How quickly can and should fossil fuels be phased out? At COP28, finding the right balance on this vital issue became the central topic towards the end of the conference. Clearly, the only way to phase out fossil fuels is to introduce substitutes in all applications of such hydrocarbons. These substitutes will grow through market forces alone if they are competitive in costs and features. If not, regulations and subsidies could compensate for a lack of competitiveness.

While finding viable and sustainable replacements for oil, gas and coal is of the utmost urgency, it would be unwise and inefficient to stop the supply of fossil fuels before substitutes are in place. This would only lead to meteoric price surges that would trigger much more new supply than demand destruction. In the case of oil, academic literature shows that new supply would outweigh demand destruction by a factor of 10 if prices increase. For gas, the equivalent calculation would be by a factor of four to five, albeit with a nasty side effect; the substitute for gas is often coal, with twice as high emissions per unit of energy. A more efficient way to reduce emissions, therefore, is to implement measures that reduce demand for fossil fuels rather than reducing supply.

I have previously highlighted 12 key technologies that will eliminate demand for fossil fuels, where solar PV, batteries, electric vehicles, geothermal, and wind power are the most important contributors. In addition, up to 8 Gt of carbon capture and storage capacity is needed to achieve net zero emissions and beyond. Assuming that the exponential growth of these disruptive technologies will continue, we are on a track to limit carbon dioxide emissions to 650 Gt which corresponds to 1.6 Dg global warming. And then, reducing methane emissions represents and upside of up to 0.2 DG.

On this front, I was impressed by a pledge announced by 50 energy companies at the outset of COP28. These companies made a commitment through the global decarbonization accelerator to 1) rapidly scale the energy system of tomorrow, 2) decarbonize the energy system of today, and 3) target reductions of methane and other non-CO2 greenhouse gases. Moreover, they put forward concrete measures for how to deliver on this pledge, including using new satellite-based methane surveillance technologies. In contrast to carbon dioxide emissions, where there is always a trade-off, reducing methane emissions saves energy and offers only benefits. Thus, with so many important companies signing this pledge, hopes are high that meaningful improvements with swift climate impact will come.

The companies that have signed this pledge include ExxonMobil, BP, Shell, TotalEnergies, Equinor, Eni, Repsol, Saudi Aramco, Petronas, and Petrobras, along with 40 other national and international players representing about 40% of global oil production. While most of the European and Middle Eastern oil companies have joined the pledge, North American and Chinese companies were largely absent. However, as this pact is based on the recent cooperation between the OGCI secretariate (Oil and Gas Climate Initiative) and the COP28 leadership in Abu Dhabi, there might not have been time to approach all companies that could be likely to sign. Thus, let’s hope for more companies to join this pledge shortly.

We look forward to sharing a deeper dive into the possible consequences of COP28 at our year-end special edition webinar. In addition to COP28 takeaways, the webinar will include market updates and dedicated segments focusing on emissions and decarbonization of industry. I am looking forward to my conversation with Terje Pilskog, CEO of Scatec, reflecting on COP28. We will also be joined by Jesse Peltan, recognized on Forbes 30 Under 30. Jesse, along with our Deputy CEO, Lars Eirik Nicolaisen, will delve into discussions about climate challenges within the industry and the search for smarter solutions for the future of energy supply.