COP28 Does Not Disappoint: December 13 was Christmas Coming Early

A historical agreement was reached in Dubai at COP28 on the same day that the U.S. Fed indicated that interest rates are likely to go down in 2024. The combination of these two events is signaling the end of the decarbonization bloodbath that the shares of the companies leading energy transition were facing this year. 

All in one preposition

With a day of delay, the final text of the COP28 summit was approved and the much-criticized leadership of the event by the CEO of UAE’s Adnoc (the world’s 11th largest oil & gas producer) proved to be what was needed to, for the first time in the history of the Conferences of the Parties, to explicitly refer to a transition away from fossil fuel. After much debate on phasing out, or down from fossil fuels, the agreement was to move away. Nearly every country in the world has committed to the transition away from coal, natural gas and oil, and the commitments are included in the first “global stocktake” where measurement and situation analysis to determine where each country is in terms of both climate change mitigation and adaptation is reported, so that implementation gaps can be identified and what solutions can accelerate adoption. 

Renewable is the clear winner and indisputable solution

At the beginning of the conference 118 countries signed a pledge to accelerate renewable investments. More specifically, the countries committed to triple renewable energy capacity by 2030 (to at least 11,000 GW). The U.S. stands with 56 countries committed to phasing out of coal fired power plants.

Methane is the important short-term issue and again fossil fuel presence and leadership was the catalyst for the agreement

Another accomplishment of this UAE based COP was the coalition of 50 major oil & gas producers that committed to cutting methane emissions (often leaking during fossil fuel production, a gas 84 times more damaging than CO2) to cut methane emissions by 80% to 90% by the end of the decade. If successful, this would be an impactful way to increase the chance of cutting global emissions by half by 2030. 

On the other side of the Atlantic, the U.S. Fed also gave indication of a key element for the acceleration of the transition

At the last U.S. Federal Open Market Committee (FOMC) meeting of the year, Chairman Powell kept interest rates unchanged, as much expected by markets, but more importantly indicated that they envision three interest rate cuts in 2024, lowering interest rates by 75 bps. Observing the increasing pressure in share prices of the renewable energy names in general, and green growth names as well, it is very clear that accelerating energy transition greatly benefits from a lower interest rate environment.

Climate change mitigation and adaptation are infrastructure problems

We solve infrastructure issues with investments. For that we need clarity on the direction of travel and both the global commitment of moving away from fossil fuel and the Fed indication that interest rates are likely to go down next year, two events that took place on the same day, are tipping points in the effort to accelerate the adoption of the many decarbonizing solutions.

The 3x on renewables goes from being aspirational to being a target

Contrary to what one would believe by analyzing the share performance of the companies with the key decarbonizing solutions – from solar panels to wind turbines, inverters, electric vehicles, heat pumps, green hydrogen components, to lithium and batteries – we were already advancing the adoption of key solutions. The U.S. has sold over 1 million EVs in the first eleven months of the year, clean energy storage is booming in the U.S. and in Australia. More than 1 GW of solar being added to the planet per day in 2023, with a material percentage being rooftops, behind the meter solar that does not depend on the transmission grid expansion.In Europe this year around 70% of all the new solar added was in the form of solar rooftops at point of consumption.

These solutions are compelling, but their adoptions are interest rate sensitive. Luckily, on December 13 we got indication that the momentum behind them is going to intensify. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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