Listen: What lies ahead for climate policy after COP28

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Eklavya Gupte:

Hello and welcome to the Platts Future Energy Podcast from S&P Global Commodity Insights, where today we will be looking ahead at what to expect in global climate policy in 2024, especially after world leaders agreed on the first global stock tick at COP28.

I am Eklavya Gupte, editorial lead from the energy news team at S&P Global Commodity Insights. Joining me today are my colleagues, Anna Mosby, head of global environmental policy, Sara Giordano, a research analyst in our climate policy team, and Agamoni Ghosh, managing editor in the carbon pricing team.

The energy transition in 2024, will likely see more transformations, with the current global macroeconomic and geopolitical uncertainty likely to persist. With more than 80 elections scheduled this year, political risk is poised to play a major role in climate and energy geopolitics. This comes after world leaders at COP28 agreed to a historic text aiming to transition away from fossil fuels in energy systems, accelerating the shift to cleaner technologies.

While historic for specifically referencing a shift away from fossil fuels, the deal also faced criticism for the lack of concrete targets, especially related to the global goals on adaptation. There was some progress seen on climate finance with the activation of the Loss and Damage Fund, which is a funding mechanism aimed at assisting those countries particularly vulnerable to the effects of climate change.

Anna, Sara, Agamoni, welcome. It is great to have you all here to help us digest and understand what climate policy might look like post COP28. Let's start off with a big headline out of COP28, which was the transitioning away of fossil fuels rather than a phase out. Can you please tell us what this means? And why was this such a big and controversial topic?

Anna Mosby:

Well, thank you for having us today, I wanted to start out with that. As you noted, the biggest news item coming out of COP28 was that language around transitioning away from fossil fuels. This stems from the Global Stocktake, in which countries pledged to review the climate actions that they have taken so far and produce a roadmap indicating where we need to go to ensure that we are in line with the goals of the Paris Agreement.

This COP was the end of the first Global Stocktake process. It was a very important moment for the future of the Paris Agreement and that language around transitioning away from fossil fuels was included in the final Global Stocktake outcome document. The language that you're referring to specifically comes from paragraph 28 of that outcome document, which calls on countries to contribute to global efforts to reduce emissions. And it includes a very long list of actions that should be taken. Tripling renewable capacity, doubling energy efficiency, phasing out inefficient fossil fuel subsidies.

But the biggest headline item out of that was the transition away from fossil fuels. Not a phase out, not a phase down, transition away, in order to achieve net-zero emissions by 2050. This is the first time that all fossil fuels, not just coal, was included in that final outcome language, which was very important. It was an enormous effort to get that included in that outcome document.

But in terms of what it actually means, that really remains to be seen. Under the Global Stocktake document, under the Paris Agreement, each country is required to submit a new NDC, nationally determined contribution, in 2025. This is the document that outlines all of the different climate targets and policies that a country has implemented to achieve the goals of the Paris Agreement.

And ideally under the Global Stocktake, this language included in this NDC should reflect what is in that Global Stocktake outcome document. Each country should be incorporating those action items, including the transition away from fossil fuels and the renewable and energy efficiency targets within their new nationally determined contribution document.

Theoretically, they should be including each of those actions in their future policies. So it was a long list of items that need to be included in the NDC. It's very unclear on whether or not or how countries will actually implement these moving forward.

Eklavya Gupte:

Yeah, how do you expect countries to actually respond to this in their NDCs? Is this something we're expecting in the next one or two years, especially with so much political risk ahead?

Anna Mosby:

I think it really depends on the market. In the US for example, a lot of that is going to hinge on the outcome of the elections. Obviously, the current administration has been very forthcoming in trying to advance climate policy. And they were one of the countries that was actually pushing this language around phasing out unabated fossil fuels at the COP.

Current administration would be likely to try to advance language along these lines. I believe another administration could potentially withdraw from the Paris Agreement, which has happened in the past. They could also just decide to pull back on the climate policy. It really depends on what happens with the election in the US. And I'll let Sara explain what might happen in the European Union.

Sara Giordano:

Yeah, well the EU it will still have global goals for renewables and energy efficiency, but also was very vocal for the positions around phasing out of unabated fossil fuels, kind of confirming global leadership in climate action.

Elections are going to take place also in the EU this year in June. But before that, the European Commission is set to propose to put forward the proposal for the next 2040 emissions reduction target within the framework of the EU climate law that, as you know, it's legally binding net-zero target by 2050.

