COP28: Climate talks primed for high-octane finish with fossil fuels in firing line

The 28th UN Climate Change Conference in Dubai has all the ingredients of a blockbuster Hollywood movie.

The event started with a torrent of eye-catching pledges on renewables, methane, nuclear, loss and damage finance, emissions reductions, health, water, nature, clean cooking and more.

Now, after a typical mid-movie dip in action as the protagonists take stock, the climate talks in Dubai are ramping up for the big reveal.

The struggle for including specific language calling for the phaseout or phase down on fossil fuels in the final text of the global stocktake is heating up, with days of drama ahead as COP28 enters its second week.

The outcome is dependent on a huge cast of protagonists and antagonists. And true to form, most observers expect the bargaining to go down to the wire, resulting in the burning of much (hopefully sustainable) midnight oil.

Fossil fuels -- coal, oil and gas -- are the biggest contributors to anthropogenic climate change. Global carbon dioxide emissions from fossil fuels are projected to rise to an all-time high of 36.8 billion mtCO2e in 2023, according to the latest data from the Global Carbon Budget project, making up almost 90% of total CO2 emissions in 2023. The remainder comes from land use, land use change and forestry.

But getting world leaders to agree on a pledge to phase down or phase out fossil fuels has remained elusive after almost 30 years of UN-led climate talks.

Unabated or abated?

One of the key issues being fought over is the term "unabated fossils fuels". The UN's Intergovernmental Panel on Climate Change refers to it as "fossil fuels produced and used without interventions that substantially reduce the amount of greenhouse gases emitted throughout the life-cycle; for example, capturing 90% or more from power plants, or 50-80% of fugitive methane emissions from energy supply."

A revised draft text of the global stocktake released on Dec. 8 now showed five options on the phaseout of fossil fuels compared to three earlier in the week.

Two options called for a phaseout of fossil fuels with the "best available science"; or for "phasing out of fossil fuels in line with best available science, the IPCC's 1.5 pathways and the principles and provisions of the Paris Agreement".

Other options include a "phaseout of unabated fossil fuels recognizing the need for a peak in their consumption in this decade and underlining the importance for the energy sector to be predominantly free of fossil fuels well ahead of 2050"; or for "phasing out unabated fossil fuels and to rapidly reducing their use so as to achieve net-zero CO2 in energy systems by or around mid-century"; or for simply not mentioning phaseout at all.

The UN Framework Convention on Climate Change (UNFCCC) has repeatedly said phasing out of fossil fuels is urgently needed for the world to meet its Paris Agreement commitments to limit warming to 1.5 degrees Celsius above pre-industrial levels.

But fossil fuels still make up around 80% of the world's energy mix and most forecasts show that demand is expected to continue rising, at least into the next decade and perhaps beyond.

According to S&P Global's reference case scenario, global oil and biofuel demand will peak at around 110 million b/d in 2031, but analysts at oil producer group OPEC say oil demand will grow annually until it reaches 116 million b/d by 2045.

Phaseout language

Those backing a phaseout of fossil fuels, including the US and EU, say the science is clear. The UN estimates the gap to emissions consistent with limiting global warming to 1.5 C in 2030 at 20.3 billion-23.9 billion mt CO2e, based on current Nationally Determined Contributions.

But the oil and gas industry, which has a significant presence at this COP, insists that the reality is somewhat different given that oil demand is still years away from peaking, and that energy access must go hand-in-hand with reducing emissions.

They argue a key push should be for wide adoption abatement technology such as carbon capture and storage, rather than a phaseout of fossil fuels. But many critics argue this technology is largely unproven at scale, and is too capital and energy intensive.

Platts, part of S&P Global Commodity Insights, assessed the price of industrial pollutants carbon credits at $2.70/mtCO2e Dec. 7, down from a 2023 high of $4.05/mtCO2 Jan. 17. Industrial pollutants include CCUS projects.

In many cases, the cost of CCUS is much higher than the cost of emitting, which has stunted growth of the sector.

Dramatic denouement

Anna Mosby, the head of environmental policy analytics at S&P Global Commodity Insights, said negotiations around fossils fuels are bound to get heated.

"Will negotiators be able to push through the initial phaseout language the European Union has proposed, or will this be watered down to a gradual phase down? If negotiators agree to phase down unabated fossil fuels, will parties provide a definition for emissions abatement, or will it be left up for interpretation?

The draft does refer to the rapid phaseout of unabated coal power "this decade", calling for an "immediate cessation of the permitting of new unabated coal power generation."

This is a good start, according to many analysts, as this is the first time a phaseout of unabated fossil fuels has even been up for consideration in a draft text.

But getting a consensus could prove to be a gargantuan task, especially with several major oil and gas producers, and even oil consumers, vocally voicing their opposition.

Meanwhile, COP28 President Sultan al-Jaber urged flexibility, after the second-half of the climate summit was underway.

"I certainly hope that we or the parties will agree and present a recommendation on language on the scope of fossils fuels that includes new energy, energy efficiency, and a just, fair, equitable, responsible, orderly transition," he said in a press briefing on Dec. 8.

Halfway through, it is still not clear how this drama will play out -- whether his words are heeded, and a historic deal setting a new direction on the future for fossils fuels is agreed, or whether we will have to await further sequels.

Energy markets in focus at COP28

Source: COP28 Presidency, S&P Global Commodity Insights, Date: Dec. 7, 2023