Global energy and funding shocks test climate commitments

Six months after the world agreed in Glasgow to a UN climate pact with bold, new targets, political and business leaders facing an energy crisis, volatile markets and an economic downturn are grappling with how to cut carbon emissions.

Amid soaring oil and gas prices triggered by Russia's February 24 invasion of Ukraine, some countries have turned to other fuels, including coal, to meet their energy needs.

Meanwhile, financial market ructions have complicated plans to raise the trillions of dollars needed for the energy transition away from fossil fuels.

US climate envoy John Kerry stressed at the World Economic Forum (WEF) in Davos, Switzerland, that the energy crisis wrought by the war in Ukraine should not deepen the world's dependence on climate-warming fossil fuels.

"If we make the right choices here we can win all of these battles: we can do what we need to do with respect to Ukraine, we can do what we need to do with respect to the climate crisis," Kerry told attendees at the summit. 

He warned against ramping up investments in fossil fuel infrastructure: "We cannot be seduced into believing that this suddenly is an open door to going back and doing what we were doing which created the crisis in the first place".

At the COP26 UN climate summit in November in Glasgow, Scotland, nearly 200 countries agreed to increase their national pledges this year to align with a target of capping global warming at 1.5 degrees Celsius (2.7 Fahrenheit) above pre-industrial levels.

To meet that goal, countries would need to cut carbon dioxide emissions by at least 45% by 2030 from 2010 levels. To date, annual global emissions have only ever continued to rise.

"The timetable is now in question. There's a lot of debate then on how many years have we been set back now," Jay Collins, vice chairman of banking, capital markets and advisory at Citigroup, told the Reuters Global Markets Forum in Davos.

So far, none of the Group of Twenty advanced economies, which are responsible for around 75% of greenhouse gas emissions, has updated its CO2-cutting pledge this year, according to a report this week by the World Resources Institute, E3G and the Energy and Climate Intelligence Unit.

More than 100 countries also have pledged a 30% cut by 2030 in emissions of methane, another major greenhouse gas, but most of them have yet to say how they will meet that deadline.

"There's a short-term crisis going on right now, and I think that's going to ultimately accelerate mid-to-long-term goals, but it may not feel like that," said Carl Carande, global head of advisory at KPMG.

'STAYING THE COURSE'

While countries struggle to jump into the energy transition, companies that are facing investor pressure on climate action are sticking to their sustainability commitments, according to several business leaders in Davos.

"We're staying the course," Unilever Chief Executive Alan Jope said during a WEF panel discussion: "Unilever's investors have told us to put sustainability at heart of our business model."

As fossil fuel prices rise and the costs of deploying renewable energy fall, "the economic benefits of investing in climate solutions become ever clearer", the COP26 progress report said.

"When a company makes a commitment to customers, employees, shareholders, (it) can't just say, 'Oh it's inconvenient right now.' Those commitments are long standing," Bank of America Chief Executive Brian Moynihan said during a panel discussion.

But for Amin Nasser, head of oil producer Saudi Aramco, part of the problem is a lack of conversation between the oil industry and policymakers about the energy transition.

"I don't think there is a lot of constructive dialogue going on. In certain areas we are not brought to the table. We were not invited to COP in Glasgow," he told Reuters on Monday.

Nasser said investors fear being left with so-called stranded assets, essentially preventing companies from investing in fossil fuels to fill supply gaps caused by the Ukraine conflict and depletion of old fields across the world.

"We need a more constructive dialogue. They say we don't need you by 2030, so why would you go and build a project that takes 6-7 years? Your shareholder will not allow you to do it," Nasser said. 

At Shell's annual shareholder meeting on Tuesday, investor support for targets consistent with the Paris climate accord fell to 20%, from 30% in 2021, while votes against the company's own climate plan doubled to 20%, from 11% in 2021.