The U.N. Climate Change Conference, COP28, delivered positive news around technology, clean energy and methane emissions. But investors should be wary about slower progress in other areas.
----- Transcript -----
Welcome to Thoughts on the Market. I'm Stephen Byrd, Morgan Stanley's Global Head of Sustainability Research. Along with my colleagues, bringing you a variety of perspectives, today I'll discuss some takeaways from the recent UN Climate Change Conference. It's Thursday, December 14th at 10 a.m. in New York.
Achieving net zero emissions is a top priority as the world moves into a new phase of climate urgency. Decarbonization, or energy transition, is one of the three big themes Morgan Stanley research has followed closely throughout this year. As we approach the end of 2023. I wanted to give you an update on the space, especially as the U.N. Climate Change Conference or COP 28 just concluded in Dubai.
First, there have been multiple announcements from the conference around the issue of decarbonizing the energy sector, which accounts for about three-quarters of total greenhouse gas emissions. The first was a surprisingly broad effort to curb methane gas emissions. Fifty oil and gas producers, accounting for 40% of global oil production, signed an agreement to cut methane emissions to 0.2% by 2030 and to reduce carbon emissions to net zero by 2050. Methane accounts for 45 to 50% of oil and gas emissions, and the energy sector is responsible for about 40% of human activity methane globally. Important to note, this agreement will be monitored for compliance by three entities, the U.N. International Methane Emissions Observatory, the Environmental Defense Fund, and the International Energy Agency.
Second, 118 countries reached an agreement to commit to tripling renewable energy and doubling energy efficiency by 2030, an action that boosts the global effort to reduce the usage of fossil fuels. A smaller group of countries also agreed to triple nuclear power capacity by 2050.
And third, several governments have reached an agreement on the Loss and Damage Startup Fund, designed to provide developing nations with the necessary resources to respond to climate disasters. The fund is especially important because it could alleviate the debt burden of countries that are under-resourced and overexposed to climate events and to improve their climate resiliency.
So what do all of these developments mean for the energy transition theme? Overall, our outlook is mixed, and at a global level, we do see challenges on the way to achieving a range of emissions reductions goals. On the positive side, we see many data points indicating advances in energy transition technology and a more rapid scaling up of clean energy deployment. We are also encouraged to see a major focus on reducing methane emissions and a small but potentially growing focus on providing financial support for regions most exposed to climate change risks. On the negative side, however, we see multiple signs that fossil fuel demand is not likely to decline as rapidly as needed to reach a variety of emissions reduction goals. We see persistent challenges across the board, for instance, in raising capital to finance energy transition efforts, especially in emerging markets. This is in part driven by greater weather extremes stressing power grids, as well as a broad geopolitical focus favoring energy security. An example of this dynamic is India. Not only does India depend on coal for over 70% of its national power generation, but it intends to bolster further its coal power generation capacity despite the global efforts to move towards renewable energy, and this is really driven by a focus on energy security.
Thanks for listening. If you enjoy Thoughts on the Market, please take a moment to rate and review us on the Apple Podcast app. It helps more people to find the show.
Macro Economy: The 2024 Outlook Part 2
Macro Economy: The 2024 Outlook
Andrew Sheets: Will the Bond Market Suffer from Tax-Loss Selling?
Ed Stanley: Weight Loss Drugs and the Global Economy
Michael Zezas: Are the Worst Bond Returns Behind Us?
Matt Cost: How AI Could Disrupt Gaming
Mike Wilson: Will the Equity Market Rally Last?
Andrew Sheets: Upgrades and Downgrades in Corporate Credit
US Economy: What Generative AI Means for the Labor Market
Michael Zezas: What the New U.S. Speaker Means for Markets
U.S. Housing: The Impact of High Mortgage Rates
Mike Wilson: 2023 Stock Market Comes Full Circle
Andrew Sheets: Optimism in Corporate Credit
Asia Equities: China’s Risk of a Debt Deflation Loop
Vishy Tirupattur: Implications of the Treasury Market Selloff
Matthew Hornbach: The Impact of Policy on Bond Markets
Mike Wilson: Are Earnings Expectations Too High?
Ellen Zentner: The Rise of the SHEconomy
Global Autos: Automotive’s Smartphone Moment
Michael Zezas: The Impact of Geopolitical Tension
Create your
podcast in
minutes
It is Free
The emPOWERed Half Hour
Now, What’s Next?
Access and Opportunity
At Scale: A Sustainability Podcast