With COP26 discussions underway, AICD Chief Economist Mark Thirlwell MAICD looks at what’s at stake and what it means for the global economy.
COP26 is the 26th United Nations Climate Change Conference of the Parties which is being held in Glasgow between 31 October and 12 November this year. It is intended to bring the world’s countries together to agree on actions to move the planet closer to meeting the goals of the United Nations Framework Convention on Climate Change (UNFCCC) and the 2015 Paris Agreement.
The overarching objective of this week’s COP26 is to get the world economy back on track to the meet the Paris Agreement goals on limiting global temperature rises. In that context, two key areas will be of particular focus.
- First, in order to meet those Paris Agreement targets, COP26 will have to deliver an accord on how to get to carbon neutrality (net zero) by mid-century, and – as part of the journey – how to deliver significant cuts in emissions by 2030.Unfortunately, and as already noted, both the Rome G20 Summit and the UN’s recent assessment of the latest round of NDCs suggest that the world remains some distance from providing the appropriate commitments and putting the necessary policies in place. The latest set of NDCs prepared for COP26 look inconsistent with even a two degrees Celsius target, for example.
- Second, COP26 also needs to secure a renewed and credible agreement from rich countries to meet their commitments under the Copenhagen Accord to collectively provide at least US$100 billion a year in financing for developing countries until 2025 and then to meet the developing world’s expectations of additional financing beyond 2025.Remember, the starting point here is a significant undershoot on existing financing commitments.
- A third critical area of focus for COP26 is on an important piece of unfinished business from COP21 and the Paris Agreement. This is Article Six which focuses on voluntary cooperation in the form of market and non-market-based approaches to meeting climate goals.Article Six sets out three approaches: a mechanism that would allow countries that have more than met their Paris climate pledges to sell any excess achievement to those who have failed to do so (‘internationally transferred migration outcomes’ or ITMOs to use the jargon in the Agreement); the creation of a new global carbon market for the international trading of emissions; and a framework for non-market approaches towards climate cooperation such as development aid. But Article Six and the Paris Agreement did set out any of the detailed rules – such as how to avoid double-counting and how to treat older credits – needed to make these arrangements work, and to date reaching agreement on these has proved contentious.
Finally, and in addition to these three items, ahead of the Glasgow meeting the UK government has also indicated that it would like to see progress on a range of other issues including phasing out coal, curbing methane emissions and halting deforestation.
The UNFCCC is a product of the 1992 ‘Rio Earth Summit’ and entered into force on 21 March 1994. The 197 countries including the EU that ratified it are called Parties to the Convention and there has been a conference of the parties (COP) every year since 1995, with the exception of 2020 when the conference was postponed due to COVID and pushed back to this year. The UNFCCC aimed to stabilise greenhouse gas concentrations ‘at a level that would prevent dangerous anthropogenic (human induced) interference with the climate system.’ It also put most of the onus to tackle climate change on developed or industrial countries – so-called Annex 1 countries – as the source of the bulk of past and (at that time) current greenhouse gas (GHG) emissions.
The UNFCCC was operationalised at COP3 in the form of the Kyoto Protocol which was adopted on 11 December 1997 and which after a lengthy ratification process entered into force on 16 February 2005. Consistent with that initial focus on Annex 1 countries, the Kyoto Protocol only bound developed countries, and under the principle of ‘common but differentiated responsibility and respective capabilities’ in Annex B it set binding emission reduction targets for 37 industrialized countries and economies in transition and the European Union. Overall, those targets added up to an average five per cent emission reduction compared to 1990 levels to be delivered over the five-year period from 2008 to 2012, also known as the first commitment period.
More than a decade later, COP15 delivered the Copenhagen Accord in December 2009 which included the long-term goal of limiting the maximum global average temperature increase to no more than two degrees Celsius above pre-industrial levels along with a reference to considering further limiting that temperature increase to below 1.5 degrees. Copenhagen also saw developed countries promise that they would provide funding for developing countries to reduce GHG emissions and to adapt to the inevitable effects of climate change, by providing US$30 billion for the period 2010-2012 and by pledging to mobilise long-term finance of a further US$100 billion a year by 2020.
On 8 December 2012, COP18 saw the adoption of the Doha Amendment to the Kyoto Protocol. The Doha Amendment was intended to cover a second commitment period, starting in 2013 and running until 2020 although it only entered into force in December last year.
In 2015 at COP 21 in Paris, countries adopted the Paris Agreement, a legally binding international treaty on climate change. It was adopted by 196 Parties and entered into force on 4 November 2016. Consistent with the approach agreed under the Copenhagen Accord, the goal of the Paris Agreement was to limit global warming to well below two degrees Celsius compared to pre-industrial levels and preferably to 1.5 degrees Celsius. To hit this target, countries promised to aim to reach peak global GHG emissions as soon as possible and to target a climate neutral world by mid-Century.
The Paris Agreement was constructed around a five-year cycle of climate actions. Individual countries produce plans called nationally determined contributions (NDCs) which set out the actions they will take to reduce their GHG emissions. These are then reviewed every five years, with each successive NDC intended to represent an upgrade on its predecessor.
Critically, and in a recognition of the changing sources of GHG emissions in the world economy, the Paris Agreement moved beyond the Kyoto Protocol’s original focus on advanced economies to include emerging and developing economies in the NDC process, although it also allowed for the idea that reaching peak emissions would take longer for developing country Parties.
