COP28 UAE

I have just landed back in the UK after spending the last few days attending COP28 UAE – the vastness of the event is hard to capture in a post and a few photos – but nearly 30,000 steps a day and a feeling like I barely scratched the surface of the event hopefully gives you an understanding of scale.

Under a backdrop of pageantry and officialdom, as I walked the vast conference areas and engaged with energy professionals from every corner of the globe, it was clear that there was true and meaningful commitment amongst those gathered to find workable solutions to climate change. In the lead up to COP28 UAE , Dr. Sultan Al Jaber had talked about the need to find compromise, promote flexibility and look beyond self-interest – the discussions I was lucky enough to participate in all had those principles at their core.

What is clear however, is that not everyone agrees on the definition of compromise or what a solution might look like. As I boarded a plane homeward board, the assembled leaders were deep into “overtime” on the language to be agreed on regarding future commitments to climate change. By the time I disembarked, the newsfeed was awash with commentary on the “landmark” statement away from fossils fuels. My own reading is that there was significant comprise made by all participants to get to this point – however the devil is always in the detail.?

I am not a climate scientist so I will leave the detailed commentary to the experts, those better informed than me (and there will be many). Yet - I am an energy professional and economist with over 25 years of experience in the market so feel confident in my ability to narrate on how I see the future of the macro dynamics in the energy market and the challenges humanity faces in the coming decades to meet growing energy supply and demand whilst balancing a lower carbon future, fighting global poverty and addressing industrialization of emerging market countries.

My overall takeaway from my time attending COP28 UAE was that there is an understandable and natural conflict between the developed nations and the emerging markets when it comes to energy policy and the impact this has on climate.

This dichotomy exists because economic development drives energy demand. The numbers correlate and tell you that, once an economy reaches $20,000 per capita, energy demand still grows, albeit much slower. After $40,000 per capita, the economy is mainly saturated, and energy demand essentially, stays flat, with efficiency gains offsetting economic growth. However, there is a large “S” curve of corresponding energy demand to economic development that creates a “sweet spot” of energy demand growth ($5,000 - $20,000 per capita), and a third of the world’s population (representing half of all economic growth) is now firmly in this zone.

Never before in the history of humanity have so many people simultaneously been in a period of energy-intensive economic growth. China’s GDP per capita is currently $12,541 (IMF, 2023) and India’s is $2,612 (IMF, 2023) – those two countries alone account for 2.8bn people (or 30% of the world’s population!) firmly in a period of economic growth corresponding to energy-intensity. This dynamic will drive energy demand and growth for the foreseeable future.

For decades, emerging markets represented a low and constant share of global GDP. In 1970 this share represented 30% of real GDP. By 2022, that number had risen from 30% to 45% of global real GDP and by 2040, emerging markets are predicted to go from 45% to 53% of global GDP, representing nearly 70% of all growth. Over the past six decades, although (or indeed because) energy efficiency improved by 40%, energy demand per capita nearly doubled while total energy demand, rose four-fold. Never in human history has improved efficiency resulted in less demand – see Jevon’s Paradox.

So, what does this all mean for the energy industry and the global economy? How does it interact with the statements coming out of COP28 UAE ?

To me, it is obvious that the International Energy Agency (IEA) has got it wrong with its predictions of flattening energy demand. They have failed to account for the dynamics in the emerging market and the net effects of energy demand driven by developing societies, continuing urbanization and the behaviours of individual consumers in these markets compounded by very aggressive modelling of energy efficiencies and intensity (as I outlined above).

COP28 UAE appears to have had Dr. Sultan Al Jaber ’s statement on “compromise” as its heart – an apparent recognition that a transition needs to be delivered that doesn’t risk undermining economic growth. A transition delivered within a framework that protects broader sustainable development goals and addresses the need for vast investment without diluting the responsibility to deliver net zero and a sustainable future for all of humanity.