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There has been a strange, almost muted atmosphere around Glasgow this week as the city holds its collective breathe. It has been tricky to judge what has happened so far, a task made even more difficult by the increasing separation between narratives of official delegations in the SEC and those of the protestors in Kelvingrove park down the road. Our view is that markets are a core part of the solution to climate change, particularly given the time pressure we are under and the potential that they offer for innovation. From this perspective, we see many positives emerging this week. Our word of caution is that commitments made still have to be met, and met in a manner that does not create widespread social strife in the form of an un-just transition.
A number of major scientific studies emerged this week and provide a useful backdrop for negotiations. First, the Global Carbon Project’s latest global carbon budget found that emissions have rebounded in 2021 to almost pre-pandemic levels. Although the US, the EU and the majority of the world’s nations are emitting at a lower level than in 2019, China’s emissions have risen by 7% versus 2019 and India’s 3%. We had a global opportunity to rebuild our economic system and this report now confirms that we did not take it. It does, however, offer some positive news. The incorporation of new land use and deforestation estimates shows that emissions have been more or less flat over the last decade after a sharp rise in the early 2000s – a more positive picture than previously painted.
Second, a new climate attribution study demonstrated that Europe’s record breaking 2021 heatwave would not have happened without the influence of climate change. This comes after the Met Office warned that Europe would experience a ‘lucifer’ heatwave reaching 50°C every three years from now. Third were analyses put together during the conference. These are important to set the scene before we dive into individual pledges. The first, undertaken by researchers from the University of Melbourne, was released after day three and suggested that commitments up to that point could restrict global heating to 1.9°C above pre-industrial levels, compared to the 2.7 forecast before the week. The second, produced a day later by the IEA placed the new figure at 1.8°C. Crucially, these figures are conditional on countries meeting their commitments, a requirement to which historical precedent is not kind.
Update - On 09/11/21 Two more in depth reports were released, with damning conclusions for these preliminary estimates. Climate Action Tracker (CAT) did produce a 1.8°C estimate in their most optimistic scenario where all announcements, LTS' and NDC's were met. The experts, however, focused on actions pledged for 2030, and found a huge credibility gap, as they place us on track for 2.4°C of warming. Long term commitments without concrete short-medium term pathways are not sufficient. These findings therefore back up the narrative surrounding the conference that 'Net Zero' pledges are the newest form of greenwashing, as any and every country is chucking a target out 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 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 reach 2.1C. The fallout from these reports will be charted in our summary of week 2 at COP.
It is possible to break the complex cascade of pledges made into six(ish) themes: updated NDCS, methane, fossil fuels, nature, finance and innovation. The first, NDCs, were the focus of Monday and Tuesday at COP26. The headline announcement was India’s pledge to become Net Zero by 2070. This brought mixed reaction and perfectly summarised the complexity inherent in the issue. Many were appalled at the timescale of the commitment, meaning the world’s current third largest emitter will continue to do its thing for almost fifty years. Analysts from the ECIU, Lord Nicholas Stern and others however, argued that 2070 from India was comparable to 2050 in the UK, given the country’s per capita emissions (1/3rd of the world’s average) and stage of development. Additionally, the accompanying 2030 commitments, including increasing its renewable capacity to 500GW and getting half its energy from renewables, will make a material difference in the nearer term.
Few other major NDC updates were made, as most were announced before the conference. Particularly notable was Xi Jinping’s written address which effectively said nothing. The US did, however, re-join the High Ambition Coalition. The coalition represents a commitment to do everything possible to keep warming to 1.5°C above pre-industrial levels. The language of the Paris agreement makes it easy to settle for 2°C, so this is an important movement, with every fraction of a degree mattering greatly. Its leaders, such as founder Tina Stege of the Marshall Islands, will push for an end to fossil fuel subsidies (currently at a whopping $11 million a minute according to the IMF) and the doubling of financing for the developing world. It is unclear how the US will live up to these goals given the difficulty it has had with congress, but it is a positive sign at least.
A US-led methane pledge dominated headlines on day two. It saw almost 100 countries commit to cutting methane emissions by 30% by 2030. Brazil signed, but China, Russia and India, all major methane emitters, did not. Reaction was once again mixed, with the main criticism being the lack of any form of transparency requirement or enforcement capability. Many scientists also argued that it was just a distraction from the main goal of ending fossil fuel consumption which, if achieved, would slash methane emissions anyway. Some also questioned the accounting behind the claimed impact of the move.
Finance is a big focus of COP26, and particularly relevant of course to us at iClima. It is important here to note the distinction between climate finance (the specific financial flows directed towards mitigation or adaptation activities, usually used in the context of developed to developing world transfers) and climate-aligned finance (the alignment of financial portfolios with the goals of the Paris Agreement). The former was a huge issue coming into the conference, with the failure of the developed world to deliver on their promised $100bn of climate finance for the developing world souring wider negotiations and undermining attempts to support a just transition. It is thus a major focus of COP26. On Tuesday, Japan pledged $10bn more towards meeting the goal. US climate envoy John Kerry believes this will allow the target to be met by 2022 rather than 2023, still two years later than originally agreed, but a positive step nonetheless.
Importantly, private finance is joining the fight in ever increasing numbers. Pension funds from the UK and Nordic countries this week announced that they would invest $130bn in climate projects by 2030 and, crucially, report annually on their progress. This paves the way to unlocking a huge global store of finance. An equivalent breakthrough came on Wednesday, as Mark Carney officially announced the launch of the Glasgow Financial Alliance for Net Zero or, amusingly, GFANZ for short. The move claims to have committed $130tn towards the net zero transition. The Daily Telegraph, reported through Carbon Brief, suggests that this is a misleading statement, as $130tn is simply the total assets of the firms signed up to Net Zero goals. The companies have agreed to undergo a review ever five years, and to disclose their emissions every year. The agreement does not, however, preclude them from financing fossil fuels in the near term.