The Paris Agreement also reaffirmed the obligations of developed countries under the Copenhagen Accord to assist the efforts of developing countries to respond to climate change by providing and mobilising climate finance to support a combination of adaptation and mitigation policies. The original goal was to mobilise US$100 billion per year by 2020 and at COP21 in Paris this goal was reiterated but also extended out to 2025.
In August this year, the Working Group 1 report for the IPCC’s Sixth Assessment Report presented ‘the most up-to-date physical understanding of the climate system and climate change’. It warned that ‘unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warning to close to 1.5 degrees Celsius or even two degrees Celsius will be beyond reach.’ The IPCC report also cautioned that ‘evidence of observed changes in extremes such as heatwaves, heavy precipitation, droughts, and tropical cyclones, and, in particular, their attribution to human influence, has strengthened.’
Of the Paris Agreement’s ambition to limit warming to preferably below 1.5 degrees relative to pre-industrial levels, scientists currently estimate that warming has already seen temperatures increase by about 1.1 degrees: the global surface temperature was 1.09 [between 0.95 to 1.2 with a probability of 90 per cent] degrees Celsius higher in 2011-2020 than it was in 1850-1900.
The energy sector is estimated to have been responsible for almost three-quarters of the emissions that have pushed global average temperatures up by that 1.1 degrees since the pre-industrial era and the IEA’s October 2021 World Energy Outlook (WEO) points to the conflicting signals around the role of energy in climate change. On the one hand, the WEO trumpets the arrival of a ‘new global energy economy’ underpinned by the rapid growth of wind and solar power and by new sales records set by electric vehicles. But at the same time, it also describes how a volatile recovery from last year’s pandemic recession has led to worldwide energy shortfalls, sharp price increases for natural gas, coal and electricity and the second-largest annual increase in CO2 emissions on record.
Progress on emissions reduction more generally has been slow. The United Nations Environment Programme (UNEP)’s Emissions Gap Report 2021 reviews the impact of the new and updated NDCs that countries were asked to submit in advance of COP26 alongside other mitigation measures including their pledges on emissions reductions for 2030. It concludes that these will have only a limited impact on global emissions compared to the previous set of NDCs, reducing projected emissions by an additional 7.5 per cent relative to the previous NDCs, compared to the 30 per cent reduction that it estimates would have been needed to limit warming to two degrees and the 55 per cent needed for 1.5 degrees. The UNEP report reckons that these policy settings, if continued throughout this century, would put the world on track for a global temperature rise of 2.7 degrees Celsius by the end of the century, well above the goals of the Paris Agreement.
Somewhat more positively, it does find that the current round of net-zero emissions pledges could, provided they were implemented effectively, instead limit warming to 2.2 degrees Celsius. This would be closer to, albeit still above, the ‘well-below two degrees’ ambition set at Paris. However, the report also notes that G20 members as a group – who collectively account for about 75 per cent of global emissions – do not have actually have the policies in place to achieve even their current NDCs, let alone a target of net zero. Indeed, the record of G20 members on delivering upgraded NDCs ahead of COP21 looks distinctly patchy: at the time the report was issued, the NDCs submitted by Brazil and Mexico were estimated to lead to an increase in emissions; the NDCs submitted by Australia and Indonesia were assessed to lead to no additional reduction relative to previous NDCs; and India, Saudi Arabia and Turkey had not submitted a new or updated NDC. China, Japan and Korea had announced enhanced pledges that result in annual reductions in emissions, although they had not yet formally submitted them to the UNFCC.
To date, the Parties have also failed to live up to their promises on mobilising climate finance. The latest OECD assessment released in September this year reports that total climate finance provided and mobilised by developed countries for developing countries was US$79.6 billion in 2019, an increase of two per cent from 2018. Private climate finance mobilised by developed countries actually fell four per cent between 2018 and 2019.
That implies that a more than US$20 billion annual jump would have been required to meet the official US$100 billion goal for 2020 and the OECD states that although ‘appropriately verified data for 2020 will not be available until early next year it is clear that climate finance will remain well short of its target’
At the latest G20 Heads of State and Government Summit held in Rome on 30-31 October this year, which effectively served as a curtain-raiser to COP26 itself, the G20 Rome Leaders’ Declaration promised to ‘work collectively to achieve a successful UNFCCC COP26.’ Leaders reaffirmed their commitment ‘to the full and effective implementation of the UNFCCC and of the Paris Agreement, taking action across mitigation, adaptation and finance during this critical decade’ and to ‘the Paris Agreement goal to hold the global average temperature increase well below two degrees Celsius and to pursue efforts to limit it to 1.5 degrees Celsius above pre-industrial levels.’ Disappointingly, however, although the inclusion of the 1.5 degrees target was hailed as a significant first for a G20 communique, there was no agreement on a firm 2050 deadline for reaching net zero emissions (China, Russia and Saudi Arabia are targeting 2060 while India has yet to commit to a target) but only a vaguer commitment to ‘by or around mid-century’ and there were few concrete details on how the target was to be met. Even the agreement to ‘put an end to the provision of international public finance for new unabated coal power generation abroad by the end of 2021’ fell short of stated pre-summit objectives for a commitment to also phase out domestic coal use.
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