• Sometimes the markets just say it best
  • Clean tech and energy investors find much to like from COP28
  • Nuclear power is perhaps the unsung hero of the climate gathering

Sometimes the markets just say it best.

On Wednesday last week, the day that nearly 200 nations inked an agreement at the COP28 climate gathering to slash fossil-fuel consumption and embrace cleaner alternatives, clean energy shares – unsurprisingly – jumped.

But more tellingly, perhaps, fossil fuel stocks also rose – indicating a dose of realism into any green glow of the pledge to transition away from fossil fuels.

The decision text from COP28 recognises that, by 2030, global greenhouse gas emissions need to be cut by 43% from 2019 levels.

It also contains pledges by countries to wean their economies off fossil fuels in a “just, orderly and equitable manner” this decade, restrict methane emissions, halt carbon emissions entirely by mid-century and phase down the use of coal and fossil fuel subsidies to accelerate the transition away from fossil fuels.

It was the very first explicit agreement to curb fossil fuel use in the roughly three decades of such multinational negotiations.

On the day of the announcement in Dubai, the iShares Global Clean Energy ETF surged by an impressive 4.32%.

But, simultaneously, the S&P 500 Energy Select ETF, representing the oil-heavy domain, displayed a robust gain of 1.4%.

Stakeholders on both sides of the energy spectrum clearly found reason to rejoice.

For clean tech and climate investors, perhaps the more positive aspect of COP28 came from an agreement to triple renewable energy capacity and double energy efficiency improvements by the next decade.

These lofty aspirations, if realised, promise to not only attract billions but potentially even trillions of dollars in investments and obliterate substantial volumes of fossil fuel demand.

The deal also lays the foundation for much-needed further progress on climate finance, climate adaption and clean tech deployment.

The clean tech market deciphered the signals: the rollout of clean technologies would continue to accelerate.

Yet, for traditional energy investors, the elation of their counterparts masked a more nuanced reality.

The agreement, while ground-breaking, failed to outline explicit deadlines for the peaking and decline of fossil fuel use this decade.

The final text, a product of negotiations with oil-producing nations, contained loopholes that cast shadows over its seemingly bold declarations.

It called for climate action rather than demanding it, limited the transition away from fossil fuels to narrowly defined energy systems, allowed for the widespread use of carbon capture and removals and tacitly backed new fossil gas projects as long as they are branded as “transitional fuels”.

The deal, in essence, afforded oil producers considerable leeway to continue drilling and left ample room for interpretation regarding the funding of the green energy shift in the coming years.

For traditional energy investors, the deal certainly didn’t signal that the end of the oil age was on the near-term horizon just yet.

In the corridors of traditional energy markets, you can imagine that satisfaction simmered quietly.

Of course, the true test of COP28 lies ahead.

The success or failure of the agreement hinges not on inked promises in a non-legally binding document but on the actions that countries take in implementing national policies and investments.

The reality is that commitments have been flouted before, as evidenced by the spike in coal use and a slowdown in oil drilling plans in 2022.

COP28, of course, will be measured years into the future when it becomes clear from the actions that follow if the signals provided to governments and investors have cut through or not.

Trillions of dollars will be required to transition to cleaner fuel sources, and private capital is expected to shoulder the lion’s share of this burden.

The current investment landscape, however, is fraught with challenges – even substantial support, such as the US Inflation Reduction Act, has so far struggled to shield capital-intensive green projects from the impact of soaring interest rates.

In the year to date, the iShares Global Clean Energy ETF has fallen to a 23% decline, compared to the S&P 500 Index’s 23% gain.

But market opportunities in clean energy stocks, which have been battered in 2023 until the past month or so, are starting to emerge.

It’s hard not to believe – with the turn in the rate cycle – that many of these stocks are in an oversold condition.

Next year, the International Energy Association expects wind and solar power to exceed coal power for the first time.

But at the same time, and for now at least, oil and gas demand is still growing, resulting in record annual profits for oil companies last year, though perhaps the sell-by date for the oil majors’ product is now coming into view.

Is there a dark horse in the global energy renaissance?

In any case, while the headlines from Dubai tried to decipher whether COP28 was a success or failure for renewables or a failure or success for fossils, another contender emerged as the unsung hero of COP28: nuclear power.

For the first time ever at a COP agreement, there was a unanimous endorsement to not just include but “accelerate” nuclear energy as a solution to climate change.

The fact that the decision text included nuclear in its list of clean technologies that need to grow as part of the fossil fuel phase-out was a true milestone in the current atomic revival.

As I wrote in these pages last week, during the summit, a total of 22 countries, including the US, the UK, France, South Korea, Hungary and the Netherlands, signed a pledge to triple nuclear energy capacity from 2020 by 2050.

“Nuclear energy is back,” said French President Emmanuel Macron. Tripling production capacities “sends a powerful message to the world,” he said.

Now, tripling production may not sound like much, but it’s a massive effort that will require massive investment…

Which means there’s still room for significant growth – and significant profits for those who get in now.

But capitalising on this nuclear opportunity isn’t just about throwing money at any company with “nuclear” in its name…

It’s about strategic, informed investing.

I’ve been closely monitoring the nuclear sector, analysing trends, technologies and market movements as part of my day job as editor of Strategic Energy Alert.

I recommended my first position in this sector for the service a few months ago, which we closed out last week at a substantial profit.

Now, I’ve identified what I believe is another top pick in this space — and hopefully the first of many winners in 2024 and beyond.

Right now, uranium stocks are one of my favourite places to be in the nuclear sector.

Prices have risen to near 16-year high at more than $86 a pound, after being at only $48 at the start of 2023.

Sometimes, the markets just say it best.

Until next time,

James Allen
Contributing Editor, Fortune & Freedom