Costing a fossil fuel phaseout: A toolkit for COP29

What is the price-tag for phasing out fossil fuels?

As this question comes to the fore of international climate politics, our new policy brief sheds light on estimating the costs.

Next week, governments will gather in Azerbaijan’s capital Baku, for the COP29 climate change summit. Top of their agenda will be a new agreement on finance to support climate action. The amount of the new package will need to include meeting the costs of the energy transition.

At or soon after the Baku summit, governments will submit their next round of pledges (Nationally Determined Contributions, or NDCs) under the Paris Agreement. These should be informed by the Global Stocktake, finalised at the previous COP28 summit in Dubai last year, which includes an agreement by governments to “transition away” from fossil fuels in energy systems, “in a just, orderly and equitable manner”. 

And announcements can also be expected on the use of “country platforms”, in which countries make a plan for climate action, and international donors and partners come together to finance it – Colombia recently announced an investment programme of $40 billion (USD), of which it is seeking $10 billion (USD) from international partners, to enable the country both to transition away from fossil fuels and to adapt to climate change. 

Essential investments for energy transition

In these interlocking processes, costing a fossil fuel phaseout will be a central issue. Our new policy brief identifies three types of investments that are needed:

• in clean energy,
• in alternative sectors to diversify and eventually transform the economy, and
• in a just transition. 

For each type of investment, our brief reviews what is known from top-down and bottom-up assessments, and what approaches are needed to fill the gaps in our knowledge. Whilst bottom-up assessment estimates specific needs in a country’s circumstances, top-down uses modelling of the energy system and international estimates of costs. We highlight the importance of bottom-up estimates and the opportunity for countries to include information on those in the new NDCs and other climate and policy documents. In the meantime, top-down estimates give an initial, approximate guide. 

Depending on countries’ circumstances, meeting these costs will entail different shares of domestic resources and international finance. Given the higher cost of capital in poorer countries, and often unsustainable levels of external debt, a significant portion of the investments will need to be covered by concessional and grant-based finance, rather than simply leaving it to private sector investment. 

We also highlight the importance of complementing the much-needed finance, with technical support, capacity building, technology transfer and other forms of international cooperation, which are required for the implementation of transition plans. 

“As governments pack their bags for Baku, we hope this brief can help inform the discussions on finance, on pledges and on country platforms."

Key documents

• Download the policy brief 'Costing a fossil fuel phaseout' 

  Download the policy brief 'Costing a fossil fuel phaseout' 

Authors

• Greg Muttitt, Honorary Research Fellow, Energy & Climate Change, UCL
• Paola Yanguas Parra, Postdoctoral Researcher in the Institute for Sustainable Development of the School of Engineering at Zurich University of Applied Science, ZHAW

Image credit

Red Zeppelin via Unsplash