More cooperation and fewer trade wars key for phasing out fossil fuels, report finds

The eighth annual report looking into the global progress in transitioning to a low-emissions economy published by Generation Investment Management, a London-based pure-play sustainable investment manager, sheds some light on steps countries are taking to tackle the COP28 commitments.

Despite many governments, financial institutions, corporations, and oil and gas players making pledges to cut emissions and contribute to the net zero agenda, the eighth edition of the ‘Sustainability Trends Report’ suggests that climate promises are similar to New Year’s resolutions as they are easy to make but hard to keep.

“Year after year, the world has increased the number and types of solutions available to solve the climate crisis. But leaders across government and business have all too frequently failed to match ingenuity with action,” said Al Gore, Chairman and Founding Partner of Generation Investment Management.

“Despite the hype, hope and harmony generated by the agreement at last year’s international climate negotiations to ‘transition away’ from the fossil fuels that are the root cause of the climate crisis, the reality today is that way too little has improved at the pace and scale needed.”

The crowning achievement of the United Nations Climate Change Conference (COP28) held in Dubai in December 2023 was that transitioning away from fossil fuels is now a formal goal of the countries of the world, written into international law. The biggest climate promise ever made is on the table and humans have it within their grasp to effect change at the scale and pace required, states the report.

“It is imperative that investors, business leaders and government officials understand that even though the collective ability to solve the climate crisis is within our reach, a lack of courage, fortitude and determination at a global scale threatens to allow the progress that is so urgently needed to slip through our fingers,” added Gore.

The report criticizes the language of the COP28 agreement for being weak, using the term ‘phase out‘ in relation to fossil fuels, without specifying how the transition can be achieved. However, countries did agree to set new goals relating to the energy transition, agreeing to triple the world’s installed base of renewable electricity by 2030. The grid system is thought to play a crucial role in enabling the shift to what is effectively an ‘electrify everything’ approach.

Climate commitments have been dealt a blow in recent times. Political pressure and ‘woke capital’ attacks over the past two years have contributed to reductions of capital allocated to sustainable investing and nowhere is this more disappointing than amongst the financial-services industry which has pulled back from commitments made only a couple of years ago.

Furthermore, oil and gas players have been abandoning their alternative energy projects while maintaining or increasing their fossil investments. This is thought to increase the gap between their rhetoric about net zero and their actions. 

The good news is that renewable electricity is said to be growing rapidly, causing emissions from power production to plummet in some countries. Moreover, electricity demand is starting to grow in many developed economies where it had been stagnant for a decade. This is seen as a positive development as it means that the ‘electrify everything’ approach is working.

As the number of solar panels installed went up by 74% in a year, solar energy is seen as the breakout star in the renewable electricity arena, which is growing rapidly. However, power demand is growing rapidly too, with new data centers gulping down electricity, and more cars and heat pumps drawing power from the grid. It remains unclear when we will turn the corner and see electricity emissions finally begin to fall.

Another highlighted segment is transport, in which the transition to electric cars seems to be encountering obstacles in some markets, notably the United States. While the percentage sales growth for 2023 was lower in some major markets than in 2022, the report argues this is not surprising in a maturing industry.

The sales of electric cars rose by 35% in 2023, and they now represent 18% of the world’s new-car market the authors believe the situation is not so bleak. China is moving forward and electric cars now represent 50% of the new-car market. In Europe, electric cars represented more than 20% of the market, with Norway spearheading the revolutions, with 93% of the new cars sold there having plugs.

Slashing emissions from other segments of the transportation sector, such as planes, ships, or lorries/trucks, have yet to achieve progress, as does the buildings sector. Some momentum has been noticed in the industrial sector as plans were announced for new low-emissions steel plants using clean hydrogen, with the number of such factories on the drawing board rising from two to six. 

Green hydrogen is thought to be critical to the emissions-cutting plans of some other industries, and electrolyzer additions in 2023 were four times greater than in 2022. Last month, RWE started green hydrogen production at its 14 MW pilot electrolyzer plant in Lingen, Germany. The facility can generate up to 270 kilograms of green hydrogen per hour using electricity from renewable sources. Plans for hydrogen hubs have been cropping up in Australia, Brazil, and Malaysia, among others. 

A recent report by IRENA underlined the role of renewable hydrogen in reshaping global energy trade, creating opportunities for new players, including developing countries. A potential issue identified in this regard is the uneven global distribution of techno-economic potential to produce low-cost, low-carbon hydrogen.

The Sustainability Trends Report goes on to say that more funding is being allocated for renewable projects, with nearly $2 spent on clean energy infrastructure for every $1 spent on fossil fuels, compared to a nearly 1-to-1 ratio five years ago. This is interpreted as a sign of moving in the right direction on energy investment. Despite this, meeting the world’s climate goals requires a boost in clean investment to $4 or $5 trillion a year by 2030, but big banks are still more inclined to invest in new fossil fuel-related projects.

China, which was the biggest investor in clean energy in 2024, is also the largest producer of solar panels, electric cars, and electric buses, and the most important manufacturer of advanced batteries. The country is installing more renewable power than the rest of the world combined, and as a result, may reach peak emissions years earlier than expected, possibly within the next year or two.

PetroChina, a subsidiary of state-owned China National Petroleum Corporation (CNPC), recently joined the Oil and Gas Decarbonization Charter (OGDC), a pledge aiming to accelerate decarbonization in the oil and gas sector worldwide. However, the report blames the authoritarianism of President Xi Jinping and “military adventurism,” for a Cold War of sorts breaking out between China and the West – which could hurt the energy transition.

In the United States, the prospect of new tariffs, trade barriers, protectionism, or leaving international treaties following the results of the November election is also expected to have an impact on the global economy and decarbonization efforts. Earlier this month, the Department of Transportation’s Federal Transit Administration (FTA) announced nearly $300 million in investments to expand and modernize the country’s ferry systems.

With the U.S., Canadian, and European governments imposing tariffs on Chinese-made electric cars and solar panels, the more affordable options are essentially not available on their markets. While Western countries are pushing for more domestic factories opening up to replace these, the report notes the cost can never be as low as making them in China.

Since the Asian country is the world’s biggest manufacturer of electric-vehicle technology, a potential embargo on shipments of battery technology to the U.S. and Europe on its part would wreak havoc on the renewables segments in those parts of the world, the report warns.

Therefore, international cooperation, not hostility, is seen as the way towards a long-term sustainability and energy transition. Furthermore, all countries have a shared interest in finding ways to cut the emissions from manufacturing in order to cut their carbon footprint instead of merely importing or exporting carbon emissions. This scenario seems likely to happen only in a world characterized by collaboration, and not trade wars.