Zeus: 'Down' and 'out' in Dubai: What a phased oil cut looks like for investors
Zeus: 'Down' and 'out' in Dubai: What a phased oil cut looks like for investors
Why this year's climate summit could spell the end of the multilateral COP process.
This column is for Callaway Climate Insights subscribers only, but it’s OK to share once in a while. Was it shared with you? Please subscribe.
(David Callaway is founder and Editor-in-Chief of Callaway Climate Insights. He is the former president of the World Editors Forum, Editor-in-Chief of USA Today and MarketWatch, and CEO of TheStreet Inc. His climate columns have appeared in USA Today, The Independent, and New Thinking magazine).
SAN FRANCISCO (Callaway Climate Insights) — It’s saying something about the potential for this COP28 United Nations climate summit that an agreement meant to “phase out” fossil fuels would be seen as a major victory.
In the 28 years since the first Conference of the Parties (COP) summit was held in Berlin, oil and gas production has continued to rise, and this year will set new records. Phase down? Phase out? A phased anything is not what’s needed.
What is needed is more rapid escalation of renewable energy to replace fossil fuels in both energy usage and profit potential, combined with new sources of energy such as nuclear fusion. Sadly, for investors, the profits in renewables and unproven concepts such as fusion are years away, while oil and gas profits are accumulating now.
This year’s summit in Dubai could be a turning point for the COP process, which has been clearly ineffective. Perhaps Paris 2015 was the high point, when everyone agreed to try to keep global temperatures from rising more than 1.5°C. above pre-industrial averages. But Dubai 2023, where the entire program has been seized by oil interests, to the point where there is talk of excluding fossil fuels in coming years and starting over, could well spell the end of it.
David Callaway explains why this column is called Zeus in The coming battle with the climate gods: How mortal innovators and investors will save the planet.
I spent many years going to the World Economic Forum in Davos, Switzerland. It had about 2,000 political and business leaders, and press, crammed into a tiny ski resort town. I remember well how we would all get caught up in the daily agenda, as if our little group and the various speeches and petty feuds were the only things happening in the universe that week. I imagine COP is similar, but far larger.
At more than 80,000, COP is now a moving climate festival, with expos and side parties and protests all combined. But somewhere along the way, the actual business of COP, of global leaders coming together to negotiate shared costs and sacrifices to fight climate change, got co-opted by business interests, banking and oil.
The U.S. is a prime example. Some of the most visible climate leaders come from America, such as John Kerry or Al Gore, even President Joe Biden. But the U.S. remains the world leader in oil production, with an estimated 13.2 million barrels per day this year. That’s higher than even pre-Covid levels. We’re making more!
Biden won’t say it because he needs lots of oil and low gas prices for his re-election chances. And there’s the rub. Leaders in both China and India — the other two major world polluters — need oil, too. We can argue about phasing down and out in Dubai, but in reality, about 75,000 of the 80,000 people there this week are chasing climate finance dollars, not climate mitigation.
That the summit has descended into such a farce from the heights of the Paris Accord just eight years ago is wrenching for climate advocates who are trying to prevent the headlong dive we’re all taking into a hotter, more dangerous world. But you’re just not going to get ground-breaking agreements in a world where every country gets a vote, and many of them base their economies on oil production.
Even if some sort of “phased” oil cut is agreed, with all the caveats such a deal would come with, the timeline on it would be closer to the end of the decade, if not mid-century.
For investors, whatever type of phased agreement emerges from Dubai, unabated or not, the real world of oil deals as the industry consolidates will remain largely unaffected. The U.S. Federal Trade Commission said this week it’s investigating Exxon’s massive purchase of Pioneer Natural Resources, but the $60 billion deal will be hard to stop as long as production levels are maintained.
Oil stocks will follow prices while high-tech ideas such as carbon capture and storage (CCS) — and even nuclear fusion — will remain on everyone’s radar until a viable, scaled solution emerges. Renewable energy companies, now that interest rates have peaked, are going to be worth another look as they continue to make gains in capacity.
But the idea that a grand agreement is going to come out of Dubai that jacks markets is probably just another desert mirage in a country making itself more and more known for them. If anything, investors will benefit most when the headlines move from the latest net zero pledges at COP28 back to reality.
Read more Zeus columns from David Callaway:
Zeus: Market rout threatens renewables surge at crucial moment
Zeus: Fed’s shift on climate policy won't weather the coming storms
Zeus: The coming takeover battles for the climate transition
Follow us . . . .