As the curtain comes down on COP26, we review what happened in week two and reflect on the overall impact of the summit. After two weeks of hard negotiation, we have the Glasgow Climate Pact. The deal is an impressive feat of global cooperation that makes certain the deepest real economy transition since the industrial revolution. It is simultaneously totally inadequate. In other words, it is exactly what was expected.
The perspective you take seems to depend on the frame in which you operate. For many of those embedded in finance or policy, this is an unprecedented display of global cooperation, the like of which seemed impossible a decade ago when we were on course for upwards of 4 degrees of warming. For those on the frontline of the climate crisis, a deal which is estimated to set us on a course for 2.4°C of warming is a betrayal and a death sentence. Both statements in reality are true, and should be acknowledged simultaneously. Is 1.5C still alive? It is difficult to tell. If it is still alive, it is slipping rapidly out of reach.
What is clear is that this deal builds on the Paris Agreement in creating a funnel for the global economy. The funnel is still too wide and allows too much wiggle room to pollute, but it makes the direction of travel abundantly clear. Crucially, it also gets countries back each year to re-evaluate and, hopefully, to narrow the funnel further. It now has to be down to regional governments, finance and civil society to pick up the slack and work within the funnel established to drive the transition. The important thing is that this is not impossible. The Glasgow Climate Pact makes polluting activities even less economically attractive, and continues to build momentum behind the falling prices of clean alternatives. As example, EU carbon prices have hit record highs in the days since the conference.
At the start of the conference, Boris Johnson identified four key foci; coal, cash, cars and trees. All were addressed through headline pledges in week one (see here for our report). Week two focused on the nitty-gritty of enacting these pledges, particularly those involving finance – highlighted as a key sticking point of negotiations in Paris. This article looks at where we stand on each of these four issues after another week of intense negotiation. Before doing so, it highlights two major studies that emerged during week two. A summary of the initiatives launched throughout the two weeks of the conference can be found at the bottom of the report.
Climate Action Tracker (CAT) offered a crushing reality check on analyses last week that found COP26 pledges placed us on track for 1.8-1.9°C of warming. The consortium behind the CAT focused on actions pledged for 2030, and found a huge credibility gap between pledges and this more concrete reality, with the latter placing us on track for 2.4°C of warming. It emphasises once again that long term commitments without concrete short-medium term pathways are not sufficient. These findings therefore back up the narrative of many protestors at the conference that 'Net Zero' pledges are the newest form of greenwashing, as any and every country is chucking out a target without any real idea of how it would reach it. The second report was an addendum to the UNEP Emissions Gap report, which had been such a stark wakeup call in the week before the conference. The update proved no different, finding effectively the same as the CAT; concrete plans see us on course to produce double the volume of emissions we can afford in a 1.5°C scenario. They find that unconditional pledges will not knock us from our 2.7°C trajectory, and if we make the dangerous assumption that conditional pledges will be met, we will still reach 2.1°C. It seems unlikely that pledges made after these reports were released will shift the needle much, but the complexity of the issue demands that we wait for further analyses to be certain.
Coal is understandably a lightning rod issue for the conference, and for society’s coverage of it. It is a concrete object with a simpler enemy narrative than other, more diffuse issues. It is, of course, also, the biggest single cause of global warming. Week one saw some major announcements on coal; most notably 190 parties agreeing to end production by 2030 in developed countries and 2040 in developing ones. Separately, the Powering Past Coal Alliance gained new signatories, taking its membership to 65% of the OECD and EU. Twenty countries and financial institutions additionally committed to stop the financing of overseas fossil fuel projects.
At its twenty-sixth attempt, this was also the first COP in which a reduction in fossil fuel production made it into the final agreement. Unfortunately, global headlines were grabbed by a last-minute push from China and India to water down the language of the deal. Anyone with an eye on proceedings will have noticed the Byzantine focus on terminology during week two. One such example was a bizarre bit of wording that appeared in the first draft text from the UK government. Point 17 spoke of ‘limiting global warming to 1.5°C by 2100’. Professor Myles Allen, one of the authors of the IPCC Special Report 15 which enshrined 1.5°C as the target, was quick to point to the danger of this phrasing, compared to ‘pathways with no or limited overshoot of 1.5°C’ as in the SR15 text. The initial COP26 wording therefore facilitated a situation where no emissions reductions are made and temperatures skyrocket before being brought down to 1.5°C by CO2e removal in the 2090s. This was therefore both a perplexing and potentially catastrophic grammatical slip.
