COP28: what was decided and what does it mean in practice for business?

Nearly 200 countries and over 80,0000 attendees gathered in Dubai this year for COP28, the annual UN climate summit. The two-week conference, hosted by the UAE, was the biggest COP so far with unprecedented numbers of attendees including many from the private sector. In a historic first, COP28 sends a clear signal to the market that the direction of travel is towards renewables and away from fossil fuels.  

Global Stocktake 

This year’s COP was also the first Global Stocktake – where countries assessed what progress they have made so far in meeting the goals of the Paris Agreement so that this can inform what further action they will need to take in the next round of national climate plans (known as Nationally Determined Contributions or NDCs) that will need be submitted in 2025 before COP30 starts.

From a scientific point of view, the current outlook is not good. According to the latest UN report,  current climate pledges put the world on track for a temperature rise of up to 2.9C above pre-industrial levels and indicates that the chances of keeping within the 1.5C threshold in the Paris Agreement are worryingly low.  

But before we look at what was decided in this year’s COP, it is worth taking a step back and reminding ourselves that these UN summits operate on the basis of consensus, which means that you need to get nearly 200 countries to all agree on the same wording – and all of this against a very challenging geopolitical and economic backdrop. So it is not surprising that the end result of these conferences is always less ambitious than some might have hoped for. 

That said, this year’s COP still managed to achieve some important milestones and produced results that were at the upper end of our own expectations.

What was decided?

The final COP28 agreement (dubbed the UAE Consensus), which was reached on 13 December 2023, has been heralded by COP28 president Sultan Al Jaber as a “historic” agreement. For the first time in the history of the UN climate COPs, the final text includes a call to the parties to transition away from fossil fuels. Simon Stiell, the Executive Secretary of the UN Framework Convention on Climate Change (UFCCC), said the agreement signals the “beginning of the end” of the fossil fuel era (see UN press release), even if a number of parties have expressed concern over loopholes in the wording. 

The key sections are set out in paragraphs 27-29 of the final agreement:

“27. Also recognizes that limiting global warming to 1.5 °C with no or limited overshoot requires deep, rapid and sustained reductions in global greenhouse gas emissions of 43 per cent by 2030 and 60 per cent by 2035 relative to the 2019 level and reaching net zero carbon dioxide emissions by 2050;

28. Further recognizes the need for deep, rapid and sustained reductions in greenhouse gas emissions in line with 1.5 °C pathways and calls on Parties to contribute to the following global efforts, in a nationally determined manner, taking into account the Paris Agreement and their different national circumstances, pathways and approaches:

(a) Tripling renewable energy capacity globally and doubling the global average annual rate of energy efficiency improvements by 2030;

(b) Accelerating efforts towards the phase-down of unabated coal power;

(c) Accelerating efforts globally towards net zero emission energy systems, utilizing zero- and low-carbon fuels well before or by or around mid-century;

(d) Transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner, accelerating action in this critical decade, so as to achieve net zero by 2050 in keeping with the science;

(e) Accelerating zero- and low-emission technologies, including, inter alia, renewables, nuclear, abatement and removal technologies such as carbon capture and utilization and storage, particularly in hard-to-abate sectors, and low-carbon hydrogen production;

(f) Accelerating and substantially reducing non-carbon-dioxide emissions globally, including in particular methane emissions by 2030;

(g) Accelerating the reduction of emissions from road transport on a range of pathways, including through development of infrastructure and rapid deployment of zero- and low-emission vehicles;

(h) Phasing out inefficient fossil fuel subsidies that do not address energy poverty or just transitions, as soon as possible;

29. Recognizes that transitional fuels can play a role in facilitating the energy transition while ensuring energy security;

Looking at that wording in more detail:

