The leaders of China and India have stayed away from the summit in Egypt

Ed Crooks, Vice-Chair, Americas, Wood Mackenzie

Sharm El Sheikh in Egypt is a popular centre for divers wanting to explore one of the wonders of the natural world: the coral reefs of the Red Sea. So it is an appropriate location for this year’s round of UN climate talks, COP27, which have been under way for the past week and end on November 18. Coral reefs, threatened by ocean acidification and rising temperatures, are a vivid example of the risks created by carbon emissions and global warming.

However, the natural beauty of the location has not prevented COP27 falling victim to some very human disputes, over how climate change should be tackled, how the harm it causes should be addressed, and how other considerations including economic development and security should be taken into account in energy policy.

Although there has been progress at COP27 on some issues, including international agreements to curb methane leakage, announcements of new pledges to reduce total emissions have slowed since last year.

In the Glasgow Climate Pact, adopted by 193 countries at COP26 a year ago, governments agreed to strengthen their climate targets by the end of 2022. But as Wood Mackenzie analysts pointed out in their preview of this year’s talks, by 31 October only 26 countries had done so. Just eight of those were among the world’s top 25 emitters.

Pesident Joe Biden of the US went to COP27, flush with the relative success of the Democrats having exceeded expectations in the midterm elections. But neither President Xi Jinping of China nor Prime Minister Narendra Modi of India attended. China and India are, respectively, the world’s largest and third-largest emitters of greenhouse gases, and any effective climate solution has to include them.

Both countries have reiterated previously-announced climate commitments. China has a goal of net zero emissions by 2060, and India by 2070. In August India updated its Nationally Determined Contribution, its programme of emissions pledges submitted to the UN, and is now aiming to have about 50% of its power generation capacity in non-fossil fuel sources by 2030, and to cut the emissions intensity of its economy by 45% from 2005 levels, also by 2030. But their leaders’ non-attendance sends a signal about their views on the UN process.

“They are showing their scepticism that this is a forum where fair negotiations would take place,” says Elena Belletti, Wood Mackenzie’s head of carbon research. “They have both strongly expressed in the past that Western solutions to climate change are not necessarily right for them, and they are protecting economic development.”

President Xi underlined that point in his speech to the Chinese Communist Party Congress last month. “We will advance initiatives to reach peak carbon emissions in a well-planned and phased way,” he said, “in line with the principle of building the new before discarding the old.”

In other words, while China might move away from coal, it will not do so until the energy supply it needs can be provided by other sources. Coal-fired plants account for about 63% of China’s power supply, and generation from coal is rising. Wood Mackenzie forecasts a 0.6% increase in China’s coal-fired generation this year, and a further 2.6% increase next year.

China’s participation in climate negotiations also shows how international co-operation can be impeded by other political and strategic considerations. China withdrew from bilateral climate talks with the US as a protest after Nancy Pelosi, the speaker of the House of Representatives, visited Taiwan. John Kerry, the US special envoy for climate change, said last week he had seen his Chinese counterpart Xie Zhenhua at COP27 for informal talks, “but we’re not in any formal negotiations.”

In these circumstances, it is unsurprising that the NDCs so far submitted to the UN would not put the world on course to meet the Paris Agreement goal of limiting global warming since the 19th century to “well below” 2 °C. The UN’s latest assessment of the current set of NDCs is that they imply warming this century of 2.1–2.9 °C, depending on the underlying assumptions.

That is broadly in line with Wood Mackenzie’s base case forecast in our latest Energy Transition Outlook, which is consistent with about 2.5 °C of warming. If the world is to achieve the Paris goals, as the UN says, there is “an urgent need for either a significant increase in the level of ambition of NDCs between now and 2030 or a significant overachievement of the latest NDCs, or a combination of both”. The UN continues: “If emissions are not reduced by 2030, they will need to be substantially reduced thereafter to compensate for the slow start on the path to net zero emissions.”

Loss and damage from climate change on the agenda

Another issue that has been highlighting international tensions over climate change is the question of whether and how to compensate for the “loss and damage” caused by global warming. Developing countries such as Pakistan that have been hit by problems such as flooding and sea level rise linked to climate change have been calling for a new financing facility to address those issues.

They have succeeded in getting the issue on to the agenda in climate negotiations, but still have a long way to go to persuade the international community to agree on a specific proposal.

John Kerry said over the weekend that the US was “totally supportive” of the idea of a new facility for loss and damage, but made clear that that there was as yet no agreement on how it would operate or who would pay for it.

 “Not a lot of people, that I know, want to sign off on something that’s not even yet fully defined,” he said. “But we promised, and we will engage in a very real and genuine dialogue about how do we do this best. It’s complicated.”

Some countries have already started to make the case for why they should not have to pay into this facility. Adel al-Jubeir, Saudi Arabia’s minister of state for foreign affairs, told the Financial Times: “We didn’t contribute this damage, this damage was contributed over the past 120 years by industrial countries, and if you want to see where the problem is look at where the smoke stacks are… We are a developing country.”

China’s climate envoy Xie Zhenhua supported the idea of setting up , but similarly rejected the idea that his country should pay into it.

Kerry said an agreement on the proposal could come this year, at COP28 in Abu Dhabi next year, or not until 2024.