Within, I think, the first quarter of 2024, the European Commission is going to put forward this proposal. So a 2040 net-zero emissions reduction target, along with an indicative emissions budget for the period between 2030 and 2050. This trajectory will also show where the year should be also in 2035, which would be included in the next NDC together with the 2040 target.

An important, I think, note that I would like to make here is that last year actually the European Scientific Advisory Board on Climate Change, that was created actually within the framework of the EU climate law, recommended the EU to set a 2014 target that aimed to a reduction between 90 and 95% by 2040 compared to 1990 levels. And this is a line with a pathway that calls for increased reduction of energy demand, but also scaling up renewables away from fossil fuels. So again, confirming a very strong position of the EU that is line with what we saw at COP.

Eklavya Gupte:

So yes, it does look like the EU will continue to sort of lead on global climate policy. But what about some of the bigger fossil fuel producing nations or developing countries? What do we expect on that front?

Anna Mosby:

Right. So this is where the language included in that Global Stocktake outcome document is going to be very important. The language used in these agreements is very precise. They are very particular about what verbs they're going to be using, what phrases they're going to be using in this document.

The final Global Stocktake outcome document hedges a lot on this. There are a lot of loopholes built in there for countries to respond how they see fit. There's language around differing national circumstances and pathways, the need for just and equitable transition, and this all allows for different countries to respond differently to those goals.

The goals were set to be achieved on a global level, which means that some countries may respond more quickly than others. One example that I think would be really important to look to would be that in the lead up to the COP, we saw a proposal coming out of India calling for developed nations to reach negative emissions by 2050, to allow for developing nations to have a little bit more time to grow their economies and continue to emit, while still maintaining net-zero on a global basis.

This could be a precursor to how countries respond to the fossil fuel transition language in that Global Stocktake outcome document. They could say, "We are going to rely on some of these developed nations to hit net negative so that we can continue to use this energy and continue to emit for a little bit longer. To ensure that we can engage in this transition in a just way, in a way that works best for us."

So we're really going to be watching these countries in the next few years to see how they position themselves, especially related to that developed versus developing language. And we're expecting a lot of discussions around the responsibilities of developed nations versus developing. And we're also expecting a lot to hinge on how different nations engage in climate finance. So whether that climate finance comes through to allow for these developing nations to participate in that transition.

Eklavya Gupte:

Interesting. Thank you very much. And since you mentioned climate finance, I think we should move to this topic, which was obviously one of the four key pillars of the presidency at COP28. Can you provide us some more detail on what's happening with climate finance? And what progress was or was not seen in Dubai?

Sara Giordano:

Yeah. I may jump in on this. As you all know, historical climate finance has been a very contentious topic at COP, and this COP was not exception actually. Parties, I think, entered the negotiations in a context of significant division and polarization between developing and developed countries, due to the lack of progress on climate finance that we see over the past years. And this has also fueled a lot of mistrust, as also Anna mentioned, between developing and developed countries.

Not surprisingly, as you mentioned, fixing climate finance was one of the four pillars of the COP28 climate agenda. But if we look at the outcomes of this COP, we may see that overall we haven't seen much of progress in terms of bridging the financing gaps, the commitments, so increasing commitments to bridge this gap. But we saw important steps forward on some of the key issues.

One, I think the major highlight of this COP was obviously the consensus reach on the loss and damage funding arrangement that was actually achieved on the very first day of COP28, which is a historic first for UN climate change conferences. And this agreement will help proportionalize the loss and damage funding arrangement and the dedicated FED that were decided back at COP 27 in Sharm El Sheikh.

In general, I think one of the other important positive aspects of this COP when it comes to finance, is the growing momentum that we saw also around the need for collective actions around a new global financial framework. We saw beyond governments, multiple stakeholders stepping in. There was a strong engagement from the private sector. We saw multiple initiatives around scaling up financing developing countries on clean technologies. As well as great emphasis on the link between climate finance and nature-based solutions.

Also in the context of the MDBs reform, we saw a lot of initiatives from international financial institutions and MDBs to make finance more accessible for developing countries. And a lot also of initiatives and announcements around solutions that address the debt burdens and high cost of borrowing of developing countries.

But as I said before, when we look at the overall outcome, there's not much progress. So the commitments are not at the pace and the scale needed to fill the current financing gaps.

