A historical agreement was reached in Dubai at COP28, on the same day that the US Fed indicated that interest rates are likely to go down in 2024. The combination of these two events is signaling the end of the decarbonization bloodbath that the shares of the companies leading energy transition were facing this year.
All in one preposition
With a day of delay, the final text of the COP28 summit was approved. The much-criticized leadership of the event by the CEO of UAE’s Adnoc (the world’s 11th largest oil & gas producer) proved to be what was needed, to explicitly refer to a transition away from fossil fuels, for the first time in the history of the Conferences of the Parties. After much debate on phasing out, or down from fossil fuels, the agreement was to move away. Nearly every country in the world has committed to the transition away from coal, natural gas, and oil. The commitments are included in the first “global stocktake,” reporting measurement, and situation analysis to determine where each country is in terms of both climate change mitigation and adaptation so that implementation gaps can be identified as well as what solutions can accelerate its adoption.
Renewable is the clear winner and undisputable solution
At the beginning of the conference, 118 countries signed a pledge to accelerate renewable investments. More specifically, the countries committed to triple renewable energy capacity by 2030 (to at least 11,000 GW). The US stands with 56 countries committed to phasing out of coal-fired power plants.
Methane is the most important short-term issue and again fossil fuel presence and leadership were the catalysts for the agreement
Another accomplishment of this UAE-based COP was the coalition of 50 major oil & gas producers that committed to cutting methane emissions by 80% to 90% by the end of the decade. Methane often leaks during fossil fuel production, generating 84 times more damage than CO2. If successful, this would be an impactful way to increase the chance of cutting global emissions by half by 2030.
On the other side of the Atlantic, the US Fed also gave indication of a key element for the acceleration of the transition
At the last US Federal Open Market Committee (FOMC) meeting of the year, Chairman Powell kept interest rates unchanged, as much expected by markets, but more importantly indicated that they envision three interest rate cuts in 2024, lowering interest rates by 75 bps. By observing the increasing pressure in share prices of the renewable energy names in general, as well as green growth names, it is very clear that accelerating the energy transition greatly will benefit from a lower interest rate environment.
Climate change mitigation and adaptation are infrastructure problems
We solve infrastructure issues with investments. For this, we need clarity on the direction we are heading, and both the global commitment to move away from fossil fuel and the Fed's indication that interest rates are likely to go down next year (two events that took place on the same day) are tipping points in the effort to accelerate the adoption of the many decarbonizing solutions.
The 3x on renewables goes from being aspirational to being a target
We were already advancing the adoption of key decarbonising solutions, contrary to what one would believe by analysing the share performance of the companies – from solar panels to wind turbines, inverters, electric vehicles, heat pumps, green hydrogen components, to lithium and batteries. The US has sold over 1 million EVs in the first eleven months of the year, clean energy storage is booming in the US and Australia. More than 1 GW of solar will be added to the planet per day in 2023, with a material percentage being rooftops, behind-the-meter solar that does not depend on the transmission grid expansion. In Europe this year around 70% of all the new solar added was in the form of solar rooftops at the point of consumption. These solutions are compelling, but their adoptions are interest rate-sensitive. Luckily, on December 13th we got an indication that the momentum behind them is going to intensify.
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