What will success mean at COP26?

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.