Meh.
That was my first reaction when I saw the news from the United Nations COP28 Climate Change Conference on Wednesday morning.
After two weeks of tense negotiations, more than 190 countries agreed on a landmark deal to transition away from fossil fuels, like coal, oil and natural gas.
On the surface, that seems like great news.
Until you read the fine print…
That’s what I’m going to dive into today. I’ll show you what this deal actually entails and why it’s still good news for both sides of the energy market.
Net-Zero Emissions by 2050 … Kind Of
The aim of most any climate deal you come across today is to achieve net-zero emissions.
This new agreement capitalizes on the Paris Agreement that calls for governments to limit global warming by 1.5 degrees Celsius to help with that.
The idea of net-zero emissions is to cut greenhouse gas emissions to as close to zero as possible and reabsorb anything that couldn’t be cut.
To do that, countries have to stop using high-emission fuels such as oil, natural gas and coal.
But, as Chief Investment Strategist Adam O’Dell has mentioned in the past, it doesn’t happen overnight.
Building solar farms, hydroelectric plants and wind turbines takes time … and money.
We aren’t going to stop using fossil fuels tomorrow. Oil, gas and coal account for 80% of our global energy use now, and that’s after decades of renewable energy sources chipping away at market share.
But over time, it can be done.
The problem with the COP28 agreement is that it’s soft.
Oil-producing nations like Saudi Arabia managed to push back on an initial deal.
Instead, the new agreement has no strict timeline for transitioning and promotes carbon capture — the innovative process where fossil fuels are still burned, but the carbon dioxide emissions are captured and stored.
In simple terms, countries can still burn fossil fuels at today’s levels, so long as they capture and store more of the emissions.
So it’s not a deal that stops anyone from using fossil fuels … more of a deal to capture those emissions.
Energy War Has Big Winners From Both Sides
In a sense, the new agreement is a win for big oil.
But as I mentioned in an essay earlier this week, the same U.N. conference got 118 countries to pledge to triple global renewable energy capacity by 2030.
My research found that more than 17,000 megawatts of wind power production in the U.S. will be commissioned next year, adding to the 10.3 gigawatts of solar projects already being developed.
It’s a massive upscale of renewable energy in the U.S. alone.
Couple that with the agreement to “capture” carbon emissions from fossil fuels rather than halt using those fuels altogether, and you can see billions being spent on both renewables alongside oil and gas generation.
To put a finer point on just how “meh” I think this climate deal was…
The deal should be a big tailwind for renewable energy stocks, but the initial reaction has been pretty tepid.
On Wednesday, after the deal was made public, the Invesco Solar Energy ETF (NYSE: TAN) was down 1.3%, while the iShares Global Clean Energy ETF (Nasdaq: ICLN) was down 0.76% … in the first two hours of trading.
During that same time, West Texas Intermediate crude oil jumped 1% along with Brent crude oil (the international benchmark).
This tells me that investors found the UN deal to be “meh” just as I did.
But with billions of investments on the horizon, we believe there is positive momentum in store for renewables and oil and gas.
It’s why Adam and the rest of our team are constantly looking for new ways to invest across both sides of the Energy War.
If you want to see the exact recommendations he’s making for his Green Zone Fortunes subscribers, click here.
Until next time…
Safe trading,
Matt Clark, CMSA®
Chief Research Analyst, Money & Markets