COP29: The X-factor and why energy financing needs a double down
Image courtesy COP29
In this week’s Power Playbook Yusuf Latief discusses how, although COP29 had big potential as the ‘financial COP’, the 29th Conference of the Parties is teetering close to being another letdown, marked by yesterday’s rejection of a draft deal and lack of clarity on financial substitution by way of ‘X’.
And when it comes to energy specifically, far more is needed to mark its space in the annual gathering of international leadership.
The Azerbaijan presidency issued a draft agreement yesterday which caused division between developed and developing nations. Instead of setting a global goal for developing countries to tackle the climate crisis, the text contained only an “X” where numbers should have been, reported the Guardian.
An unfortunate reality of the COP conferences has been that, despite the huge number of country and climate leaders gathering together in the same space, it usually falls short of expectations.
Finance-themed, this year’s expectation was to create tangible headway into committing, raising and determining the financial target for global climate aid to assist developing nations.
When it comes to energy, this was especially important, considering the IEA’s estimates that global clean energy spending needs to rise to $4.5 trillion annually by the early 2030s.
As I write this, the conference is supposedly winding down, although the ‘X’ still stands and it does not seem we are much closer to catalysing the money we need.
“I urge every party to step up, pick up the pace, and deliver, ” said UN secretary-general António Guterres on social media yesterday.
But I wonder how much delivery we can really expect. So, why the hesitation about any energy-related, concrete outcomes?
Firstly, energy, although having its own day like other sectors and having a topical presence across multiple panels, was not enough of a talking point.
Secondly, there has been a lack of private sector financial leadership on the floors.
Third, the way COP is organised may be a bit outdated.
Energy sector coverage
Unfortunately, I was not able to attend COP29, but Máximo Miccinilli of FleishmanHillard EU shared his experience from the floor in Baku:
“It [energy] was covered decently, but it wasn’t covered as best it could have been.” So said Miccinilli on whether energy had been represented enough during the conference, considering the sector’s critical role in meeting climate targets.
According to the Brussels-based consultancy’s senior partner, senior vice-president and head of Energy and Climate, “it doesn’t look like energy has been a priority, core direction, and there is no discussion about financing the roll out of these technologies.”
Now this isn’t to say there hasn’t been progress or wins for the sector through the conference.
Indeed, in the first week, utilities backed a pledge to boost grid and storage capacity, a declaration saw COP29 Presidency pledge to unlock the potential of a global market for clean hydrogen, international standards were announced for carbon markets and the UK announced new climate goals, namely to reduce emissions by 81% by 2035.
But when it comes to catalysing energy finance – a huge expectation from my side – it does not seem like much headway was made.
Miccinilli: “Sure, we talk more about grids and storage, which is good, but there was not much discussion around the needs of countries that wants to modernise or roll out grids for the first time. It was more like a declaration: ‘This is important, it’s going to happen. So good luck with the way you do it.’”
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The $1.3 trillion goal and a game of chicken or egg
According to Reuters reportage, climate financing would need to rise to $1.3 trillion annually by 2035, with developing countries in need of at least $1 trillion a year by the end of the decade.
COP has a reputation as a space for formulating and driving NDCs (Nationally Determined Contributions), which can be critical mechanisms for catalysing finance.
Investible NDCs, says the WHO in a blog post, offer a dual opportunity for states and investors. Countries can attract private finance while investors gain insights into policy landscapes and sector-specific investment potentials.
This of course relates to energy financing too but, according to Miccinilli, when it comes to drafting and developing NDCs, countries have been caught in a riddle of chicken or egg.
“I don’t think we get to net zero just because we’ve labelled the $1.3 trillion per year. I think the world will need much more than that.
“In particular, we need to make sure that all parties coming here will learn about how to plan best for their own transitions, and I think they are still a little bit behind on that.”
According to Miccinilli, while some NDCs have been very concrete, with tangible methods of raising capital, others fall into a camp of: ‘Until I see the big numbers, I won’t commit.’
“The chicken and egg question is there and there is a bit to blame both on sides. On the one hand, I think countries and regions need to have a plan, independent of the money they can expect.
“On the other hand, it’s clear that some parties cannot move because some still depend 80% or 90% on fossil fuels, without which economies would be destroyed, more inflation would be created as well as more fiscal issues and debt.
“So there is also this debt crisis arising and I think that COP is not connecting the financial dots with the energy transition dots.”
COP29: Lack of private energy financing leadership
COP29 being the finance COP, another key issue to resolve has of course been trying to bridge the gap between private and public financing, a repeated issue in the energy space but not one easily overcome.
Adding fuel to the fire, the lack of presence of private financing leadership has left something of a vacuum, with Lloyds, HSBC, Bank of America, BlackRock, Deutsche Bank and Standard Chartered executives opting out from this year’s conference, according to the Raconteur.
And the effect of this on talks has been clear as day.
Said Miccinilli: “It’s impacting massively, because when I hear negotiators and ministers talking about getting to the big sum, at some point, they get questions from journalists – ‘How we can enhance private capital?’
“And they have very big and very weak answers along the lines of ‘we support them to do more, but they are not here, so you need to ask them.’”
A debt issue
Similar to the chicken or eggs for NDCs, energy sector financing appears to have a puzzle of balancing funding with planning.
Said Miccinilli: “The issue is that, if they are not reassuring the economy, big banks will continue to say there is plenty of money in the system, but there is not enough certainty about plans and regulation.
“Take hydrogen for example, the entire discussion is about costs…So where are we going to end this spiral of debt on financing hydrogen.
“Financially, interest against continuing to decarbonise…is going to get more difficult.
“And I feel that the world is getting closer to where decarbonising and financing will require massive political capital…although internationally, we don’t have leaders aligned, and that’s what banks are seeing.
“Private banks are saying that the money is there, but if a trade war starts from the US and they expand the IRA to sectors that are not necessarily clean tech, we won’t have globalisation working in our favour. We will have a fragmented, bipolar or multi-polar, conflicted world.”
And this of course isn’t restricted to hydrogen financing but may also replicate to decarbonisation tech such as long-term energy storage and even carbon capture as we get to the tipping point of decarbonisation.
Do we need to reform?
COP is clearly not as effective as it should be and arguably hasn’t been for a long time, especially when it comes to injecting energy into its conversations and outcomes.
Might reform be a fix? Miccinilli says that COP is still “organised in a framework or categorised world that doesn’t exist anymore.”
Looking at the Club of Rome’s open letter, calling for a fundamental overhaul of COP, shifting from negotiation to implementation, I am inclined to agree.
But what do you think? Reach out and let me know so I can include your insights in the Power Playbook.
Cheers,
Yusuf Latief
Content Creator
Smart Energy International
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