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The following is a commentary by Carlos Pascual, senior vice
president for Global Energy and International Affairs at IHS
Markit.
As the 26th Conference of the Parties (COP26) of the UN
Framework Convention on Climate Change (UNFCCC) approaches in
Glasgow, the expectations are being continually raised by the
juggernaut of pledges, pronouncements, and warnings. But what to
look for from COP26? What will be the result? This paper identifies
nine key issues on the final lap of the road to Glasgow.
We do not expect a single outcome as occurred in December 2015,
when 196 parties signed onto the Paris Agreement on climate change,
at COP21 of the UNFCCC. It was hailed as an unparalleled success in
the history of climate politics. It rallied virtually all nations
in support of a concrete goal and a strategy to combat climate
change.
But when COP26 in Glasgow concludes on 12 November 2021, the
results may very well be ambiguous. There will not be one central
rallying agreement. Success and acclaim—or failure,
disappointment, and recriminations—will depend on whether a
myriad of parallel measures create the perception of serious
collective action to reduce emissions while, for the developing
world, addressing profound concerns about energy access and
economic development.
The Paris Agreement established three distinct foundational
points that dominate climate politics:
The first is the objective: to limit global warming to well
below 2°C and to pursue efforts to limit it to 1.5°C above
pre-industrial levels.
The second is the mechanism to pledge action: countries make
commitments through Nationally Determined Contributions (NDCs),
which they unilaterally establish to achieve these reductions.
The third is the process to advance progress: Conferences of
the Parties (COPs) will meet to report on and drive further
action.
These three points help explain Paris' success: countries could
commit to goals without tying them to a specific set of global
actions. They are also at the heart of what makes it hard to
accelerate climate action—there is no enforcement mechanism to
drive down emissions or to exclude parties that do not act on the
Paris Agreement objectives.
Accentuating the challenge is the August 2021 report of the
Intergovernmental Panel on Climate Change (IPCC), the international
body charged with reporting on climate science. The IPCC concluded
that based on policies currently in place, temperature increases
are on a path to rise between 2.1°C and 3.5°C in the 21st
century—despite a global movement where countries representing
80% of global GDP and almost 75% of emissions have committed to
net-zero GHG emissions. This gap between climate aspirations and
climate action has intensified a call for what has been called
"climate ambition"—for countries to accelerate and intensify
their NDCs to achieve a collective decrease of 50% in GHG emissions
by 2030.
It is in this context, then, that the outcome of COP26 will be
judged. Here are nine points that will shape those perceptions:
No new agreement: For those looking for a
landmark agreement out of COP26 comparable to the Paris, there will
not be one. The agreement already exists—it was negotiated in
2015 in Paris. There will be no new rallying point or symbol for
action for governments, industry, investors, cities, or climate
activists. The challenge of COP26 is implementation.
Climate ambition is not up for negotiation:
The UNFCCC's advance report for COP26 on NDCs released on 17
September 2021 estimated that the emissions of all 191 parties are
on a path to increase 16.3% by 2030 since 2010. Inevitably, that
will call into question whether the Paris mechanisms create the
necessary tools to meet the agreement's targets. NDCs mean
that countries decide on the actions they will take and when they
will take them. Other governments, cities, business, and
environmental groups can pressure countries to increase their
ambitions and accelerate action, but in the end national
governments determine what they will commit and what they can do,
and that is not up for negotiation.
Climate finance and the developing world: At
COP15 in Copenhagen in 2009, developing countries were promised
$100 billion a year in financing for mitigation and adaptation
every year by 2020. Article 9 of the Paris Agreement extended that
commitment, and financing still falls far short. For developing
countries, the added impact of COVID-19 on their people and
economies has intensified their call on developed countries to
deliver now. Some developing countries will insist that the issue
is "energy transitions" as they also need to provide conventional
energy to poor people in their own countries and will protest the
lack of international finance for that purpose. While creative
ideas have been floated on multilateral financing guarantees to
absorb the first losses on private lending, there still is no clear
path to meet the $100 billion annual commitment. With ballooning
debts as countries seek to rebuild from COVID-19, many question
whether even $100 billion is adequate. Former UNFCCC Executive
Secretary Christiana Figueres has warned that this issue of climate
finance could undermine the entire COP if not resolved.
Climate justice: The phrase has been embraced
by rich and poor countries, but definitions differ widely.
Developing countries have focused on getting energy to 1.2 billion
people in the world without access to electricity and more
generally delivering adequate energy to lower-income people. In the
US, the term usually means redressing polluting infrastructure
located in poor and minority neighborhoods. In Europe, climate
justice has focused on coal-producing member states that will face
harsh economic impacts from the energy transition.
These differences, combined with dashed expectations on climate
finance, could leave COP26 in a state of disarray. The UK hosts and
the UNFCCC will need to steer public perception toward turning the
diverse meanings of climate justice into a unifying theme
addressing the human impacts of the energy transition.
Article 6—Rules on carbon markets: Article
6 of the Paris Agreement refers to the rules on how countries can
reduce their emissions using international carbon markets. The
rules have not been finalized since the signing of the Paris
Agreement. The core issue is whether and how carbon offsets can
count against NDCs. What this means, for instance, is whether a
credit or offset generated from reforestation in Brazil and then
purchased by a steel plant in the US can be counted by the US as an
offset against its NDC. That capital would largely flow back to
projects in developing countries. Still, some developing countries
oppose it, arguing that they will be left with more expensive
alternatives to reduce their emissions if they sell their offsets,
and that this could affect the competitiveness of their exports.
