's challenges. In COP28's energy package, industry leaders should commit to specific, measurable, urgent and ambitious targets, signalling a different engagement from companies whose transition will make the difference between smooth success and expensive dislocation for the countries and communities they serve, their shareholders and employees.
The question to the COP President-elect and the ruling family behind him is: If not now, then when; and if not you, then who?
The views and opinions expressed in this article are strictly those of the author only and are not necessarily given or endorsed by or on behalf of the Energy Institute.