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

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The world has failed to reach an agreement to stop burning fossil fuels. After two weeks of negotiations, a draft resolution at the UN’s COP27 climate conference in Sharm El Sheikh, Egypt, pledged a compensation fund for climate change damages but fell short of a campaign by the US and Europe for a “step -down” of oil, gas and coal.

In fact, it’s worse than that. Although it was agreed to gradually reduce coal at last year’s Glasgow conference, other fossil fuels are going to remain immune. Twenty years from now, we are still likely to see global climate meetings fail to agree to a phase-out (let alone a phase-out of fossil fuels). And that’s right — because what matters is not the words in an international agreement, but whether our carbon emissions are falling fast enough. In that respect, the outlook is much better.

There is a simple reason why it is so difficult to get consensus at UN climate meetings. The wording released at the end of the COP meetings is not just words, but a semi-legal text that serves to give a taste of the binding commitments of the Paris Agreement 2015. If only one of the 193 parties to that agreement oppose the decision of the conference, no agreement will be published. That’s why campaigners, fossil fuel lobbyists and diplomats fight so hard for every emphasis. The COP decision is not exactly law, but it still influences the actions of governments and companies in the real world.

As we trudge along the road to net zero, a significant number of UN members are becoming uneasy about the destination. The Organization of the Petroleum Exporting Countries counts 13 states, with another 11 in the OPEC+ group. Throw in non-OPEC+ countries that are heavily dependent on oil and gas – such as Guyana, Qatar, and Turkmenistan – and you have as many as 50 delegations, depending on how you draw the line. For that group, which is equivalent to a quarter of the member states of the United Nations, a commitment to phase out petroleum is a vow to shrink their own economies.

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The situation with oil and gas is different from that with coal. Heavy, messy and expensive to transport, the solid fuel is much more difficult to trade than petroleum. Only half a dozen countries are major exporters. Hardly anyone considers it central to their economies, the way oil is to scores of nations. That makes it much easier to negotiate discounts.

For decades, the great divide in environmental discussions has been between rich and poor nations. That division remained stable for so long because at one level economic development is simply a process of using more energy. At a time when fossil fuels were the only viable low-cost energy source around, a promise to reduce emissions was a promise for poor countries to stay poor.

What has changed is the remarkable progress in renewable technologies that can compete with conventional energy on cost as well as environmental grounds. That has shifted the divide in climate talks from the old rich-poor divide, to a new one between exporters and importers of fossil fuels. The move is best illustrated by last year’s net-zero pledge by India, for many years the standard bearer of emerging economies resisting making such commitments until they could grow rich. The agreement of rich nations this year to a loss and damage facility to compensate small and poor countries for climatic disasters is another sign of the new diplomatic alliances that are emerging. So is the reluctance by oil exporters to reject any language that is gradually diminishing.

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When working out 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 viable alternative business. Oil has made your country rich. (For the likes of Saudi Arabia, it arguably made your country a country.) It’s such a dominant trade that rival industries have withered in its shadow – a Dutch Disease phenomenon familiar to many commodity exporters.

The situation for importers is very different. What your population wants is affordable energy and food, together with the fruits of the development that comes with it. For a century or two, fossil fuels have been the only way to provide that – but consumers don’t care much if their scooter is powered by oil or their air conditioner by gas, as long as it works and doesn’t it costs too much. .

The events of 2022 have accelerated that trend. The last time the world faced an energy crisis like this – in the early 1980s, when the Iranian revolution and the Iran-Iraq war choked off oil supplies while the US Federal Reserve’s war on inflation wiped out demand – the 10% oil consumption over the year. three years through 1982, is still the sharpest decline in history.

What is different now is that viable and affordable alternative energy sources are available. Renewable energy, rather than coal or gas, is the cheapest way to generate new power for two-thirds of the world’s population. In major car markets, new electric vehicles already cost less to own and run than their combustion-powered counterparts. Even the gas that provides feed for the chemicals industry faces being undercut by green hydrogen before the decade is out.

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The emerging future will be deeply disruptive to the countries most dependent on fossil fuel exports – but ultimately, consumers and importers will decide which energy sources to lean on. Economics were already driving them relentlessly towards low carbon alternatives. The war in Ukraine, and Russia’s attempt to use energy exports as a weapon, have added a strong undercurrent of national security to the mix.

What the world needs is not strongly worded international agreements, but a decline in carbon dioxide emissions. Initiatives like this year’s loss and damage facility can certainly tighten the alliance between rich and poor fossil fuel importers. The change needed is already happening far from the conference halls of Sharm El Sheikh – and it is going to continue, regardless of the state of diplomacy.

More From Bloomberg Opinion:

• How to Fund Climate Plans Amid a Cash Crisis: David Fickling

• Leaving Africa’s Carbon Emissions Isolation: Eduardo Porter

• How Warming Yukon Forced Its 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. Before that, he worked for Bloomberg News, the Wall Street Journal and the Financial Times.

More stories like this are available at bloomberg.com/opinion

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