• Transitioning away from fossil fuels – The question of what (if anything) to say in the final agreement about fossil fuels/oil & gas threatened to derail the whole COP. In the end, the parties compromised on the concept of “transitioning away” from fossil fuels (rather than a phase out/down of unabated fossil fuels). The wording gives countries a significant amount of flexibility since the agreement merely “calls on” (rather than requires) countries to contribute to the global effort - in a manner that takes into account their different national circumstances and is “just, orderly and equitable”. To some, this signals the “beginning of the end” of the fossil fuel era, but the wording still leaves governments with a great deal of room for manoeuvre. It is indeed historic in that this is the first time a climate COP agreement explicitly mentions a pivot away from fossil fuels (other than coal, which has been referenced in previous COP agreements) but to others the wording lacks the necessary urgency and ambition.
• Transitional fuels – Some commentators have raised the concern that this reference gives countries room to continue using gas in the near to medium term. The alternative would be an abrupt pivot away from coal and oil & gas which still provides 80% of the globe’s power. There was emphasis at this year’s conference on the need for a “just transition”, including recognition that not all countries can transition at the same speed or in the same manner. 
• CCS and hydrogen – Although the agreement does not mention “unabated” fossil fuels, it does encourage countries to accelerate certain low-carbon technologies including carbon, capture and storage (CCS) and low-carbon hydrogen.
• Renewable energy and energy efficiency – An agreement to triple renewable energy and double energy efficiency by 2030 was the least controversial aspect of COP28. However, delivery of this ambition on the ground will depend to a great deal on things like national permitting processes, grid access, and global supply of primary materials – all of which have been making their own headlines recently. 
• Methane emissions – Methane is a greenhouse gas (GHG) several times more potent than CO2 so reducing these emissions is seen as quick and relatively cheaper win – especially when combined with the methane reduction commitments from 50 oil & gas companies under the auspices of the Oil and Gas Decarbonisation Charter (see below).  
• Keeping 1.5C alive – Yes, we need bolder action and greater urgency but it still worth noting that the parties were able to agree on what is needed to keep the 1.5C goal in the Paris Agreement within reach – namely “deep, rapid and sustained” reductions in global GHG emissions of 43% by 2030 and 60% by 2035. Now the question is whether countries when they submit their revised NDCs in 2025 are able to increase their climate ambition sufficiently. 

Other key developments – some of which were part of the official COP28 agenda and some of which happened on the sidelines:

• Loss & damage fund - As we previously reported (see here), in the first days of COP28, countries reached some important decisions on how to operationalise the loss & damage fund for developing countries that are the most vulnerable to climate change. However, despite initial funding pledges and agreement on who will host the fund, no agreement has been reached yet on who pays, how much, on what basis, and to whom. All of which will need to be agreed before COP29 next year. 
• Global Goal on Adaptation – Discussions on adaptation proved tricky over the course of COP28 with G77 countries pushing for a far greater focus on adaptation finance than the US and the EU were willing to accept. Substantive negotiations over a text only started in the last few days of the COP and focused on a framework pursuant to which countries’ efforts to protect themselves from climate change can be shaped, built around themes of food, health, water, infrastructure, ecosystems, eradication of poverty and cultural heritage. Given the very large financing gap in this area, this is a topic which is going to come back to future COPs. In the meantime, parties will work on developing performance indicators to measure the extent of countries’ adaption.
• ALTÉRRA - COP28 saw the launch a new climate investment fund called ALTÉRRA, aimed at improving access to climate finance in emerging markets, with an initial funding of US$30 billion from the UAE. ALTÉRRA is hoping to mobilise US$250 billion globally by 2030 with the help of launch partners which include BlackRock, Brookfield, and TPG. 
• Energy Transition Accelerator – The ETA was initially floated at last year’s COP27 by US climate envoy John Kerry, and this year the US were able to present a more detailed framework for how this would work. The ETA is intended to mobilise new finance by assembling a coalition of private sector companies and institutions willing to commit now to pay for verified reductions in power sector emissions that result from “just” energy transition programs in developing countries, delivered as high-integrity carbon credits.
• Oil & Gas Decarbonisation Charter - 50 companies, representing more than 40% of global oil production, have committed to net-zero operations by 2050 at the latest, ending routine flaring by 2030, and near-zero upstream methane emissions – although this does not cover their Scope 3 emissions. This is noteworthy because it includes many national oil companies that have been less susceptible to activist pressure than the oil majors and because of the focus on methane. 
• Climate-resilient debt clauses – Building on clauses proposed by the UK at last year’s COP27, major international financial institutions and countries made new commitments to offer climate-resilient debt clauses (CRDCs) in their loans, which will enable debt service to be paused in case of climate catastrophes.
• Article 6 carbon markets – It was one of the disappointments of COP28 that the parties failed to reach agreement on how to operationalise Articles 6.2 and 6.4 of the Paris Agreement. These enable countries to voluntarily cooperate to meet their climate targets by trading carbon credits from emissions reductions and removals via bilateral agreements –creating a new UN-supervised voluntary carbon market. Disagreements persist on credit methodologies and eligibility of removal activities, amongst other things. Agreement on these issues has been postponed to COP29 next year. 
• Climate taxes taskforce – A new taskforce has been launched (with initial support from France, Kenya and others) to explore different options for international taxation to fund climate-resilient investments in developing countries. The taskforce will look at the potential to raise climate finance from taxes on a range of industries and economic activities, including aviation, shipping, fossil fuel companies, and financial transactions. The goal is to produce specific proposals in time for COP30 in 2025.  
• Nature and biodiversity - Nature was a key part of the COP28 agenda, with a high-level commitment from several countries to protect nature and scale up nature finance. Innovative financing mechanisms, such as debt-for-nature swaps, nature-based solutions and credit enhancements, were a key part of the discussions.
• Food and agriculture - Over 150 countries endorsed a declaration on sustainable agriculture, resilient food systems and climate action, which sets out commitments to transform agriculture and food systems by promising to consider GHG emissions from food and agriculture in their national plans to combat climate change.
• Net-Zero Data Public Utility – COP28 also saw the official launch of the NZDPU proof of concept, which is a free, centralised repository of global company-level GHG emissions data. This will provide information on companies' GHG emissions, emissions reduction targets and assurance and verification, to enable emissions data to be compared across companies.

