23 November 2025
The COP 30 summit in Belem Brasil now has concluded. Let’s face it, progress on climate change has lost momentum. Not only has Potus 47 ditched America’s Net Zero commitment, but leaders from key polluting nations China, India, Russia, and the USA did not attend the conference. In line with the 2015 Paris Accord, countries were required to submit updated (more ambitious) strategies to reduce CO2 emissions prior to COP 30. Only 55% of the countries had done so. Indeed, even climate advocate Bill Gates has suggested the topic should be de-emphasised.
However, the planet does not care about politics. The Chart above illustrates 2024 was the warmest year on record, and the first to record temperatures exceeding the 1.5%C target. Indeed, rather than declining, Green House Gas (GHG) emissions are likely to rise further for the next decade at least (next Chart). CO2 levels are projected to remain at current levels in 2050: so much for the Paris pledge of Net Zero by 2050. And, the influential International Energy Agency not only indicated the 1.5% target is no longer realistic, but forecasts global temperatures nearly 3% above pre-industrial levels by 2100 under current policies (CPS).
But, not all is lost. To be sure, the lack of political leadership — often requiring establishing mandated targets and goals — is problematic. Behind the headlines, however, many businesses and most countries understand the consequences of inaction are far higher than the costs involved with the required energy transition. In many cases, consumers want action; however, the slow take-up of EVs indicates there are limits. As Mr. Gates correctly points out, private sector innovation — often supported by enlightened public policy — is and will play a key role in dealing with the impact of rising temperatures.
For investors, the changing political landscape may require a new approach to the topic. First of all, markets may need to differentiate more between countries successfully addressing environmental issues and those not: Europe and China on the one hand, the USA, Southeast Asia, Russia, and the Middle East on the other. Second, Trump 2.0’s climate policy may allow China to continue to dominate the rapidly growing climate technology sector. Finally, with temperatures set to rise, perhaps climate investors should focus a bit more on innovations dealing with “adaptation” (those dealing with impact of the seemingly inevitable climate change) rather than those aimed at “mitigation” (those focused on reducing CO2 emissions). However, obviously, both will need to play vital roles in solving this problem.
Yes, Progress; But, too Slow
Despite the lost political consensus, progress is being made. Indeed, CO2 emissions in advanced economies have been declining during the past two decades (Chart above). Europe leads the way: recording the lowest GHGs per capita amongst developed nations, but also posting the largest declines (down 37%). The United Kingdom’s performance is most impressive: cutting emisssions nearly in half. The USA has much to learn from its European partners. Despite impressive declines, America’s CO2 per person remains the highest amongst major countries.
On the other hand, emissions in developing countries have continued to grow rapidly — led by China, now the world’s largest polluter. While lower than in many regions, CO2 per capita levels are rising sharply in emerging Asia. The same is true in Russia and the Middle East. Overall, therefore, global emissions have advanced nearly 1% annually during the past 20 year. Progress yes, but indeed far too slow.
Assessing the Progress: The Role of Innovation
Identifying the sources of reducing CO2 emissions may provide a roadmap for the future, and help focus on the key role of innovation. The first vital ingredient is to lower the amount of carbon emitted while producing electricity. Fortunately, most countries have made considerable progress (Chart above). Again, Europe leads the way with both lower levels and sharper declines — the UK stands out especially. The USA has made good progress, but still lags behind. Improvements across Asia, including China, have been considerably more modest.
Most of these gains emanate from a successful transition in power generation away from coal — resulting from innovation and government subsidies. Progress in reducing emissions has been greatest in countries making the most extensive use of renewable energy sources, especially in the UK and EU (Chart above). US emissions reductions have been less, as natural gas has been the main new energy source. On the other, while China has dramatically increased its use of renewables, coal remains the dominant source of power generation. Likewise, emerging Asia’s continued reliance on coal and limited introduction of non-fossil fuels has limited the transition in their electricity grid.
As the demand for electricity will expand dramatically — driven by AI, EVs, and the electrification of just about everything — expanding the capacity of the electricity grid and reducing the usage of fossil fuels will be vital. Likewise, the earlier Chart indicates the electricity sector has been far more sucessful in the adaption of renewables than the overall economy. Indeed, the slower transition in the transportation area and other hard-to-mitigate sectors (e.g. chemicals, steel, etc) illustrates the need for ongoing innovation in much of the economy.
