INSIGHT: Cracks start to form in decarbonization drive

LONDON (ICIS)–With the latest COP29 climate summit concluded, the lack of momentum in talks so far is the latest of an increasing number of warning signs about the state of the drive to mitigate climate change globally.

Opening remarks from the host nation describing its oil reserves as a gift from God is an entirely understandable sentiment for Azerbaijan, but not one that sets the stage for ambitious carbon mitigation talks.

The non-attendance of some key ministers such as France’s Ecological Transition Minister Agnes Pannier-Runacher further reduced the possibility of a significant breakthrough at the event.

NEW PLEDGES, LIMITED SCOPE
Despite worries that the summit would wrap up with no new agreements, negotiators did successfully push through several new accords, although the scope is fairly limited.

25 nations, mostly made up of the most developed nations, agreed not to develop any new ‘unabated’ -i.e. without mitigation measures such as carbon capture – coal plants.

With signatories including the UK, Germany, Canada and France, the impact of the measure could prove limited, given that the UK officially exited coal this year, France has pledged to do so by 2027, and core coal power growth is centred in the developing world.

The choice of wording to include that key “unabated” detail, also leaves the door open for fresh new capacities even in the signatory countries.

While abatement measures would limit the impact of fresh coal capacities and the expense of carbon capture would straiten the economics of proposed new plants, the agreement fails to fully close the door on coal even among those 25 nations.

The closing hours of the event also saw negotiators successfully draft a last-minute accord to channel funds to the developing world to help curb and abate the impact of climate change.

Under the terms of the deal, richer nations are to invest $300 billion annually by 2035 to the effort, a substantial sum that falls far short of the $1.3 trillion the developing world has been pushing for.

GLOBAL CONSENSUS FRAYS FURTHER
The Azerbaijan summit had been presented by the scientific community as the last chance saloon for measures that could keep global temperature increases to 1.5 degrees Celsius.

Meanwhile, the omission of any mention of fossil fuel transition in the leader’s statement at the G20 summit, which took place in the same week, was another ominous indicator of the fraying global consensus.

The election of Donald Trump in the US, a climate change sceptic who during his previous term in office scrapped the US’s commitment to the Paris Agreement, is likely to limit developed world support for multilateral action, and embolden countries that value fossil fuels as a contributor to GDP.

This scepticism and gridlock at the political level is filtering down through to businesses and consumers. This year’s EPCA was the first to see a key speaker voice scepticism over the viability of the EU’s 2030 CO2 reduction targets.

Others, such as Covestro’s Markus Steilemann, have expressed reservations about the likelihood of Europe being ready to phase out internal combustion engine cars by the stated deadline.

“The loading infrastructure isn’t ready [in Europe], that’s the biggest challenge,” he said.

“That is something that only public services and the government can solve in building the infrastructure, making sure that the infrastructure has sufficient green electricity, and also the grids are capable of dealing with this additional load,” he added.

“That’s why I see a high risk that Europe will miss its targets, and that will also amplify the trend of consumers to be very sceptical in terms of buying electric vehicles,” he said.

Electric vehicle sales have slowed in 2024 after years of growth, and plans by Trump to cut subsidies for new units and the increasing protectionism in the EU around China imports, signal further trouble ahead.

Disquiet over the feasibility of upcoming emissions reduction targets has grown to the point where executives such as outgoing Brenntag chief Christian Kohlpaintner have started to publicly question whether they will remain in place.

“I ‘m a little less optimistic [than some players] that we can actually accomplish our goal of reducing CO2 to the level we have committed ourselves,” Kohlpaintner said. “My anticipation is that politicians five to 10 years down the road will basically kill those targets.”

A CHANGED LANDSCAPE
From an industrial perspective, the massive erosion in EU competitiveness since 2022 and the focus on cost-cutting over growth investments and R&D has reduced executive appetite for large-scale new investments on less proven

“We’re undergoing this huge transition at a time where demand is gone. You want industry to invest 6.6 times its historic average every year from now until 2050 when there’s no demand for more sustainable products,” Cefic director general Marco Mensink said, speaking at the end of October.

Even in sectors such as sustainable aviation fuel where binding mandates are being rolled out, caution over the pace of demand growth has led Shell to postpone the launch of its new plant. In its second-quarter 2024 results, the company booked an $800 million write-down from the delay.

DEMAND OPACITY
Longstanding economic woes downstream of the chemicals sector have also made future demand much more difficult to gauge.

For a long time, the chemicals sector has lagged steel and other heavy industry in matching its sustainable materials commitments to what firms in core end markets such as automotive have targeted.

But, with the vehicle sector growing below expectations and widespread closures and layoffs across the industry, how have those demand expectations shifted and what would that mean for a chemicals producer that had committed to then?

Weaker economic conditions have also served to limit options for governments, with debt levels trending higher across most of the developed world and limited fiscal headroom reducing the potential for large-scale new investment programmes.

Progress continues to be made, with the European Commission reporting that carbon emissions fell 8% in 2023 after several years of increases.

The growth of renewable energy as a component of the power sector was a key driver of the decline, but a 7.5% decline in energy-intensive industry CO2 output was driven by the longstanding manufacturing sector recession.

The Commission’s own interpretation of the current trajectory of emission reductions points to the region missing its 2030 targets, although levels are projected to fall sharply over the next half-decade.

EU emissions

Source: European Commission

Progress is still being made on all fronts, from heavy industry to the power sector to governments. And it was always likely to be the case that such an ambitious reworking of how economies function would be a messy transition, with lots of stops and starts as the landscape around the transition shifts.

In difficult economic conditions, companies will always prioritise the necessary steps to staying solvent and profitable.

But, with the world’s carbon sink barely functioning last year and plankton populations struggling to adapt to rising ocean temperatures, the warning signs of accelerating ecological collapse are growing. The global community is struggling to form a consensus on how to address it.

Insight by Tom Brown

Clarification: recasts annual sum pledged to developing countries for decarbonisation