What does COP28 mean in practice for business?

The climate COPs are primarily negotiations between the governments of different nations. These summits can help to indicate a general direction of travel on global climate ambition but at the end of the day it is up to individual countries to decide how to translate the agreed positions into national policies, regulatory frameworks and financial incentives. 

For example, the commitment to triple renewable energy and double energy efficiency by 2030 will no doubt be welcomed by the private sector but (as mentioned above) implementing these pledges will depend at least in part on the policy and regulatory environment in place in each country.  

The encouraging signals in the COP28 agreement around CCS, hydrogen and other low-carbon technologies will no doubt be welcomed by hard-to-abate sectors as well but deployment of these technologies at scale will depend on a whole host of domestic policy and regulatory issues including the right financial incentives for these technologies. 

On fossil fuels, the picture is a bit more fluid. One the one hand, the wording agreed on transitioning away from fossil fuels sends a strong signal. On the other hand, the wording gives countries a great deal of flexibility, arguably puts the onus on demand-side measures rather than on oil producing countries, and in any event is not mandatory. 

Recent COPs have broadened to become more than a forum for international negotiations between countries. They also provide an important opportunity for business leaders to meet, for various business and civil society organisations to launch their own climate initiatives, and for the private sector to connect, reach agreements and more generally to test the temperature on the pace of change. And this year’s COP attracted significantly more private sector attendees than any previous COP. One of the key themes this year on the sidelines was increased interest in transition finance, in particular opportunities in the blended finance space such as debt-for-nature swaps, as well as opportunities in voluntary carbon markets (VCMs). There is no doubt that the net zero transition represents an incredible investment opportunity - and momentum is gathering from those best placed to deploy significant capital. 

As much as the COP28 agreement talks about what is needed, it does not provide a detailed roadmap of how to get there or explain how exactly it is going to be financed. But if there is one thing that the private sector excels at, it is in developing innovative financial solutions. 

COP29 and COP30: what happens next?

COP29 will be hosted by Azerbaijan in November 2024, and COP30 will be hosted by Brazil in 2025. 

Although COP28 was an important one (perhaps the most important COP since the Paris Agreement in 2015), certain key elements are yet to be resolved - such as the details of how the loss & damage fund will operate in practice and the revised climate plans/NDCs from all the different countries. The next two years will be critical. Basically, there is still an awful lot of work to be done. 

For further insights from the Linklaters team on this year’s COP, see: 

• COP28 reflections - Thursday 7 December 2023
• COP28 reflections: a closer look at the Gulf region
• COP28: first results
• Linklaters COP28 page