The conclusion of the 2023 United Nations Climate Change Conference or COP28 in Dubai this week included a landmark agreement to stop fossil fuel consumption, giving a major boost to renewable energy shares.
Fossil fuels are not going anywhere but the shift to renewable energy will get a major boost under the United Nations climate agreement. This news comes as a blessing for battered-down clean energy stocks.
More than 130 countries and 50 fossil fuel companies pledged to triple renewable energy capacity and double energy efficiency by 2030. COP28 also offered provisions for countries to include emissions from agriculture and farming in their plans to tackle climate change and global warming.
However, experts suggest this doesn’t mean the end for fossil fuels. Companies in traditional fuel industries could also potentially benefit from participating in a system that supports renewable energies.
Renewable Energy Shares Soar
It has been a tough year for renewable energy shares leading up to COP28, as high interest rates coupled with economic uncertainty depreciated financing for clean energy projects. Before the start of the COP28 meeting on November 30, the Invesco WilderHill Clean Energy Exchange-Traded Fund (ETF) (PBW) was down 29% year-to-date, while the Invesco Solar ETF (TAN) had lost 37%.
Since the meeting concluded, the two Invesco ETFs have surged to 12% and 15% respectively. The enthusiasm for solar and other renewable energy shares was also carried by comments from the Federal Reserve officials signalling potential rate cuts in 2024.
Potential rate cuts by the Federal Reserve along with support from the Inflation Reduction Act of 2022, among other considerations “could potentially lead to a turnaround” said Jefferies analysts in a research note.
Don’t Count Out Fossil Fuels
According to experts, the push for renewable energy doesn’t mean the end of fossil fuels.
“The Russia-Ukraine war and the energy disruptions it caused have served as a sobering reminder that fossil fuels remain necessary”, said John Stoltzfus, chief market strategist with Oppenheimer Asset Management
He added, "It's a recognition that fossil fuels is not just a business that 'won't get out of the way”
Pierre Conner, executive director of the Tulane Energy Institute, pointed to the realities of existing infrastructure, saying, "We've spent 120 years on infrastructure built around petroleum that's not just going to go away."