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Sara Giordano:

Just before COP28, UACD reported that the 100 billion pledge was finally made in 2022 based on preliminary data. According to this pledge, developed countries committed $100 billion per year to climate finance mitigation and adaptations by 2020.

But if we look at what climate finance for adaptation mitigation needs are, we all agree that these are very negligible amount compared to the trillions of dollars that are needed. When it comes to COP28, there were expectations that the developed countries and parties were coming forward with stranded resolution to fill this gap. But the final tax did not include any strand of calls around climate finance.

So there is lots of significant gaps to fill and I think adaptation is one of the great example here. Compared to mitigation, it is pretty much underfunded. In 2021, we had just 25 billion compared to the total of 90 billion that was allocated to climate funds by developed countries to developing countries.

And if we think of loss and damage as well, come to only $800 million in terms of pledges. Because according to the agreement on loss and damage, there's no requirement for developed countries to fund loss and damaged actions. So still, yeah, there's still lots of work to do and I think this year is going to be focused a lot on loss and damage and adaptation finance.

Eklavya Gupte:

And one of the things, the big backdrop around this is that with we're living in an extreme weather environment, with climate playing a big role with very high temperatures seen, especially in the summer. How is this affecting climate policy?

Anna Mosby:

I'm happy to answer that. So this is going to be a major stressor on climate policy this year particularly, because we are seeing a continuation of a strong El Nino event that started over the fall and continued through the winter. And El Nino events historically amplifies some of the effects of climate change, particularly major heat waves, flooding, wildfires.

And this will likely bring finance even more to the forefront because we are expecting to see countries experience the effects of climate change on a slightly amplified level this year, particularly at the beginning of the year. It's still unclear whether or not El Nino will continue through the summer or if it will go back to a neutral phase or even merge into a La Nina event.

But with El Nino in place right now, we are going to see more physical effects of climate change, or related to climate, change than we typically would, which is why we also saw historically hot months, historically hot days over the past few months. So this is really going to bring finance back into play. So a lot of countries are likely going to be affected by these effects in the next few months. How are they going to pay for this? That's going to be a big question this year.

Eklavya Gupte:

And yeah, again, so we're back to climate finance here when we're talking about where's the money going to come from? And obviously the carbon markets hopefully will play a big and even bigger role in the coming years on this.

Now Agamoni, I would like to draw you back in. We saw some progress, but obviously we didn't see a key decision round Article 6.4 of the Paris Agreement. So can you please shed some light on what did or did not happen from a carbon market perspective?

Agamoni Ghosh:

Thanks, Eklavya. So yeah, I think there were two aspects to look at when you look at COP. The larger one was to look at Article Six. And the big takeaway of course was the failure to adopt Article Six, and we are already seeing the ramifications of that in our carbon market. We're seeing prices really hit the lower side after that decision. Because everybody was waiting for almost a year for the decision to take place and there was a lot of anticipation that it would get adopted.

So essentially the Article Six market, which would have shaped up sometime around the end of '24 and '25, has now been pushed back by another year. So there's a lot of uncertainty still in the market because this is an alternate market that voluntary players are looking into.

There was some progress in the Article 6.2 space, even though Article Six did not get adopted. Because the larger message from the governments that we saw was that despite whether there are finer points of Article Six to get adopted or not, they're going to go ahead and sign more bilateral deals when it comes to Article 6.2. So that they are on their way to getting more projects approved rather than wait for these details to get approved.

And we saw some of those deals happening at the event itself. We are seeing still more countries come forward and sign agreements. So 6.2 is sort of blazing ahead despite this, but there is some uncertainty around 6.4. Having said that, this COP, the recognition and acknowledgement for the VCN market in particular, is far more than what we've seen at any other COP.

So that's a big positive because somewhere the voluntary markets seems to be either mentioned in one part or the other. But we've seen big voices including the COP presidency come out and talk about the VCM market. So definitely one thing to say is that it's not going away anywhere, rather than a lot of uncertainty that was there.

We've seen a little bit lull in the market, some prices, but the buyers are still there. From a compliance market perspective, I think what Anna talked about, you can have a lot of huddle around what needs to be done on a global scale when it comes to climate finance and especially something like carbon markets. But it ultimately comes down to what each country wants to do to achieve their NDC targets.

