COP28 shows weaning the world off fossil fuels is hard to do

The recent summit of BRICS countries (Brazil, Russia, India, China and South Africa) invited Argentina, Egypt, Ethiopia, Iran, Saudi Arabia and the UAE to join. Its emergence as a loose trading bloc, which parallels the developing country groups at the climate negotiations, is responsible for more than 43 per cent of global oil supplies – more than doubling its smaller version.

Consequently, attempts to dictate energy choices in the developing world as Western countries are prone to, will only enhance the appeal of countries such as China, Russia and Iran, with the geopolitical implications this entails. In part, this explains why the UAE, as COP president, brokered a $US450 million ($686 million) contribution to the loss and damage fund – it’s the kind of credential that matters to developing countries.

Keeping the lights on in Europe

Second, the importance of Western energy production, with record US oil and gas output driven by the shale gas revolution of the past decade, has reassumed geopolitical importance. Despite coming into office promising to undo the Trump-era energy policies, the Biden administration has overseen US LNG exports playing a critical role in keeping the lights on in Europe, allowing the continent to hold the line against Russia. This is set to continue as US gas replaces that from Russia.

Third, the costs of the energy transition in Western countries are now starting to be felt.

The recent AFR Energy and Climate Summit had multiple speakers noting the real challenges confronting the energy transition. With power prices jumping a further 20 per cent this year, energy costs and reliability are shaping up as a big election issue.

It’s why the Victorian and NSW governments are paying coal generators to stay open, and is also the reason behind the federal government’s expanded Capacity Investment Scheme to underwrite 32GW of new renewables and storage. It’s also why Energy Minister Chris Bowen has made the obvious point that gas is essential to the energy transition.

Yet, whatever challenges Australia has, those confronting Europe are on another scale. The energy and climate U-turns seen across Europe following Russia’s invasion of Ukraine have exposed the contradictions of EU energy and climate policy – none more so than Germany.

German government’s big problem

Despite reiterating its call to phase out fossil fuels while closing its last nuclear power plants and reopening old coal plants, Germany also spent about US$500 billion buying coal and gas last year to keep the lights on and people warm. And that was an unusually mild winter. Unsurprisingly, the impact of higher energy prices and unpopular energy policies is now a major political problem for the German government.

Finally, there is the domination of global renewable energy supply chains by China, and the broader risks this entails, including cyberattacks. Despite the best efforts of Western countries to onshore renewable energy production, this is unlikely to occur anytime soon or at the scale required.

The Biden administration’s climate centrepiece – the Inflation Reduction Act – is already a political football. If the Democrats lose next year’s presidential election, expect an incoming Republican administration to re-focus it towards nuclear and gas-fired power.

The past two years have focused attention on the need for reliable and affordable energy, and this is not about to change. Governments and the private sector are responding, if only quietly, by acknowledging the energy transition is occurring over decades, not years. Incorporating this new energy realism made the work of climate change negotiators in Dubai that much harder.