By Bob Hinkle, Founder and Executive Chairman, Metrus Energy
The road to COP 29 in Baku, Azerbaijan will be (sustainably) paved by several key outcomes from COP 28, now roughly 100 days behind us. Let’s start with the first-ever Global Stock Take, which was built into COP 28’s mandate. Although it was not an investment roadmap, it quantified the global shortfall in required emission reductions and put a spotlight on the staggering amount of investment needed to catch up.
Analysis by the Climate Policy Initiative reveals the investment needed to hit the Paris Agreement targets ranges from $5.4 to $11.7 trillion annually until 2030 and then rises to $9.3 to $12.2 trillion annually between 2030 and 2050. Quite simply, climate plans need to become finance plans. COP 28 signaled this shift by putting in motion several interconnected initiatives that begin to focus on the types of financing and projects needed to accelerate the transition away from fossil fuels.
Transitioning to Transition Finance
The UAE Consensus explicitly called for the “equitable and just transition away from fossil fuels.” This catalyzed momentum in a growing new market for “transition finance” and has helped broaden the financing discussion to include a wider range of investments in projects, industries, infrastructure, and companies that are all needed to achieve net zero by 2050. How transition finance is defined – and if its application truly spurs GHG-reducing investment – will be a key area to watch in 2024 and beyond.
Transition finance has a “we’re all in it together” approach that incorporates projects across more economic sectors and geographic regions, including heavy greenhouse gas (GHG) emitters and the Global South. Initiatives like the Bridgetown Initiative offer guidance in new ways to categorize (and scale) transition investments. The race is officially on.
A Warming Planet Requires Investment in Sustainable Cooling
A COP 28 outcome that can have an immediate real world impact is the Global Cooling Pledge that was signed by 63 countries and 50 private companies. This pledge aims to cut cooling-related emissions by 68 percent (compared to 2022) globally by 2050. It focuses on sustainable cooling action in five main areas: (1) nature-based solutions; (2) high-efficiency appliances; (3) food and vaccine cold chains; (4) district cooling; and (5) the creation of National Cooling Action Plans.
The private sector’s commitment to deliver new services and invest capital is a critical outcome of COP 28, since cooling projects are both capital-intensive and have a long-lasting impact on GHG emissions given that equipment often has a 20-30 year useful life.
Cooling is one of the world’s most vexing climate challenges with two interwoven realities: (1) over the next decade, demand for cooling will skyrocket due to rising global temperatures and increasing access to cooling (particularly in developing countries); and (2) the installation of new cooling systems will increase GHG emissions and exacerbate acute problems like the Urban Heat Island Effect.
Sustainable Energy for All estimates that almost 2.5 billion people lack access to climate-friendly cooling and more than 1 billion people are at high risk from extreme heat due to a lack of access to cooling. Meeting this growth in cooling demand – which could triple by 2050 – with a business-as-usual approach is untenable. Most Heating, Ventilation, and Air Conditioning (HVAC) systems purchased globally today have two- to three-times lower efficiency levels than the best-in-class cooling technologies and utilize refrigerants with high global warming potential.
The Global Cooling Pledge tackles this challenge head on. It underscores the importance of public and private investment in cooling and serves as a bridge between the timebound GHG reduction targets within the Paris Agreement and the Kigali Amendment to the Montreal Protocol, which seeks to phase out hydrofluorocarbons (HFCs) in cooling systems. The strength of this bridge will depend on the collective and collaborative implementation of this pledge.
Energy Efficiency (Finally) Joins Center Stage With Renewables
Energy efficiency found its collective voice at COP 28, with tremendous support from Mission Efficiency. It is part of the UAE Consensus which calls for “tripling renewable energy capacity globally and doubling the global average annual rate of energy efficiency improvements by 2030,” which 130 countries signed.
By coupling energy efficiency and renewables, COP 28 made it clear that the two are better together and should be a priority area of investment over the next several years. This represents a major – and long overdue – shift. The triple-double by 2030 can only be achieved if energy efficiency and renewable efforts build on, support, and integrate financing, projects, policies, and programs as much as possible.
Energy efficiency, which the IEA estimates can deliver roughly 40 percent of the global GHG reductions needed to hit the Paris Agreement, is an indispensable foundation in fighting climate change. It goes way beyond just saving energy and ties to the role of efficiency in providing resiliency for businesses, schools, and hospitals as well as relief for overburdened power grids. This last piece, in turn, is necessary to ensure electric grids can handle the surge in growth we need from renewables.
Onwards to Baku and Belem
Looking forward, there are many major, open issues that will need to be tackled in Baku, Azerbaijan at COP 29 and Belem, Brazil at COP 30. Specifically, three key items will be addressed:
1. Ten development banks at COP 28 issued a joint statement on blended finance, with the World Bank committing to spend 45 percent of its financing on climate projects. Funding from development agencies can catalyze private investment by taking a first-loss equity position in projects or by providing debt funding for higher-risk projects. The success of any potential agreement in Baku will rely on this type of blended (public-private) finance.
2. COP 29 is tasked with setting a new global goal for finance, called the New Collective Quantitative Goal (NCQG). The NCQG will replace the $100 billion per year mobilization goal agreed to in 2009 at COP 15. Getting consensus on a new goal is a Herculean task that will require bringing together the Global North and South. It also will require including private sector finance to augment what Multilateral Development Banks and governments will need to step up and commit.
3. COP 30 will focus on implementing the recent Global Stock Take by setting individual country commitments on GHG reductions (known as Nationally Determined Contributions, or NDCs), which are due in 2025. Bold ambition will be necessary to make up for current shortfalls and lost time to hit the Paris Agreement.
At COP 28, a team consisting of the presidencies of COP 28, 29, and 30 agreed to work together on a “Roadmap to Mission 1.5” which aims to set the most ambitious NDCs possible. This cross-COP collaboration is unique: it enhances international cooperation and expands the ways and means of getting climate work done by packaging short and longer-term actions, promises, and commitments together.
We need this Roadmap and we need to maintain momentum and focus on all types of transition investment in 2024 and beyond. If we are to achieve an equitable and just transition in our energy systems, it can only be done together.
About the author: Bob Hinkle is the Founder and Executive Chairman of Metrus Energy. Metrus removes the financial barriers to energy efficiency and clean energy projects through the efficiency-as-a-service model.