We Can’t Afford a COP-Out 26

by Adrienn Sarandi – Head of ESG Strategy & Development

COP26 in Glasgow — the 26th Conference of the Parties to the United Nations (UN) Framework Convention on Climate Change — is the most crucial climate talks since the Paris Agreement was signed in 2015. The bar is much higher however, because while the Paris Agreement was about pledges, this COP will be about what governments deliver. It will be the first time since the Paris Agreement that countries are expected to announce their more ambitious and tougher Nationally Defined Contributions (NDCs), which outline the efforts that nations are making to reduce their emissions and adapt to the impacts of climate change. Rich countries are also expected to commit to, and follow through with, helping poor nations to finance their low carbon transition. Sectoral decarbonisation roadmaps (especially for hard to abate sectors), removing fossil fuel subsidies, mandatory Task Force on Climate-related Financial Disclosures (TCFD)* reporting and economic recovery plans that support net zero will also be on the agenda. Will COP26 be a breakthrough that removes the biggest bottlenecks standing in the way of decarbonising the global economy, or will it be another reminder that net zero remains an illusion? In this article we summarise the challenge at hand and why we can’t afford a COP-out from facilitating real change.

*The TCFD was created by the Financial Stability Board to improve and increase reporting of climate-related financial information.

What does the science say and how bad is it?

Evidence suggests that human activities such as the burning of fossil fuels, deforestation and an increase in intensive agriculture are contributing to extreme weather patterns across the planet. The consequences are catastrophic and pose immediate threats to human, animal and plant life, in particular risking low lying land from rising sea levels, land becoming inhabitable, food production, safety and security, and access to clean water.

The Intergovernmental Panel on Climate Change (IPCC), a UN-led panel of scientists representing 196 countries, delivered a grim prognosis in August¹:

• The planet is, on average, 1.1 degrees Celsius hotter than it was in the last century, and the planet enters the hottest period experienced in the last 125,000 years.
• Even if we were able to halt all emissions tomorrow, enough carbon dioxide has already been emitted into the atmosphere to lock in dangerous climate effects for the next 30 years.
• Avoiding a climate catastrophe requires a rapid reduction in our reliance on burning fossil fuels and a removal of the carbon that has already accumulated in the atmosphere. A measurable and bold global collaborative action plan and serious investment into clean technology is needed.

The IPCC also highlighted that the ‘global surface temperature will continue to increase until at least the mid-century under all emissions scenarios considered’. Extreme events related to global warming are therefore unavoidable over the next decade no matter what we do today and managing these through climate change adaptation will be imperative for all sectors and countries. But beyond this decade, the report highlights a window of opportunity to slow and even reverse global warming if we act boldly today and deliver the necessary conditions – the right government policy, channelling investments in the right places and changing consumer behaviour.

Many believe it is important to do this in a way that delivers a Just Transition* and continued economic growth without runaway inflation, political stand offs, geopolitical tensions and social unrest. This is not an easy balance to strike. According to capital market participants, financing the decarbonisation of the global economy could cost US$4-5 trillion per year every year till 2050. Hence, there have never been larger and more urgent expectations of a COP to enable these conditions to be met.

*A Just Transition seeks to secure the future and livelihoods of workers and their communities in the transition to a low-carbon economy.

What do we need to do to achieve net zero by 2050?

There are six areas we are watching very closely and would like to see progress on at COP26:

• A large number of the signatories to the Paris Agreement have not yet submitted NDCs, and many which have are well behind their commitments or have not produced detailed plans of how they intend to get there. Nor can many evidence any tangible progress over the last six years. Furthermore, 37% of greenhouse gas emissions are produced by countries that still have no net-zero targets, according to the latest figures from the New Climate Institute quoted by the UN.² NDCs will need to align with the Paris Agreement and we would like to see details for achieving targets. Without NDCs collectively aligning with the Paris Agreement, there will be no net zero.
• Governments globally must coordinate the right policies and incentives to deliver the energy transition. Without putting a high enough price on pollution globally and starting to make burning fossil fuels uneconomical, there will be no net zero. National governments will need to agree to rules governing carbon pricing mechanisms, to ensure those moving faster towards cuts are rewarded for doing so and most importantly that low-income households and nations are not hit disproportionately. A Just Transition is imperative not to stall decarbonisation. It is imperative governments start delivering on these issues.
• Regulators must coordinate globally to create frameworks that are clear, bold but realistic. Without a high degree of standardisation and coordination, regulations will create more noise than results.
• Emerging and developing markets need help to decarbonise. While the US$100 billion funding target per year has proven a challenge so far, COP26 will be an opportunity for developed nations to set out a clear plan for delivering it. More climate aid will be key to progress on a range of issues, from phasing out coal to setting higher emission reduction targets, and could determine whether COP26 will be breakthrough or not. A number of developing countries have highlighted that their targets to cut pollution are dependent on support from wealthier peers. Without helping to decarbonise the Group of 77, a fragmented but powerful group of developing countries, there will be no net zero.
• Consumers will need clear incentives to make uncomfortable decisions to change their behaviour and embrace a low carbon circular economy. Without changes in demand patterns (especially in developed markets) there will be no net zero. An acknowledgement of the difficult choices ahead and impact on the individual is essential.
• Financial markets will need to facilitate via capital allocation the transition to a sustainable economic model. Governments and regulators will need to provide the right signals and incentives for capital markets to finance this transition. It is estimated that we need to invest at least US$120-150 trillion to transition to a low carbon world between now and 2050.³ Without financing the right companies and projects and chocking off finance from those that will not/cannot transition, there will be no net zero.

Good COP, bad COP – the stakes have never been higher

The world’s eyes this week will be on both national pledges to reduce emissions, but also the detail outlining how reductions will be delivered. It is important to remember that it is very easy to make net zero commitments by 2050, but today’s political leaders will not be in power in 2050. Just like CEOs currently committing to net zero by 2050, there will be several management teams coming and going in the next three decades and current management teams will not be the ones accountable for delivering the commitment. This is why headway needs to be made on actual policies not just pledges.

If COP26 is to be deemed a success, we would like to see commitment on specific action points that are then followed through with climate finance for vulnerable and developing nations, as well as international commitments on deforestation, climate adaptation and phasing out coal and internal combustion engine (ICE) cars. Breakthrough on global carbon pricing is also imperative to achieve net zero on time. What is important is that commitments (words) are given in greater detail and with interim targets through legally binding policy (action).

Financing the transition can only really start in earnest when these conditions are met. Clear policy is needed to reduce uncertainties regarding sustainability in order to make long term investments. If government backing is there, the private sector will follow.

Summary

COP26 and the net-zero transition are incredibly complex, filled with risks and requiring unprecedented global collaboration and ambition across governments, businesses and civil society. But the buy-in from all regions and all levels of society to make real change and deliver the necessary conditions for the transition is growing by the day. We need a COP that will enable an overhaul of our fossil fuel-hooked economic growth model, leading a move to a low carbon and circular economy and averting environmental, economic, social and financial disaster. Time has never been more pressing, and the stakes have never been higher.

Footnotes:

¹ Intergovernmental Panel on Climate Change (IPCC) – Climate Change 2021 – The physical science basis summary for policymakers

² New Climate Institute, Climate action tracker, Paris Agreement turning point, 2020

³ International Renewable Energy Agency, World Energy Transitions Outlook: 1.5^oC pathway, 2021