The last minute change of phrasing over coal was a similarly poignant example of the importance of language. The wording went from a commitment to ‘phase out’ unabated coal power, to phasing it ‘down’. As a Swiss representative noted in response to the change, ‘we do not need to phase down coal but to phase out coal’. Additionally disappointing was the wording of the line in which the 197 countries of the Paris Agreement pledged to ‘phase out inefficient fossil fuel subsidies’. The inclusion of ‘inefficient’ presents ample wiggle room for countries intent on continuing the unsustainable practice. While the last-minute change grabbed headlines, and this inclusion was damaging, things may not be as bad as they seem, as the Guardian’s environment correspondent Fiona Harvey has noted. For starters, the agreement never included a timescale for ‘phasing out’ coal, meaning countries determined to keep emitting could always do so in pursuit of a nominal and distant phase out. ‘Phasing down’ perhaps widens the scope for this excuse, but it does not necessarily do so by much. By the time the difference between the two phrases becomes crucial, coal is likely to be seen as so economically illogical that projects will struggle to get financing anyway. This pact sets the direction of travel, and that is crucial.
While coal received a lot of attention, no provision was made to reduce oil and gas. In week two, six new countries joined the fledging Beyond Oil and Gas Alliance. None of its members are large producers, and the UK was one of the many major economies to shun the alliance. Many countries argue that oil and gas are necessary transition fuels to ensure that the lights remain on and decarbonisation can be paid for. A recent report from Climate Analytics focusing on gas showed that the fuel was not a realistic bridging fuel for a successful transition, a spokesperson stating that gas is ‘ultimately’ a ‘bridge to nowhere’. The lack of targets focused on oil and gas was therefore, although wholly unsurprising, a failure of the conference.
No substantial new news emerged around last week’s $19.5 billion pledge to end deforestation and land degradation by 2030. Commentary since has generally focused on the shortcomings of this ostensibly historic move. Reuters reported midweek that deforestation in the Brazilian Amazon was up by 5% this year, just as Bolsonaro claimed that his country was ‘part of the solution’, not the problem. The date of 2030 was seen by many as far too late, given the precarious state of global rainforests and the indigenous communities who inhabit them.
The Glasgow Declaration on Zero Emissions Cars and Vans followed a similar theme. Volvo, Ford, GM, BYD, Land Rover and Mercedes joined 31 governments including the UK, Canada, the Netherlands and India in agreeing to phase out fossil fuel vehicles by 2040. Worryingly, however, three of the world’s largest automakers in VW, Toyota and Nissan-Renault did not sign up, and neither did the US, Japan or China. Critics therefore argue that its effectiveness will be limited. The incident further highlights, despite their best marketing efforts, the lethargy of incumbent automakers, as outlined in our recent report on the car industry.
Coming into COP, and indeed into week two, sorting out Article 6 of the Paris Agreement was a major target, as was securing the $100bn of annual climate financing promised annually to the developing world. Financing for adaptation as well as creating a procedure for loss and damages also emerged as crucial points of debate throughout the conference. Boris Johnson’s buzz word ‘cash’ thus grew into a vast, tangled web of negotiation.
Article 6 of the Paris Agreement related to carbon markets, which are seen as a crucial way to lower the cost of emissions reductions. There were a number of issues that were not resolved at Paris, and were hindering the successful functioning of global markets. Specific points of debate were emissions double counting (corresponding adjustments), the credibility of reductions, ‘share of proceeds’ financing for adaptation, human rights protection and the carryover of previously earned credits. Outcomes have been mixed. Crucially, the final text is very strong on double counting, requiring corresponding adjustments to be made right away, in all cases and for GHG reductions from outside an NDC. It also specifies that reductions made through the ‘avoidance of deforestation’ are not credible and bans unverified REDDDOT+ credits.