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Fossil fuels themselves have proven particularly contentious this week. Much of the growing divide between activists and decisionmakers has been driven by positions on the continued extraction of fossil fuels. Taking a middle ground position, fossil fuels production cannot be stopped overnight – as US treasury Secretary Janet Yellen argued, this could be socially and economically disastrous – but it can be stopped far sooner than currently agreed. If it is not, we will not only be producing unsustainable levels of carbon emissions, but also risking what Al Gore this week termed a $22 trillion subprime carbon bubble as assets face sudden and widespread stranding. A widely agreed example of best practice in this debate emerged early in the week, with the US, UK and EU agreeing a $8.5bn ‘just transition partnership’ with South Africa to help the country move past coal in an equitable manner. Similarly, a consortium of development banks and private donors raised $10.5bn to support emerging economies in transition, with a hope that more will follow.
More broadly, 190 parties including about fifty countries and sub-jurisdictions agreed to end coal production by 2030 in major economies and 2040 in smaller ones. Separately, the Powering Past Coal Alliance gained new signatories, taking its membership to 65% of the OECD and EU. The UK and US are additionally two of twenty countries and financial institutions committing to stop financing fossil fuels abroad and diverting the windfall to green energy. Very importantly, China was not part of any of these efforts. The Global Carbon Budget this week found that China’s share of current global emissions has risen to 31%. Carbon Brief reports suggest that the overall success of these initiatives will therefore be determined by China, whose only near-term pledge was to reduce coal use in electricity generation by 1.8% over the coming five years. According to Reuters, China is now producing 11.9 million tonnes of coal a day, rendering rest-of-world pledges into relative insignificance.
There were two major commitments around preserving nature, which is increasingly being seen as a core part of the fight against climate change. First came the billboard announcement that $19.5 billion would be mobilised to halt deforestation and land degradation by 2030. Funds would come from both public and private sources. Some hailed the announcement as the ‘Paris moment’ for forests. Others felt that the time period was unnecessarily long, and there was no way of enforcing or tracking the initiative. Perhaps the most apt conclusion given the last six years of climate action is to say that both of these statements are true. The second commitment saw Ecuador lead Panama, Colombia and Costa Rice in establishing the Eastern Tropical Pacific Marine Corridor (CMAR) to create a massive fishing free zone in one of the world’s most important tracts of ocean, including the world-famous Galapagos Islands.
Finally, innovation has been a core theme of this week. While there is a danger that people over-exaggerate our capability to engineer ourselves out of the climate crisis as an excuse to delay action, innovation will certainly be essential in the transition. This week I watched pitches from a number of potentially revolutionary start-ups. One in particular sought to use AI to automatically sort waste between recycling and general bins; a mundane sounding solution but one that could save thousands of tonnes of carbon dioxide, masses of landfill space and millions of dollars. Another, which won Scottish Edge’s first net zero funding event, offered a small, affordable and portable solar to heat source with the potential to transform energy systems in the developing world. The final innovation that caught my eye, because I can’t resist, was a West London company creating underground magnetic delivery solutions, saving substantial emissions and also vast tracts of urban space. Solutions such as this are necessary to allow us to reach net zero across the whole economy in the limited time we have.
In view of this, two thirds of the global economy this week launched the ‘Breakthrough Agenda’ to invest in emerging technologies across five key sectors: steel, road transport, agriculture, hydrogen and electricity. This is hugely exciting, and we will be digging into the operationalisation of the plan as and when more details become available. A key issue going forward will be quantifying the impact of these innovations, as more and more emerge promising ever increasing benefits. At iClima, we have pioneered the use of the potential avoided emissions metric, first outlined by Mission Innovation. It has helped us cut through the narrative and determine what we believe are the current solutions with the most potential to shift the needle on the climate crisis. Moving forward, more tools like this will be needed to quantify affects on climate change, biodiversity loss and human society in more detail. The time value of carbon and the carbon return of an investment are two such tools with huge potential, as covered by our CEO Gaby alongside Dennis Pamlin on a panel in the COP26 blue zone this week. We would encourage anyone with an interest in low carbon innovation to take a look here. We learnt a huge amount from the experience.
With the departure of global leaders, next week promises more nitty-gritty on how the international community will, in the words of Politico confront the world’s ‘carbon cheats’. According to the news outlet, the remaining negotiations can be summarised as ‘deadlines, transparency and carbon markets’. Article 6 has also still not been sorted, with anecdotal evidence suggesting that debate continues around the carry-over from previous carbon trading mechanisms, as well as the status of non-market approaches. Offsetting has been a huge theme this week. Greta Thunberg has joined large numbers of other activists and indigenous leaders in decrying offsetting as a strategy. As discussed in previous articles, we believe it has a role to play in the transition, creating financing flows for crucial projects, but we share concerns that the process needs far more stringent regulation. At present, the system is vulnerable to leakage, double counting and all manner of socially unacceptable outcomes such as mass evictions of local populations in the developing world. An interesting aside is another project featuring in the green zone this week, one offering new techniques for quantifying the impact of offsets. If it proves to be successful, something like this could provide a watershed moment.
The level engagement with this week has been heartening to see. We must continue to push for commitment and transparency and the goal of 1.5°C, but after so much pessimism leading into COP26, week one has brought us plenty of positive outcomes. Watch this space.