Clean energy fund comes on a day at COP28 summit when U.N. Secretary General warns of ‘planetary crash and burn’

By Christian ShepherdEvan Halper and Chico Harlan

 December 1, 2023 

DUBAI — The United Arab Emirates has set up a $30 billion fund to invest in clean energy and other climate projects worldwide — with a particular emphasis on financing infrastructure in the Global South — as the Middle Eastern nation tries to quell doubts that it is committed to moving the planet away from fossil fuels.

The plan was announced Friday at opening proceedings of the annual U.N. Climate Change Conference, which the UAE is hosting this year in Dubai. It was unveiled as the petrostate tries to burnish its credentials as a leader in the clean energy transition, even as it continues the oil investments that have brought Emiratis tremendous wealth. The money to fund the projects will come largely from oil revenue.

The newly established fund was “specifically designed to bridge the climate finance gap” and stimulate further investment of $250 billion by 2030, UAE President Mohamed bin Zayed al-Nahyan told leaders gathered at the talks known as COP28.

“The lack of readily available and affordable climate finance has long been one of the biggest obstacles in advancing climate action globally,” Mohamed said, speaking through an interpreter.

Some $5 billion of the investment is earmarked for developing nations that lack the capital to cut electricity emissions and update their energy systems.

While the overall dollar amount is considerable, experts caution that its ultimate impact on curbing warming and bringing new energy resources to poorer countries in the Southern Hemisphere will hinge on how the UAE structures the spending.

The Emirati announcement came on a day when some 170 world leaders attended the Dubai summit — a record for any COP — with U.N. Secretary General António Guterres issuing another stern climate warning. He told them the planet is “minutes to midnight” in its goal of limiting warming to 1.5 degrees Celsius, and he urged them to prevent a “planetary crash and burn.”

“Earth’s vital signs are failing,” Guterres said.

While the UAE framed its initiative as a call to global action, it is at least partly geared toward generating returns. It is one of several forays the UAE is making into clean-energy finance as it seeks to diversify its economy amid predictions the demand for oil will slump in coming years.

Investors have said no to a number of projects in developing countries because they are considered too financially risky. It is unclear how willing the UAE will be to use this spending — which could act as a catalyst to attract many billions of dollars more in private and government climate investment — to provide funding with fewer conditions than traditional financiers impose.

“Given the source of these funds, it is essential that these investments help accelerate the transition to renewable power, especially in low-income countries,” said Rajiv Shah, president of the Rockefeller Foundation and U.S. Agency for International Development administrator under President Barack Obama.

Energy consumption in such countries is projected to soar in the coming decades, as their economies develop. Without access to financing and technological innovation, Shah said, the countries will be forced to fall back on traditional, dirty power sources, such as burning coal and generating electricity with diesel fuel.

Failure to step up the energy transition in what the foundation calls “energy poor” nations, Shah said, would ultimately have dire consequences, pushing the planet toward catastrophic levels of warming. Rockefeller is among a group of foundations that has been working in recent years to get large clean energy projects off the ground in the Global South, typically by providing early financing that absorbs some of the risk and draws other investment.

The foundation is looking at possibilities for coinvesting with the new UAE fund to help steer money to impactful projects in places most in need.\The new initiative puts a spotlight on the UAE’s evolving role in the fight against climate change. The country is at once one of the world’s biggest contributors to warming, pumping massive amounts of oil into the global economy, while also using its fossil fuel wealth to put itself on the vanguard of energy innovation.

The Emirati presiding over the climate conference, Sultan Al Jaber, who is also the head of the Abu Dhabi National Oil Company, will chair the new fund. He is accused of using the conference to broker fossil fuel deals for his country — a charge he denies. At the same time, Al Jaber has won recognition for making big bets on the energy transition and prodding other petrostates to follow suit.

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“This country is trying to figure out its role in a changing planet,” said David Victor, co-director of the Deep Decarbonization Initiative at the University of San Diego. “It doesn’t yet know what its future looks like in a low emissions world. The country is still experimenting, and I don’t think it knows which of these experiments will work.”

Regardless of the path the UAE ultimately charts, Victor said, it is critical for the country that its Dubai summit be seen as a success. The $30 billion pledge, while still representing only a fraction of the finance needed to bring countries in line with U.N. emissions reduction goals, could help move the needle on fighting climate change, advancing projects that otherwise are not viable.

“This lines up with things the Emirates was already doing and it reduces the risk that the conference will be perceived as a failure,” Victor said.

The new fund, called Alterra, will enlist asset managers BlackRock, Brookfield and TPG “to steer private markets towards climate investments and focus on transforming emerging markets and developing economies, where traditional investment has been lacking,” according to a statement. It immediately becomes one of the world’s largest climate-focused investment funds. Its board will be chaired by Al Jaber.

The fund was created by Lunate, an alternative investment management firm recently set up by the UAE.

“This is a big deal,” said Mona Dajani, global head of renewables, energy and infrastructure at the law firm Shearman and Sterling. “We have seen other programs previously, but not at this level. They were too scattered, too small, not aligned to the broader financial sector.”

The lack of cash feeds into other challenges that can make it impossible to scale up clean energy in some countries. Without a steady pipeline of projects, there are no established supply chains, and nations find themselves locked out of markets for key components that are in high demand elsewhere, such as solar cells and critical minerals used to make giant batteries that store renewable power.

The Global South will need an immense amount of such battery storage by the end of the decade, according to the Rockefeller Foundation, enough to store about as much power as is produced by 90 large nuclear plants. The storage is used to bottle wind and solar power and distribute it back into grids after dark and when the wind dies down. Several groups are working on an effort to bring the batteries to places that are currently struggling to access them.

The shortfall of funding for renewables is largest in poorer nations struggling to expand power supply without relying on fossil fuels. Developing countries in 2022 received under a third of the $1.7 trillion in investment needed every year to transition to clean energy sources, according to the United Nations.

This year’s COP28 summit is an opportunity for leaders to assess their failures in limiting emissions since the 2015 Paris agreement. One of the key issues is whether the planet’s dire report card prompts an agreement to phase out fossil fuels — something Guterres urged on Friday.

“The science is clear,” he said. “The 1.5 degree limit is only possible if we ultimately stop burning fossil fuels — not reduce, not abate, [but rather] phase out with a clear time frame aligned with 1.5 degrees.”

At previous climate conferences, nations have battled to a stalemate about whether oil and gas have a future. Some major economies, including the United States, seek a carve-out that allows fossil fuel use along with technology that could capture emissions. But other nations, like Saudi Arabia, have worked for years to thwart any de-emphasis, no matter the condition.

The various fault lines came into view on Friday, as some leaders — including Egypt’s Abdel Fatah El-Sisi and India’s Narendra Modi — spoke about the ills of climate change without specifically mentioning oil and gas.

Others, meanwhile, called for a reduction or phase-out. “We must as soon as possible rid ourselves of our dependence,” said Charles Michel, the president of the European Council.

“This is where a lot of the fight is going to be,” said Alden Meyer, a senior associate at consultancy E3G.

Halper reported from Washington and Harlan from Rome.