Another role innovation can play is to boost the economy’s energy efficiency, e.g. increasing the amount of GDP generated per unit of energy consumed. Again, Europe’s energy efficiency exceeds other industrialised nations, and the USA lags both the EU and Japan (Chart above). Meanwhile, manufacturing-oriented nations, e.g. Asia, require large amounts of energy to drive their industrial economies. Fortunately, all countries have improved energy efficiency in recent decades. In this regard, the UK, China, and the USA have enjoyed the largest improvements.
Technological innovation will play a huge role in boosting energy efficiency and reducing carbon emissions without sacrificing economic growth. Indeed, the naysayers’ contention there’s a tradeoff between GDP growth and cutting CO2 has proven to be false. The Chart above highlights the world-wide surge in energy-related investment under the Biden administration, especially in energy efficiency and non- fossil fuels. Time will tell how much damage Trump 2.0’s OBBB does.
China: Dominant Actor With Lots More to Do
Of course, it’s impossible to ignore the role China must play if the world is to achieve a successful energy transition. Indeed, China is the world’s largest CO2 emitter. During the past decade, the nation has accounted for 64% of the increase in global emissions. Similarly, China is responsible for 57% of increase global energy usage and 60% of the increase in electricity generation.
However, China is making progress. To be sure, the earlier Chart illustrates the nation’s energy efficiency is worse than other major countries; in part as they produce energy-intensive industrial goods rather than services. However, technological innovation has improved energy efficiency by more than 250% since 1990 compared to impressive 100% gains in USA, Europe, and 75% in Japan. As China’s economy shifts towards higher value-added manufacturing, energy efficiency will improve further.
Similarly, an earlier Chart revealed the carbon intensity of China’s power grid is amongst the world’s highest. The reason is easy to identify (Chart above). Despite efforts to reduce its reliance on coal, the black rock still accounts for the majority of China’s electricity generation (though America’s heavy usage of natural gas keeps its fossil fuel consumption similar to China’s).
Again, fortunately, progress is occurring. CO2 emissions per unit of electricity generated have declined 25% during the past 15 years, although this performance lags the USA’s and EU’s 35% decline. The improvement reflects China’s dramatically higher usage of renewable energy sources. Indeed, during the past decade, China has accounted for nearly half of the world’s increased deployment of renewables in electricity generation. Renewables now account for 20% of China’s electricity, exceeded only by the Europe.
If China continues to build on these achievements, their CO2 emissions may peak within a decade. In addition, China’s willingness to address climate issues has led the nation to dominate crucial green-tech sectors, e.g. EVs, batteries, solar and wind energy generation. The USA should take note.
Asia: The Next Focal Point
If China’s emissions peak during the next decade, the performance of the rest of emerging Asia will come into greater focus. Already, during the past decade, the region’s CO2 emissions have grown 50% faster than China’s (Chart above). Likewise, electricity generation surged 4.5% annually during the past 10 years compared to 0.5% in the OECD nations. Healthy economic growth, urbanisation, and rising propsperity are likely to continue these trends. Emissions and energy consumption trends in the Middle East and CIS are also worrisome. As temperatures rise, demand for air conditioning and electricity may surge in the Middle East.
As Asian energy demand is set to grow strongly, the region’s heavy reliance on fossil fuels, especially coal, is problematic (Chart above). India and Indonesia are of greatest concern, although both are rapidly expanding the use of renewables. But, Malaysia, Taiwan, Thailand confront challenges also (each relies on natural gas as well as coal). In addition, the electricity grids in the CIS, Russia, and especially the Middle East are heavy dependent on fossil fuels, especially natural gas.
Africa: Huge Investment in Adaptability is Vital
There’s a broad consensus the world’s poorest countries, especially in Africa, are most vulnerable to climate change. Of course, the region only accounts for about 3-4% of global emissions and energy consumption. Therefore, the risk does not emanate from their own actions, but rather the lack of appropriate climate policies in the rest of the world. To cope with the seemingly inevitable rise in global temperatures, Africa requires massive investment, aimed especially at adapting to the more hostile environment. However, such capital outlays are sharply lower than a decade ago (Chart above). In addition, unlike the rest of the world, a rising number of Africans have access to neither electricity nor energy required for clean cooking (next Chart). These are among the many reasons the continent is so at risk as temperatures rise.
