Road to COP28: net zero or not zero?

At the end of November, world leaders will gather in Dubai for the UN Climate Change Conference, better known as COP (Conference of the Parties of the UN Framework Convention on Climate Change). As in recent years, businesses will add a critical perspective over the two weeks of discussions, with the outcomes potentially impacting their decisions on strategy, risk and investment.

Where are we?

First, where did COP27 in Egypt leave off?

A “mixed bag” is how we described the outcome last year. For the first time, a fund was agreed to help countries facing severe damage from climate change, but little progress was made on the central purpose of the negotiations: getting countries to strengthen their commitments to reduce emissions. After heated discussions, a proposal to phase out all fossil fuels was ultimately dismissed.

Twelve months on and COP28 takes place against a backdrop of extreme weather events, including scorching heatwaves, wildfires and droughts. The summer of 2023 was the hottest summer on record and some scientists estimate that 4 July was the hottest day on earth for 125,000 years. 

Unsurprisingly, a UN report on the first global ‘stocktake’ of progress towards the goals of the Paris Agreement has found that the world is currently way off track to limit global warming to 1.5°C above pre-industrial levels and the window to raise ambition (and implement existing commitments) is “narrowing rapidly”.

What can we expect from COP28?

So, what’s to be done? The scientific community has told governments that emissions need to drop by 43% by 2030 and 60% by 2035 (over 2019 levels) if average global warming is to be maintained under 1.5°C. In other words, delivering on the Paris ambition will require much faster emissions cuts than we have seen so far.

A commitment to “phase out” all fossil fuels (i.e., putting an end date on the use of oil, gas and coal), as demanded by some, seems unlikely. But agreeing to phase out so-called “unabated” fossil fuels (i.e., fuels that are burned without their emissions being captured, utilised or stored) might be on the cards. This would allow oil, gas and even coal to be used into at least the medium term while renewable energy infrastructure is put in place. 

High costs and policy uncertainty remain a challenge for carbon capture, utilisation and storage (“CCUS”) at a time when it is most needed. Expect long discussions at COP28 about the meaning of “unabated” and whether CCUS should be limited to “hard to abate” sectors or permitted more broadly as a long-term decarbonisation tool.

There are also proposals for a global pledge to triple renewable energy capacity by 2030, which has been put forward by COP28 president Sultan Al Jaber with support from the EU, and a call to agree that “peak emissions” (i.e., a maximum threshold for global greenhouse gases) be reached by that date.

Of course, it wouldn’t be a COP without a fierce debate about who will pay for the green transition, including the costs borne by many poorer countries to adapt to more extreme weather conditions. But the discussion is no longer merely about who pays. Mia Mottley, the prime minister of Barbados, and William Ruto, Kenya’s president, have called for a fundamental overhaul of the Bretton Woods institutions (e.g., the World Bank and the International Monetary Fund), warning that the current global financial architecture is not fit to deal with climate change. There are also calls – louder this time – for global carbon taxes. At the Africa Climate Summit in September, African leaders proposed a global tax on fossil fuel trade, maritime transport and aviation and former UK prime minister Gordon Brown suggested that petrostates pay a windfall tax on their oil and gas profits. 

Reasons to be hopeful

Despite the headwinds caused by geopolitical tensions, horrendous conflicts in Europe and the Middle East and a challenging global economy, there are reasons to be optimistic about this year’s negotiations.

The move towards lower carbon and resource-efficient business models is well advanced in many industries and with record investments in green energy the trend looks irreversible. In fact, due to the “staggering” growth of renewable energy and green investment in the past two years, the prospects of meeting the 1.5°C target have brightened, according to the International Energy Agency. 

What’s more, many governments have clocked the strategic importance of the green economy and are competing with each other to support domestic green industries and secure a slice of the vast influx of investment anticipated in transition. So-called “competitive sustainability” has emerged as a key plank of policy in many of the major economies, notably China, EU, Japan and USA. And progress on climate disclosure frameworks to direct investment flows to green investments continues apace, with the ISSB’s inaugural global sustainability standards, California’s new emissions disclosure laws and the EU’s first sustainability reporting standards, all published this year.

There are also continuing efforts from the business community to agree to voluntary commitments to reduce emissions. The Glasgow Financial Alliance for Net Zero (“GFANZ”), a group of many of the world’s biggest lenders and asset managers, suffered a setback earlier this year when a number of insurance companies left the alliance amid antitrust risks and growing political pressure in the US. Yet, the remaining members launched an industry consultation in September to create more detailed definitions of transition finance strategies and forecast their impact on reducing emissions. The aim is to “ensure real-economy decarbonisation” and identify both risks and investment opportunities.

And COP28 president Al Jaber launched an initiative to bring companies from the oil and gas, cement, aluminium and other heavy industry sectors together to commit to net-zero by 2050, methane reduction, and ending routine flaring by 2030. Earlier this month, Al Jaber announced more than 20 companies had agreed to join the group, with more expected to do so before the start of COP28.

Freshfields COP coverage

Over the next few weeks, our team of experts will delve further into the main topics of COP28. We will be tracking and reporting on the progress made, discussing its implications for business, and how best to navigate the opportunities and risks presented. For more resources and insights visit the Freshfields COP28 hub here.