There are three key decisions that world leaders will need to decide at COP26 in Glasgow on 31 October to 12 November.
Will countries be able to agree more ambitious targets to reduce GHG emissions than those in their current NDCs (which set out their national climate targets as required under the Paris Agreement)?
The current climate targets in the Nationally Determined Contributions (NDCs) for the countries that are party to the Paris Agreement are likely to result in approximately a 2.7°C increase in global temperature.
The Paris Agreement requires parties to hold the increase in the global average temperature to well below 2°C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5°C. However, the lPCC (i.e. leading climate scientists) has warned that anything above a 1.5°C increase is likely to lead to more frequent and more severe events like storms, floods, droughts, wildfires and sea level rises (see here).
According to the IPCC, we have already reached around a 1.1°C increase - so drastic action is going to be needed to limit global temperature rise to a 1.5°C increase. That means having to reduce greenhouse gas (GHG) emissions globally by at least 50% by 2030 and reaching net zero by 2050.
For example, the EU has agreed to reduce its collective GHG emissions by at least 55% by 2030 and become net zero by 2050. The UK has agreed to a 78% reduction by 2035 with a view to reaching net zero by 2050. The US has agreed to reduce GHG emissions by 50-52% by 2030 and reach net zero by 2050. And China has agreed to have CO2 emissions peak before 2030 and achieve net zero before 2060.
But collectively, all the countries’ targets put together are not on track to reach net zero by 2050. And the window of opportunity to do that is closing rapidly. Also, the longer we wait to make deeper emissions cuts, the more it will cost in the long term (see here for what the IEA has to say about it).
Will developed nations be able to fulfil their existing promise of mobilising US$100 billion per year of climate finance to help developing countries reduce their GHG emissions and adapt to the existing effects of climate change?
The existing pledge of US$100 billion per year of climate finance for developing nations – which was meant to have happened by 2020 but hasn’t - is a serious sticking point.
Last month, President Biden said he would ask the US Congress to double the US’ contribution to US$11 billion a year by 2024 but it remains to be seen whether Congress will approve that and whether other developed nations are also able and willing to increase their contributions. Some developing countries argue that even $100 billion per year is not enough seeing as they are already bearing the brunt of climate change (e.g. with prolonged droughts or flooding).
Unless significant progress can be made on climate finance at COP26, it is doubtful whether certain emerging economies such as India would be willing to commit to, or increase, their climate targets. And with coal power still being a significant energy source in the developing world, it is crucial to find a way to ensure those economies have the support they need to be able to shift to a lower carbon model as they grow.
But it’s not just the amount of climate finance that needs to be agreed. Discussions are also needed about how the climate financing regime would work.
Will countries be able to agree the rules under Article 6 of the Paris Agreement which includes establishing the new international emissions trading regime (also known as the “Paris rulebook” or “Article 6 rulebook”)?
Article 6 of the Paris Agreement enables voluntary international co-operation on climate action. One of the options envisaged under Article 6 is the possibility of a country that has overachieved its climate targets under its NDC to sell its “spare” achievements to another country. Another option is for the establishment of a global mechanism through which public and private sector participants can trade carbon credits generated from emissions reduction projects to count towards meeting their Paris pledges.
However, to date, the parties to the Paris Agreement have not been able to agree on the rulebook for these mechanisms (e.g. because of concerns over "double counting" and whether countries should be allowed to use emissions reduction credits that are generated under the previous international emissions trading regime established by the Kyoto Protocol, to meet their targets).
In the meantime, Article 6 pilot programmes have been set up in a number of countries. Many countries have also set up domestic programmes which follow the cap and trade principle or otherwise mandate carbon reductions by covered participants. The voluntary carbon offset market has also been growing rapidly. Two recent initiatives – the Taskforce on Scaling Voluntary Carbon Markets (TSVCM) and the Voluntary Carbon Markets Integrity Initiative (VCMI) – have been gathering momentum, with the aim of building trust in the voluntary carbon market and provide guidance to the private sector on the use of carbon credits.
Other key issues which may result in announcements from governments around COP26
Although the following issues are technically not up for negotiation at the COP26 summit, it is very possible that we may see some important announcements from governments either before, during or shortly after COP26 on the following:
- targets for the phase out of coal power plants;
- targets for net zero/fossil-fuel free energy generation;
- mandatory climate reporting;
- carbon pricing;
- global methane pledge.
At a summit in June, the G7 committed to set net zero targets for energy generation in the 2030s and end direct government support for new thermal coal generation capacity without carbon capture and storage (CCS) technologies by the end of 2021 (see here). Other “inefficient” fossil fuel subsidies are to be phased out by 2025. G7 members also committed to stop direct funding for coal-fired power stations by the end of 2021. The hope was that other nations would follow suit. Since the G7 summit, China has announced that it will not build new coal-fired power projects abroad and the UK has announced that it is aiming to make electricity generation free from fossil fuels by 2035. We may see similar announcements from other key players soon.
The G7 expressed support for making climate reporting in line with the recommendations of the TCFD mandatory but said this should be done “in line with domestic regulatory frameworks”, which means the roll out and timing of mandatory climate reporting will vary in different countries. The UK has already set out its timeline for making TCFD reporting across the economy mandatory by 2025 (see here). And the EU is in the process of negotiating a new Corporate Sustainability Reporting Directive which will beef up reporting requirements significantly and extend them to a much wider range of companies (see here). A number of other countries are also considering their approach to mandatory climate reporting, including the US (see here and here) and a number of countries in Asia (see here).
On carbon pricing, although the G7 and G20 have endorsed the idea of carbon pricing as an effective tool for reducing GHG emissions, they did not agree on a preferred carbon pricing option. Options include the use of carbon taxes, emissions trading schemes or the EU’s proposed Carbon Border Adjustment Mechanism (CBAM) (see here). It remains to be seen whether the key players at COP26 will have anything further to say about carbon pricing.
The US and EU are also planning to launch a Global Methane Pledge during COP26 – which would require signatories to cut global methane emissions by 30% by 2030. A number of countries have already signed up for this pledge (see here). Methane is a GHG that is several times more potent than CO2 but since it breaks down in the atmosphere faster, it has the potential to produce quick results.
Join us for a pre-COP webinar on 19 October where we will explore key issues and expectations - see here for more information and to register.
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