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

Opinion

The world has not been able to reach an agreement to stop burning fossil fuels. After two weeks of negotiations, the draft resolution passed at the United Nations COP27 climate conference in Sharm el-Sheikh, Egypt, promised to provide a compensation fund for climate change damage, but did not receive pressure from the US and Europe for a “step-down”. Oil, gas and coal.

In fact, it is worse than this. Despite the agreement reached at the Glasgow conference last year to drop coal levels, other fossil fuels will be immune. Twenty years from now, we may see international climate meetings fail to agree on phasing out (or even stopping) fossil fuels. And that’s OK – because what matters is not the words in the international agreement, but whether our carbon emissions are falling fast enough. On that side, the prospects are much better.

There’s a simple reason why it’s so hard to get agreement at UN climate meetings. The declaration released at the end of the COP meetings is not just words, but a non-legal text that completes the binding commitments of the 2015 Paris Agreement. If only one of the 193 parties opposes the decision of the conference, there will be no agreement to declare. That’s why campaigners, fossil fuel lobbyists and diplomats fight hard for every attention. A COP decision isn’t exactly law, but it still influences the actions of governments and companies in the real world.

As we lumber along the road to net zero, a significant number of UN members are feeling uneasy about the destination. The Organization of the Petroleum Exporting Countries has 13 states, 11 more in the OPEC+ group. Throw in non-OPEC+ countries on oil and gas like Guyana, Qatar and Turkmenistan – and you have up to 50 delegates, depending on how you draw the line. For that group, the equivalent of a quarter of UN member states, a commitment to divest from petroleum is a commitment to weaken their own economies.

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The situation of oil and gas is different from coal. Heavy, messy, and expensive to transport, solid fuel is more difficult to trade than gasoline. The main exporters are only half a dozen countries. No one considers it as central to their economy as oil is to many countries. That makes it much easier to negotiate deals.

For decades, the main divide in environmental discourse has been between rich and poor countries. This division has been stable for a long time because at one level economic development is simply a process of using more energy. At a time when fossil fuels are the only low-cost source of energy in the region, poor countries committed to reducing emissions have promised to remain poor.

What has changed is the remarkable development of renewable technologies that can compete on cost and environmental grounds. That division of climate discourse has shifted from the old poor-rich divide to one between exporters and importers of fossil fuels. The move is exemplified by India’s zero-to-zero pledge last year, a standard for many developing economies that resisted such commitments until they grew richer. This year, developed countries reached an agreement to compensate smaller and poorer countries for losses and damages caused by climate disasters, a new sign of diplomatic cooperation. So is the sensitivity of oil exporters in resisting any language of downgrades.

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In deciding who will win this battle between importers and exporters, it is worth considering the options available to each group. If you are a major petroleum exporter, there is no alternative business. Oil made your country rich. (For people like Saudi Arabia, it almost makes your country a nation.) It’s a major business where rival industries wither in the shadows — a phenomenon familiar to many exporters of Dutch disease.

The situation of importers is very different. Your population needs adequate energy and food, along with the fruits of growth. For a century or more, fossil fuels have been the only way to provide that – but consumers don’t care if their scooter runs on oil or air-conditioned gas, as long as it works and doesn’t cost much. .

The events of 2022 accelerated that trend. The last time the world faced such an energy crisis was in 2011. In the early 1980s, when the Iranian revolution and the Iran-Iraq war choked oil supplies, the US Federal Reserve’s war on inflation destroyed demand – oil consumption fell by 10% in the three years to 1982, still the steepest decline in history.

What’s different now is the availability of viable, affordable alternative energy sources. Renewables are the cheapest way to generate new energy for two-thirds of the world’s population, rather than coal or gas. In major auto markets, new electric vehicles cost less to own and run than their combustion-powered counterparts. Even the gas that feeds the chemical industry is being cut by green hydrogen before the decade is out.

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The looming future will be deeply disruptive to countries that rely heavily on fossil fuel exports – but ultimately consumers and importers will decide which energy sources to rely on. Economics was already relentlessly driving them toward low-carbon alternatives. The war in Ukraine and Russia’s attempts to use force transmission as a weapon have placed significant pressure on national security.

What the world needs is not stricter international agreements, but a reduction in carbon dioxide emissions. Initiatives like this year’s Loss and Damage Institute could strengthen the alliance between wealthy oil-importers and the poor. The needed change is being seen far beyond the conference halls of Sharm el-Sheikh – and will continue regardless of the diplomatic situation.

More from Bloomberg Commentary:

• How to finance climate plans in a currency crisis: David Fickling

• Leave Africa’s Carbon Emissions Alone: ​​Eduardo Porter

• How a warmer Yukon forced farmers to adapt: ​​Adam Minter

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

David Fickling is a Bloomberg opinion columnist covering energy and commodities. He previously worked for Bloomberg News, The Wall Street Journal and the Financial Times.

More stories like this can be found at bloomberg.com/opinion

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