And remember that for the mandatory markets, one of the most effective ways to force these hard to beat sectors to tone down their emissions. And so some of those larger pledges related to NDC would have a direct impact on how these countries formulate their policies for their carbon markets.

Having said that, we also know that most of these emerging economies are very clear that they're not looking to cut down their production targets for some of these key industries that put them on a global scale, which means that the emissions are only going to increase more logically. So how are they going to balance their developmental goals and also achieve their NDC targets with the help of mechanisms like carbon markets or maybe renewable energy targets? Is something that we'll have to wait and watch.

Eklavya Gupte:

Thank you very much. No, that was interesting to see that there was some progress at least made on the voluntary carbon market side with all these integrity initiatives. We are expecting to see some progress this year and next. So let's see where we are.

One thing before I forget, really, one of the pledges we saw was we saw over 100 countries agree to triple renewable energy generation capacity and also the doubling of energy efficiency by 2030. One did notice that China and India did not sign this. So, Anna and Sara, can you tell us a little bit about this commitment? And what could we see in the renewable space as a result?

Anna Mosby:

Right, so there were actually two different pledges around the tripling of renewables and doubling of energy efficiency by 2030. There was the first, which is that pledge that you are talking about right now. That is the 123 countries pledged to triple renewable capacity to 11 terawatts by 2030, and double energy efficiency improvement rates to around 4% per year by 2030.

Again, China and India did not agree to this particular pledge, and that appears to be largely because there is language included in that pledge around ending investment in new unabated coal fire generation. Which China and India were relatively clear at the outset they would likely not be willing to sign onto an agreement that would include language on coal fire generation. This is pretty standard practice for them.

Now, there is another pledge that is in that Global Stocktake outcome document that's included in that language around transitioning away from fossil fuels. That said the parties have been called on to contribute to efforts to triple global renewable capacity and double energy efficiency improvement rates.

Now those have the same language, but they are slightly different in that the pledge that the 123 countries signed has a little more detail in it. It includes that language around investment in coal fire generation, but it also includes specific numbers around where the renewables are supposed to get and the energy efficiency numbers are supposed to get. It includes hydro within that renewable target.

The language in that Global Stocktake outcome document, it does not include very much detail. There's not any definition around what is and is not renewables, which could buy a little more room. If hydro is excluded from that renewables target, it is likely going to be a little bit easier to meet that tripling.

Now that being said, with hydro included with that 11 terawatt language in there, under our S&P Global Commodity Insights, global scenarios, the doubling energy efficiency improvement rates and the AAA renewable capacity are not met under any of our scenarios or our net-zero cases. Those are very ambitious targets and would require a rapid scale up in efforts to achieve them.

Eklavya Gupte:

And now as we're coming towards the end, I want to speak about COP 29. Obviously there's still almost 10, 11 months to go, but we're again, once again going to be in a significant oil and gas producing country in Azerbaijan. But could you tell us a little bit about what can we expect in Baku? And what are some of the main priority or pressure points that will be discussed at the preparatory meetings this year?

Sara Giordano:

Well, I think COP29 would be a pivotal moment for climate finance. In addition to what I said before around the unresolved aspects of loss and damage finance and adaptation, parties and backer will be called to define another important aspect, which is the new collective identified goal.

This goal is going to replace the 100 billion pledge that I mentioned earlier. Is expected to address the challenges associated with the existing pledges, the 100 billion pledge, but also reflect more importantly, the developing countries needs to assist with increased ambitions based on a much more robust assessment.

So the preparatory meetings at a COP will give us a sense of the main priority areas and pressure points and give us insights on the work recapping the key aspect of the new finance goal. So think of the temporal scope of the goal, the structure of the goal, including quantitative and qualitative elements, as well as the transparency arrangement around the goal.

So as part of our policy coverage, we are going to look at these meetings and other climate related events as part of our Road to COP 29 series. So stay tuned.

Eklavya Gupte:

Thank you very much, Anna, Sara, and Agamoni. That was very illuminating and gives an insightful glimpse into the critical energy and climate themes that will define the year ahead.

We at S&P Global Commodity Insights will be closely following the developments around the intersection of energy, commodities, and climate across our news, pricing, and analytics teams. So visit Platts Connect and our website, SPGlobal.com/commodity insights.

We will also be hosting the London Energy Forum on February 26th and 27 as part of the International Energy Week in London. So we hope to see some of you there. Thank you for listening to the Platts Future Energy Podcast.