Like Wile E. Coyote, but without the silly comedic charm, the global fossil fuel industry is beyond the brink of collapse—it just hasn’t realized it yet.
The generation of clean energy almost exceeds the increase in energy demand. This means that global emissions will peak and start to decline in the coming years. The rapidly expanding pipeline of renewable energy projects and rising demand for electric vehicles will destroy demand for coal, oil and gas much faster than the industry realizes. Efforts to support fossil fuel production through the deployment of carbon capture and removal projects will make a difference to the margins, but will struggle to overcome the eye-watering costs of such technologies. As demand for fossil fuels declines and regulations tighten, capital costs will rise, financial returns will shrink, and investors will rush to support the clean industries of the 21st century. Deep down, almost everyone knows this – even the world’s oil states. The only question is when gravity will manifest.
This is the context in which the historic UAE consensus of COP28 must be seen. The reductive debates over whether the deal is a success or a failure – it is clearly both – ignore the limitations of the international negotiations and what they are actually trying to achieve. As UN climate chief Simon Stiell reminded diplomats in Dubai this morning as they welcomed the agreement on a truly historic deal, what was agreed today will not in itself reduce emissions. It will only work if governments and companies “translate these promises into results for the real economy without delay.”
COP summits can deliver legal frameworks, climate targets and admirable rhetoric, but their success or failure can only be measured years after the event when it becomes clear whether the signals given to governments and investors have worked or not. In an ideal world, the process would provide stronger legal guarantees that agreements will deliver promised emissions reductions. But breaking with the current consensus-based and essentially voluntary approach would risk blowing up the international order at a time when its foundations are already crumbling.
In the meantime, there are indications that the current imperfect approach is producing progress. Ten years ago, in the run-up to the Paris Agreement, the world was on track for warming of about 4 degrees Celsius this century. Now it’s down to 3C and there is hope that the 2C target can be achieved if governments deliver on their net-zero pledges. It is insufficient and climate disaster still looms, but it is not nothing.
The UAE consensus builds on this progress and could yet mark a historic turning point, similar to that historic night in the French capital eight years ago, depending on the signals governments and investors choose to take from Dubai.
The need to reach agreement through consensus has resulted in a text that is mainly defined by its ‘constructive ambiguity’. As a result, two competing narratives have been put forward.
The first story is that of the petrostates and their allies. It is based on a text full of loopholes, which calls for rather than demands climate action, limits the transition from fossil fuels to narrowly defined energy systems, allows the widespread use of carbon capture and removal to support continued investments in fossil fuel production to justify. and tacitly supports new fossil gas projects as long as they are branded as ‘transition fuels’.
The second story is the one put forward by the more than 120 countries that wanted to see an ‘unabated phase-out of fossil fuels’: the transition away from fossil fuels is now inevitable and must start this decade to achieve a transition away from fossil fuels by the end of 2019 to achieve net zero emissions. In 2050, the rollout of clean technologies will continue to accelerate and nature protection will be strengthened.
It is this story that has the momentum behind it, provided by rising levels of global investment in clean technology and growing public awareness of catastrophic climate impacts. The new targets to triple the capacity of renewable energy sources and double the pace of energy efficiency improvement promise to catalyze billions of dollars in investment and destroy megatonnes of fossil fuel demand. Two years ago, at the COP26 summit in Glasgow, governments could only agree to continue to ‘phase out’ coal-fired power stations, and that was rightly seen as a major breakthrough. Now they publicly accept the need for a transition away from all fossil fuels. Countries that were adamant that they would never sign such a proposal have withdrawn. Perhaps their arms were twisted; perhaps they realized that this is not a battle they can ever accept to win. In the coming years, all the goals and promises made in the UAE are likely to be further strengthened.
The question of which story will win now depends on what happens next.
Small island states and climate-sensitive countries were right this morning to complain that the UAE Consensus has set a new target without the means to achieve it. Unless much more is done to help developing and emerging economies access affordable climate finance, they will never be able to cover the upfront costs of the clean technologies that will enable the transition away from fossil fuels. If the world is truly serious about transitioning away from fossil fuels, it should immediately adopt Barbados Prime Minister Mia Mottley’s Bridgetown Agenda reforms to the global financial system.
Likewise, industrialized countries like the US and Britain cannot expect emerging economies to embrace the need to move away from fossil fuels while approving new drilling projects and underinvesting in clean technologies and carbon capture projects. The next wave of national climate action plans – or Nationally Determined Contributions (NDCs) in UN jargon – must reflect what was agreed in Dubai, meaning there are credible plans to phase out fossil fuel production and achieve the net zero targets.
The governments that have committed to a ‘high ambition’ response to the climate crisis must also recognize the success they enjoyed at COP28 in striking a tough deal. The need to now deliver on the pledges made in the UAE warrants a more robust approach to climate diplomacy, including the use of Carbon Border Adjustment Mechanism (CBAM) tariffs on imports from countries that refuse to take credible steps to reduce steps away from fossil fuels.
All these measures will meet fierce resistance from governments and oil and gas companies who continue to argue that expanded fossil fuel production is somehow compatible with deep decarbonization. The risk of a climate-skeptical, populist reaction led by re-elected President Trump always remains present. As does the risk of escalation of the many horrific conflicts that threaten to incinerate the multilateralism at the heart of the UN climate talks.
The breakthrough in Dubai comes too late and may not even deliver on its considerable promise. Last year was the hottest year on record and the 1.5 degrees Celsius threshold could be exceeded in the short term. Climate-induced migration flows have barely begun and they are already unleashing inhumane and authoritarian impulses. As always, there should have been much more attention in recent weeks to the need to increase investments in climate adaptation and resilience. Meanwhile, it remains far too easy for bad faith actors to ignore the climate pledges they promised to keep, first in Paris, then in Glasgow and now in Dubai.
It is also crucial to keep the scale of the challenge in mind. The sprawling gas and desalination plants near COP28’s Expo City site provided daily evidence of how difficult it will be to phase out the fossil fuel economy within three decades. The most terrifying and exciting engineering challenge in human history awaits you.
But despite all these threats, the arguments in support of continued fossil fuel expansionism are now stretching credulity to a breaking point. The fact that the call to transition away from fossil fuels was signed, sealed and delivered in a petrostate shows that no one really believes it anymore. Even if every loophole in today’s agreement is exploited, demand for fossil fuels will still fall sharply as the industry is outcompeted by cheaper clean technologies. Investments in oil, gas and coal are at risk of becoming stranded assets. The need to diversify the fossil fuel economy is increasingly taken for granted.
Companies and investors should ask themselves: which story is the most compelling? Will the global economy continue to poison itself as climate impacts spiral out of control? Or will the international community do as it said and quickly build on the booming clean energy revolution already underway, developing innovative new sustainable business models along the way that improve the lives and livelihoods of all? Which of these routes is the least risky from the perspective of both investment and humanity’s survival?
What the UAE consensus has done is shift that equation more and more clearly in favor of the second scenario and the inevitability of a net-zero transition, which may not happen soon enough but is objectively well underway. And in doing so, it has forced everyone to publicly acknowledge that the fossil fuel industry is heading for a fall.
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