Chairman’s Message

Tatsuya Terazawa

Tatsuya Terazawa
Chairman and CEO
The Institute of Energy Economics, Japan

Chairman’s Message
“COP 28: Inclusiveness, Breadth, Challenges”

Message for January 2024

The international press focused on the reference to fossil fuels in the COP 28 final document and was relieved to find a compromise was reached on the language through the use of the expression “transitioning away from fossil fuels”. But there were a lot more in the COP 28 that deserve attention.

<Main Points of COP 28>

  • Inclusion of oil & gas companies as part of solutions.
  • Inclusion of nuclear, CCUS and transitional fuels as part of solutions.
  • Broader attention to hard-to-abate sectors and transmission lines.
  • Tripling of renewable energies leading to further dependence on China.
  • Doubling of energy efficiency extremely challenging requiring Plan B.

  • 1. Inclusiveness 1: Oil & Gas companies

    Compared with the past COP meetings where oil & gas companies were generally regarded as the causes of the problems, COP 28 positioned them as part of the solutions. 30 NOCs and 20 IOCs joined the pledge to achieve zero methane emissions and ending routine flaring by 2030. These companies represent 40% of the world’s oil production. As methane is more damaging to the climate in the short & mid-term, compared with CO2, this pledge contributes significantly to the world’s response to climate change.
    As a symbolic step, OPEC set up its first pavilion in the long history of COP which I had the opportunity to visit. As the challenge to realize carbon neutrality requires all the possible initiatives, I believe the inclusion of oil & gas companies is a very important step.

    2.Inclusiveness 2: Nuclear, CCUS and transitional fuels

    COP 28 recognized the role of nuclear and CCUS as zero- and low-emission technologies. I believe that this recognition is the first in the long history of COP. Considering that there have been a number of stakeholders who have had reservations about nuclear and CCUS, this recognition is historical.
    The role of transitional fuels was also recognized in facilitating the energy transition while ensuring energy security. While many stakeholders have the tendency to demonize fossil fuels, recognition of the role of transitional fuels and of the importance of energy security, is also epoch making.
    I believe that there is a growing understanding that all the available means must be utilized in our challenging paths towards carbon neutrality, in spite of the apparent hesitation among some. It seems that realism is finally getting some inroads in the discussion at COP.

    3. Broad attention to hard-to-abate sectors and transmission lines

    Among a large number of side events at COP 28, I noticed that there were several side events on hard-to-abate sectors and transmission lines. Hard-to-abate sectors, such as steel, cement and chemical industries, were recognized as the most difficult challenges to achieve carbon neutrality. Hydrogen and CCUS were highlighted as the keys to decarbonize the hard-to-abate sectors.
    Transmission lines were identified as the key infrastructure to enable massive deployment of renewable energies. It was stressed that “there cannot be energy transition without transmission”. Transmission lines will be the key to connect the areas with renewable energy potential to areas with power demand. In spite of the importance of transmission lines, it was argued that investment in transmission lines lags far behind the investment in renewable energies. Considering the long lead time and public acceptance required for the construction of transmission lines, this gap may inhibit reaching the goal to triple renewable power capacity by 2030, which is another highly publicized achievement of COP 28.
    It is my sense that the world is gradually coming to the understanding that simply deploying massive solar panels and wind turbines will not take us to carbon neutrality. It has to be accompanied by decarbonization of the hard-to-abate sectors and the construction of transmission lines. This is another example of realism getting more traction at COP.

    4. China leads the massive deployment of renewable energies, cementing its role as the world’s dominant supplier of clean technologies.

    One of the most highly publicized results of COP 28 was the goal to triple the global capacity of renewable energy by 2030. Based on the recent trajectory of expansion of renewable energies, capacity expansion of 2.6 times by 2030 appears possible. With stronger policy push, this number may get closer to the goal of 3X.
    But we need to look closer into the recent developments. If we split the world into China and the rest of the world, the contrast is shockingly clear.

    Renewable power capacity growth

    In 2023, 60% of the global expansion of renewable capacity was realized in China. While the annual growth in the rest of the world was slightly above 10%, the growth in China was more than 20%. If this trend continues, the renewable capacity in China will be 3.8 times more in 2030 compared with 2020, while the growth in the US and Europe will be 2.2 times and 2.0 times respectively.
    The recent dramatic expansion of renewable energies has been led largely by China. To realize the goal set at COP 28 to triple the global capacity of renewable power, the non-China world will have to do much more.
    While China deserves credit for the massive deployment of renewable energies, this will be accompanied by the dominance of the global supply of clean energy technologies by China at the same time. This dominance will highlight the urgency of enhancing energy and economic security with regard to clean energy technologies. The world is already dependent on China for the supply of clean energy technologies. This dependence will become even worse in the coming years. Decarbonization should not be pursued at the expense of energy and economic security. Determined actions by countries which share such concerns should be taken to develop alternative sources.

    5. Doubling of energy efficiency improvement is extremely challenging

    COP 28 also set the goal to double the average annual energy efficiency improvements by 2030. As people pay less attention to energy efficiency, this goal is rarely noted. But this relative obscurity disguises an alarmingly difficult challenge.
    The doubling of average annual energy efficiency improvement is from the 2% improvement achieved in 2022. But 2022 was a very special year when the world had to scramble to deal with the energy crisis triggered by Russia’s invasion of Ukraine. Only the crisis mode responses enabled the 2% improvement in 2022. In fact, the average annual energy efficiency (or energy intensity) improvement in the preceding years was about just 1%. From these records, it is hard to imagine that the world can continue improving its annual energy efficiency (or energy intensity) by 4% for the rest of this decade. With all the realism that is found in COP 28 in other areas, this aspect lacks realism.
    The 4% improvement is derived from the back-cast path to realize carbon neutrality by 2050. IEA, in its NZE scenario, has indicated that such level of continued improvement will be necessary throughout this decade.
    It is important to set ambitious goals to call for more efforts. Indeed, we will have to do much more on the demand side which is often overlooked resulting from our stronger interests in the supply side.
    But in light of the very challenging nature of this goal, we will have to be prepared for the likelihood that energy efficiency improvement will fall short of the goal. Even if assuming that we will be able to continue improving energy efficiency at the crisis level of 2% during this decade, the 2% difference from the 4% goal will lead to a 18% larger total energy demand in 2030. This gap will have to be filled in. There will have to be 18% more energy supply. Where will this additional energy supply come from? We will need a “Plan B” to deal with this likely development.
    When the maximum expansion of global renewable energy by 3X is already built in, the gap will most likely have to be filled in by the remaining available source: fossil fuels.
    From this standpoint, COP 28 is right in acknowledging the role of “transitional fuels” to ensure energy security. COP 28 is also prudent in calling for “Transitioning away from fossil fuels in energy systems in a just, orderly and equitable manner”. Disorderly “transitioning away” from fossil fuels will damage energy security and cause negative impacts on the Global South disproportionately which is more vulnerable to energy price hikes. This will be unjust and inequitable.
    I believe that the necessity to ensure sufficient energy supply will have to be widely recognized by various players, including the financial sector, while trying to improve energy efficiencies as much as possible. This may be the unwritten logical message that should be found between the lines of the COP 28 final document.