The World Will Never Agree to Phase Out Petroleum. And That’s OK

Explanation

The world has not been able to reach an agreement to stop burning fossil fuels. After two weeks of negotiations, the draft resolution at the United Nations climate conference (COP27) in Sharm el-Sheikh, Egypt, promised a compensation fund for the damages of climate change, but the US and European action to “phase down” oil, gas and coal.

In fact, it’s even worse. Although a phase-out of coal was agreed at last year’s conference in Glasgow, other fossil fuels will be spared. 20 years later, we are still likely to see global climate summits fail to agree to a phase-out (let alone a phase-out) of fossil fuels. And that’s good – because what matters is not the words in an international agreement, but whether carbon emissions are reduced enough. In this direction, the prospects are much better.

There is a simple reason why consensus is so difficult to achieve at UN climate summits. The words published at the end of the COP meetings are not just words, but a quasi-legal text that serves to fulfill the binding obligations of the 2015 Paris Agreement. If only one of the 193 parties to this treaty objects to the decision of the conference, no agreement will be announced. That’s why campaigners, fossil fuel lobbyists and diplomats fight so hard for every emphasis. The COP decision is not fully law, but it still affects the actions of governments and companies in the real world.

As we head down the road to ground zero, many UN members are uneasy about the destination. The Organization of the Petroleum Exporting Countries includes 13 countries, the other 11 countries are part of the OPEC+ group. Throw in non-OPEC+ countries that are heavily dependent on oil and gas – like Guyana, Qatar and Turkmenistan – and you have up to 50 delegations, depending on how you draw the line. For this group, which accounts for a quarter of UN member states, a commitment to phase out oil is a promise to shrink their economies.

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The oil and gas situation is different from the coal situation. Heavy, messy and expensive to transport, solid fuels are much more difficult to trade than oil. Only half a dozen countries are the main exporters. Almost no one considers it as the center of their economy, the oil route for many nations. This makes negotiating a reduction much easier.

For decades, the main difference in environmental negotiations has been between rich and poor countries. This distribution has remained stable for a long time because, at one level, economic growth is simply a process of greater energy use. At a time when fossil fuels were the only viable energy source around, the pledge to reduce emissions was a pledge for poor countries.

What has changed is the significant growth of renewable technologies that can compete with conventional energy in terms of cost and environmental impact. This divide in climate negotiations has shifted from the old divide between rich and poor to a new divide between exporters and importers of fossil fuels. The move is the best example of India’s pledge last year, which for many years has been the standard-bearer for developing economies to resist making such commitments until they become rich. This year’s agreement by rich countries on a casualty and damages agency to compensate small and poor countries for climate disasters is another sign of the emergence of new diplomatic alliances. So was the happiness of oil exporters in resisting any lower-level language.

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When determining who will win this battle between importers and exporters, it is worth considering the options available to each group. If you are a major oil exporter, there is no alternative business out there. Oil made your country rich. (For the likes of Saudi Arabia, it’s certainly made your country one.) It’s such a dominant trade that rival industries have faded into its shadow — a phenomenon familiar to many commodity exporters.

The situation of importers is very different. What your population wants is cheap energy and food, along with the benefits of development. For a century, fossil fuels were the only way to provide this, but consumers don’t care if their scooter runs on oil or their air conditioner runs on gas, as long as it works and doesn’t cost much.

The events of 2022 accelerated this trend. The last time the world faced such an energy crisis – in the early 1980s, when the Iranian revolution and the Iran-Iraq war cut off oil supplies, while the US Federal Reserve’s war on inflation cut off demand – oil consumption fell 10% year-on-year. . three years before 1982, it is still the sharpest recession in history.

What is different now is that there are viable and affordable alternative energy sources out there. Renewables, not coal or gas, are the cheapest way to generate new energy for two-thirds of the world’s population. In major car markets, new electric vehicles already cost less than their gasoline equivalents. Even the gas that feeds the chemical industry will run into green hydrogen before the end of the decade.

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The crystallizing future will be deeply disruptive for countries dependent on fossil fuel exports – but ultimately consumers and importers will decide which energy sources to rely on. The economy was already driving them relentlessly toward low-carbon alternatives. The war in Ukraine and Russia’s efforts to use energy exports as a weapon have added a powerful national security blow to the mix.

What the world needs is not international agreements, but reductions in carbon dioxide emissions. Initiatives like this year’s Loss and Damage Facility can certainly strengthen the alliance between rich and poor fossil fuel importers. The necessary change is already taking place far beyond the conference halls of Sharm el-Sheikh, and it will continue regardless of the state of diplomacy.

More from Bloomberg Opinion:

• How to finance climate plans in the context of the currency crisis: David Fickling

• Leave carbon emissions alone in Africa: Eduardo Porter

• How warming Yukon forced its farmers to adapt: ​​Adam Minter

This column does not necessarily reflect the opinion of the editorial staff or Bloomberg LP and its owners.

David Fickling is a Bloomberg opinion commentator covering energy and commodities. Previously, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.

More stories like this are available at bloomberg.com/opinion

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