Some groups argue that offsets take pressure off high-emission
industries to accelerate reductions, and in some cases, they call
for these industries to be shut down. At stake is whether voluntary
carbon markets for such trade can grow from their current level of
about $320 million to what has been described as a potential $50
billion. To date, environmental, social, and corporate governance
(ESG) pressures in financial markets may have pressured more
profound changes in industrial investment patterns than government
action.
Carbon pricing: No group argues more strongly
to put a price on carbon than economists. Economists think in terms
of markets, and they see carbon pricing as the way to reflect the
externalities of GHG emissions and force companies to address these
costs in comparable ways across countries. At one point, pricing
carbon was a rallying cry for the environmental community, but the
environmental left in the US now sees it as imposing higher heating
and gasoline prices on the poor while enabling industries
(generally related to fossil fuels) to continue to exist. Europe
has gone the opposite direction through regulatory measures to
increase carbon prices and has now indicated that it will impose a
"cross-border adjustment mechanism" on imports that do not reflect
the carbon prices imposed on European industry. That may be a
mouthful, but it avoids a simpler term—a carbon tariff. China
has the world's largest carbon market and will eventually play a
key role in the direction of carbon pricing and global trade. One
should expect hallway clashes on carbon pricing at COP26, but most
countries understand that making it a focal issue could leave the
conference in disarray.
Emissions disclosure: In July 2021, the Group
of Seven (G7) endorsed the emission disclosure principles developed
by the Task Force on Climate-related Financial Disclosure (TCFD)
but left open whether to harmonize differing national regulations
on what is a global problem. Increasingly industries, financial
institutions, and countries deem that disclosure transparency is
needed to assess whether companies and countries meet their
pledges. The US Securities and Exchange Commission has committed to
provide US investors with "consistent, comparable, and
decision-useful disclosures." Disclosure about emissions and the
impact of investments is much less precise than measuring a
company's finances. There is no consensus on how to create a
baseline, whether there should be industry-specific metrics, how
scenario analyses should be built into risk assessments, how to
address global comparability, or the implications for increased
vulnerability to litigation. On the margins of the COP, the
emergence of an NGO-sponsored International Sustainability
Standards Board will get significant attention. Potentially,
finance ministers or financial regulators might endorse movement to
comparable standards. Expect some declarations on this subject.
There is still no consensus on how to translate this issue into a
global mandate.
Innovation and new initiatives: Technology and
innovation could be the high point of COP26, but do not expect a
binding and game-changing formal announcement. Mission
Innovation, a collaborative public-private effort on
technology launched at the Paris COP21 in 2015, will announce a
second phase of innovation on power, hydrogen, and shared platforms
for innovation. The COP will feature an Innovation Zone to
bring together startups, scale-ups, companies, investors, and
governments. There will be a parallel Innovation Forum
addressing technology challenges to accelerate emissions abatement.
Cities, youth groups, and environmental organizations all will
underscore differing perspectives on subnational potential to "make
change happen." Very likely we will see initiatives emerge to
restrict financing for coal and to curb methane emissions. All of
these could lift the spirit of the COP. The technology track will
surely be critical to any chance to meet net-zero ambitions. The
aspiration for COP26 will be to show dynamism of commitment and
commercial opportunity to give impetus to the debate on climate
policy.
Politics and geopolitics: Given the array of
divisive issues, the mood and dynamic that emerge from country
interactions will inevitably frame perceptions of COP26's success.
The country interaction that will attract greatest scrutiny will be
between the world's two largest economies and emitters, the US and
China. If they clash on accelerating investment to reduce
emissions, others will question the point of their commitments.
Developing countries may have the greatest leverage to meet their
financing demands since the "failed" COP at Copenhagen in 2009.
Europe could emerge as a critical mediator among the parties given
its vast pledges to action in July 2021.
How the world perceives outcomes on these nine issues and the
weight that the media will give them will, in the end, determine
whether COP26 is seen as a success or a disappointment. It is
unlikely that the COP will be seen as failing—the massive
global pledges to net-zero emissions can create a perception of
movement and the potential for change.
The biggest challenge will be that emissions are not nearly on
track to meet the Paris goals, and the mechanisms to force fast
action are disbursed among countries with varying views. Perhaps
the most predictable outcome of COP26 may be recognizing that the
financial sector and how it allocates capital may be the strongest
force to shift investment patterns. What is clear is that there is
not one single issue that will carry this COP to the kind of
success that marked Paris. It will be whether the amalgam of
measures taken, started, or announced at COP26 will add to a sense
of momentum, cohesion, and practicality across governments and
industry.
Carlos Pascual is senior vice president for Global Energy
and International Affairs at IHS Markit. He was the founder of the
Energy Resources Bureau in the US State Department and served as
the US ambassador to Mexico and Ukraine and as the Senior Director
at the National Security Council on Russia, Ukraine, and Eurasia.
He is a nonresident fellow at the Center for Global Energy Policy
at Columbia University and a Distinguished Fellow at the Atlantic
Council.