Wealth Outlook 2024 - Slow then grow

89 Wealth Outlook 2024 | Unstoppable trends OPEC's unlikely role in the energy transition The right cartel for the job In 2015, world leaders congregated in Paris for the 21st Conference of the Parties (COP21). Their unanimous resolve led to the Paris Agreement – a global pledge to combat the looming threat of climate change. Their core objective? Swift transition from carbon-laden fuels to greener, sustainable alternatives that would keep a global temperature rise under 20 Celsius above pre-industrial levels. Such a shift isn’t solely reliant on technological innovation or political will. It is also a function of the resources available for communities to wean themselves from their dependency without destroying growth or exacting widespread scarcity and pain. In recent COP conferences, there has been particular emphasis on the balance between these competing priorities in developing countries, which are now responsible for some two-thirds of all global emissions,¹ but also would be among the biggest casualties from a sudden withdrawal or skyrocketing in the price of traditional energy sources without ready and affordable replacements. From early in the COP deliberations, it became apparent that the free market would need to play an important role in allocating these resources. Equally apparent was that the free market is not at its most efficient in pricing in externalities such as the impacts of climate change. Many of the actions taken by individual governments since, like the EU carbon tax or the US tax breaks and power plant rules, are designed to force those externalities into the free- market pricing and imbue it with a greater sense of urgency than it could muster on its own. But there is also another way to artificially set prices to incentivize the desired behaviors: let a cartel do it. FIGURE 3 From at least a pure gross domestic product (GDP) standpoint, the global economy is increasingly weaning itself from oil Ratio (2001 = 100) Global GDP / barrel of oil 250 200 150 100 2002 2006 2010 2014 2018 2022 Source: Haver Analytics as of November 15, 2023. ¹ “Developing Countries Are Responsible for 63 Percent of Current Global Carbon Emissions,” Center for Global Development, August 18, 2015.