President Biden targets methane leakage in the oil and gas industry

The Global Methane Pledge, launched by the US and EU at COP26 last year, has now been joined by more than 130 countries, between them accounting for over half of global methane emissions. Members have committed to join the effort reduce global methane emissions by at least 30% from 2020 levels by 2030. (Reductions in individual countries could be greater or smaller than that 30%.)

At COP27, the Biden administration set out a list of initiatives that it said showed the US was “acting to lead a clean energy future that leverages market forces, technological innovation, and investments to tackle the climate crisis.” The most substantive of those initiatives were the ones connected to addressing methane emissions.

The oil and gas industry offers “the fastest and deepest methane emissions reductions opportunities”, the administration said. It added that capturing gas that would otherwise be flared or leaked was also “a critical near-term solution to boost global gas supplies and support energy security”. It estimates that worldwide flaring, venting and leakage currently add up to about 260 billion cubic meters of gas wasted every year, or about 25 billion cubic feet per day.

The administration’s plan includes proposed new regulations from the Environmental Protection Agency, intended to cut the methane lost through flaring and leakage by 87% from 2005 levels by 2030. The new rules, updating an earlier set of EPA proposals from a year ago, include a requirement that all well sites should be routinely monitored for leaks; new emission standards for dry seal compressors; a zero-emissions standard for pneumatic controllers and pneumatic pumps; and flexibility for the industry to use “innovative and cost-effective methane detection technologies”.

The new proposal also includes a proposed “Super-Emitter Response Program”, which would require operators to respond to credible third-party reports of high-volume methane leaks. The EPA will be taking comments until February 13, 2023, and intends to issue a final rule later that year.

The proposed regulations are intended to work alongside other measures including the Methane Emissions Charge on oil and gas facilities included in the Inflation Reduction Act, and the administration’s new Methane Emissions Reduction Action Plan. That plan sets out a range of other policies intended to cut emissions, including $1.55 billion in financial and technical assistance to support oil and gas industry efforts to cut flaring, venting and leakage.

One important issue to watch will be how the new regulations interact with the Methane Emissions Charge, which is scheduled to take effect from 2024. The Inflation Reduction Act allows for an exemption if EPA methane regulations will “result in equivalent or greater emissions reductions as would be achieved” by the charge. It is the EPA that gets to decide whether that condition is met. It will no doubt be bombarded by arguments from operators and others trying to make the case about whether the exemption should be applied.

Beyond the US, the administration is signing up to a group of countries including the EU, Japan, Canada, Norway, and the UK, committed to minimising flaring and emissions across the fossil fuel value chain “to the fullest extent practicable”.  Nigeria has also finalised its first-ever methane regulations for its oil and gas sector, the administration said.

To help those countries and others spot methane emissions and find ways to reduce them, the UN is backing a new network using satellite data to identify and analyse large plumes and hot spots, called the Methane Alert and Response System (MARS).

Signs that the US-Saudi alliance remains intact

When the OPEC+ countries decided last month to cut their oil production — a potentially damaging move for President Biden as the US midterm elections approached — there was talk in Washington about the relationship between  the US and Saudi Arabia being irreparably broken. But the alliance has deep roots, going back to before World War 2, and last week there were signs that the common interests that bind the two countries together are still being taken seriously.

Warships from the US, UK and Saudi Arabia held a week-long joint naval exercise in the Gulf, practicing tasks including maritime security, vessel boarding procedures, explosive ordinance disposal and other training drills, both on shore in Saudi Arabia and at sea.

The US also sent two B-52 bombers on a flight over the Middle East that was intended to demonstrate “our commitment to regional security and the collective capabilities of our military partners in the region,” US Central Command chief General Erik Kurilla said. That flight followed warnings from Saudi Arabia about a possibly imminent attack from Iran, its principal strategic rival in the Gulf region.

At the COP27 climate talks, meanwhile, the Saudi government was also more aligned with the Biden administration than it was a month ago, backing several climate initiatives. Saudi ministers are still adamant that they expect oil and gas to play a major role in the global energy system for a very long time to come, but they are also stepping up their commitment to carbon capture projects that could reconcile that outlook with net zero goals.

Amin Nasser, chief executive of Saudi Aramco, confirmed that the company was working on a new CCS hub at Jubail that would be one of the largest in the world. Crown Prince Mohammed Bin Salman announced that Saudi Arabia’s sovereign wealth fund, the Public Investment Fund (PIF), was now aiming for carbon neutrality by 2050. That is ten years ahead of the net zero by 2060 goal set for the kingdom as a whole. The PIF also last month backed the creation of a new voluntary carbon market, a first for the Middle East.

In brief

• Remembrance Sunday was the hottest on record in Britain, continuing the trend of warm weather that has helped suppress gas demand in Europe this autumn.
• Rolls-Royce is looking for sites for new Small Modular Reactors in the UK.
• Rivian, the electric vehicle company, reported a loss from operations of US$1.77 billion in the third quarter.
• France will require all large car parks to be covered with solar panels.
• Tennessee Valley Authority demolished three cooling towers at the shuttered Paradise Fossil Plant, a coal-fired power plant in Kentucky that was replaced by a new gas-fired plant in 2017. The final unit at the site was shut down in 2020, as part of the largest coal retirement in the country at that time. The plant acquired some low-key notoriety as the subject of a John Prine song, Paradise, which lamented how “the coal company came with the world's largest shovel. And they tortured the timber and stripped all the land.”

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