The weakest part of the text is the allowance of credits from the previous clean development mechanism until 2025. It can only be hoped that buyers avoid these credits, which may well not represent lasting emissions reductions. Share of proceeds financing provided one of many flashpoints between (loosely) the developed and developing worlds. In the end, the share of credits generated which go to developing country adaptation is now a mandatory 5% in article 6.2 (related to countries), but voluntary in article 6.4 (projects involving private entities). Many commentators felt that these updates still left room for countries to game the system and continue to emit. It was even suggested that vested interests may have influenced the process here. On this note, it is worth pointing out the number of conference attendees who were associated with the fossil fuel industry; according to analysis by Global Witness they outnumbered the delegates from any one country. Many felt that they should not have been allowed for fear of lobbying. In case we needed reminding, a leak in the weeks before the conference showed that this is a very real fear.
Climate finance was similarly important, with the issue influencing wider negotiations through friction between the developed and developing world. Some of this friction was eased with the announcement of a surprise US-China pact to jointly reduce emissions. While it didn’t come with huge tangible measures, the relationship had been a sticking point until that moment, and the act of goodwill signalled a shift in the talks. Despite this, and despite fresh commitments from the US, the UK, Canada and Japan plus others, the $100bn total of annual pledged climate finance is still predicted to take two years to reach. This is around three years later than promised.
Many critics argued that $100bn is, anyway, too little, and not enough of it is earmarked for adaptation projects (generally much harder to finance than mitigation). A representative of the Grantham Institute on Climate Change and the environment says that we ‘need to move trillions in both public and private money’. A recent UN commission study found that, despite many African countries already spending upwards of 7% of their GDP on adaptation, the financing gap between need and expenditure is about 80%. An African bloc of negotiators did indeed call on developed nations during the conference to provide $1.3 trillion a year for both mitigation and adaptation by 2030. Another call was for half of the $100bn a year to go to adaptation. Neither was met. There was, however, at least a commitment from developed nations to double adaptation finance by 2025 alongside the immediate establishment of a working group to tackle the gap in adaptation financing.
There remains an overarching sentiment amongst commentators that the developed world, historically most responsible for the climate crisis, has let down the rest this week. This was perhaps most distinctly evident in the case of loss and damage, with poorer countries calling for compensation for damage already wrought as well as a facility for what is to come. It is said that richer nations including the US, UK and EU opposed the idea, settling instead on the opening of a ‘dialogue’ on the subject. This does at least open the door for action at COP27 in Egypt next year, but will be far from satisfactory for those on the front line.
Last week, Mark Carney launched the Glasgow Financial Alliance for Net Zero, claiming that under its auspices $130tn in assets were now committed to Net Zero in pursuit of 1.5°C. Alongside the initiative was the formation of the International Sustainability Standards Board (ISSB). Sustainable finance has always been a maze of acronyms, initiatives and bodies. This move, while adding another institution to the mix, aims to add some much-needed clarity. Disclosure in particular has been a disparate and variegated landscape of voluntary and mandatory initiatives over which experts and investors alike have long called for alignment. the ISSB, launched by the International Financial Reporting Standards Foundation (IFRS), aims to offer this. It aligns the reporting standards of the Value Reporting Foundation (comprising the Sustainability Accounting Standards Board and the Integrated Reporting Framework) and the Climate Disclosure Standards Board (an initiative of CDP) in the creation of a standardised climate disclosure metric. This will help fight greenwashing and give investors confidence in allocating capital in pursuit of social and environmental goals.
It is finally interesting to note the language used in the Glasgow Climate Pact, and by officials at the end of the conference. The text is peppered with language of urgency. In multiple places ‘alarm’ is expressed. Moreover, it notes ‘with deep regret’ that the $100bn climate finance target has not yet been met, and ‘emphasises the challenges faced by many developing country parties in accessing finance’. As reported across major media outlets, the President of COP26, Alok Sharma, fought back tears while proclaiming he was ‘deeply sorry’ about the final watering down of the coal deal. While there are still clear obstacles to action, and the deal is clearly insufficient in many ways, the political will to act, and to act in a just manner, now seems genuine across the majority of parties. We remain in deep trouble, but given where we were two weeks ago, the conference could have gone far worse. What it most definitely has done, is provided an almighty signal to private finance that the transition is upon us. There is now a huge opportunity for investors of all kinds to step up and provide leadership. 2008 was a dark time for finance and those who believe in the power of the market. The next decade can, conversely, be a golden period. The twin logics of human wellbeing and profit have now, beyond any shadow of a doubt, aligned.
Major initiatives launched at COP26
For a definitive deep-dive into the outcomes of the conference, we recommend the report compiled by Carbon Brief