14.12.202307:03 Forex Analysis & Reviews: Historic decision at COP28: the fossil fuel era is coming to an end

Representatives of nearly 200 countries at the COP28 climate summit on Wednesday agreed to start reducing global fossil fuel consumption to avert the worst impacts of climate change, marking the end of the oil era.

The deal, made in Dubai after two weeks of tough negotiations, was intended as a strong signal to investors and policymakers that the world is united in its determination to move away from fossil fuels, which scientists believe is the last hope to prevent a climate catastrophe.

COP28 President Sultan Al Jaber called the agreement historic, but added that real success would lie in its implementation.

"We are what we do, not what we say," he said at the summit's packed plenary session. "We must take the necessary steps to turn this agreement into real action."

Several countries welcomed the agreement as an achievement that had not been accomplished in decades of climate negotiations.

"For the first time, the world has come together around such a clear message about the need to move away from fossil fuels," said Norwegian Foreign Minister Espen Barth Eide.

Over 100 countries strongly lobbied for the inclusion of a phase-out of oil, gas, and coal in the COP28 agreement but were met with strong resistance from the OPEC oil-producing group, led by Saudi Arabia, which stated that the world could reduce emissions without phasing out specific types of fuel.

Because of this conflict, the summit on Wednesday was postponed by an entire day, and some observers worried that the negotiations might reach an impasse.

Members of the Organization of Petroleum Exporting Countries control nearly 80% of the world's proven oil reserves and about a third of the world's oil production, and their governments are largely dependent on these revenues.

Meanwhile, small island states vulnerable to climate change were among the most ardent advocates for the phased abandonment of fossil fuels and were supported by major oil and gas producers such as the United States, Canada, and Norway, as well as the European Union and dozens of other governments.

To some extent, the agreement describes what has already started happening: in recent years, some governments have implemented policies to transition to a more eco-friendly economy.

Europe and the United States have decommissioned coal power plants; global installation of renewable energy sources is at a record level, and many countries are implementing policies to stimulate the sale of electric vehicles.

The deal calls on governments to accelerate this process - in particular, to triple the capacity of renewable energy sources worldwide by 2030, to expedite efforts to reduce coal usage, and to accelerate the development of technologies such as carbon capture and storage, which can clean up sectors that are difficult to decarbonize.

Several other oil-producing countries, including the UAE, which hosted the summit, advocated for carbon capture to be included in the pact. Critics argue that the technology remains expensive and unproven on a large scale and say it could be used to justify continued drilling.

Now that the agreement is in place, countries are responsible for achieving results through national policy and investment.

China, currently the world's largest carbon polluter, suggested that industrially developed countries should lead this process.

"Developed countries bear an unavoidable historical responsibility for climate change," said China's Deputy Minister of Environmental Protection Zhao Yingmin after the pact was approved.

In the United States, the world's largest producer of oil and gas and the largest historical source of greenhouse gas emissions, climate-concerned administrations struggle to pass laws that match their climate promises through a divided Congress.

President Joe Biden achieved a major victory last year by passing the Inflation Reduction Act, which included subsidies for clean energy worth hundreds of billions of dollars.

Growing public support for renewable energy sources and electric vehicles in recent years, from Brussels to Beijing, as well as improvements in technology, cost reductions, and increased private investments, have also contributed to their rapid adoption.

Despite this, oil, gas, and coal still account for about 80% of the world's energy, and forecasts about when global demand will finally peak vary widely.

Rachel Cleetus, policy director at the Union of Concerned Scientists, praised the climate agreement but stated that it does not require wealthy countries to offer more funding to help developing countries pay for the transition away from fossil fuels.

"The provisions on funding and equity are seriously insufficient and must be improved in the future to ensure that low- and middle-income countries can transition to clean energy and reduce the gap in energy poverty," she said.