COP26 summit signaled progress on climate change policy, but more changes are required

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This past November, the UN held its annual Climate Summit (COP: Conference of the Parties) in Glasgow where roughly 200 countries came together to take action on climate change. There were four central goals addressed at the conference: mitigation and driving down emissions to net-zero by 2050, enhancing climate adaptation and resilience by protecting people and nature, mobilizing international climate finance, and increasing global cooperation.

COP26 was a highly anticipated summit since it was to be the first update of Nationally Determined Contributions (NDCs) since the Paris Agreement authored at COP21 in 2015 (NDC: a country’s emissions reduction plan). Paris was a particularly important COP summit since it was the first time every country agreed to work together to limit global warming to below 2C, to adapt to the impacts of a changing climate, and to make money available to deliver on those goals.

A few months ago, the Intergovernmental Panel on Climate Change’s (IPCC) 6^th climate assessment was released. The dire report stressed more than ever the urgency with which we need to act and did not shy away from blaming humans for the vast majority of global warming. Without a doubt, its bleak message heightened expectations for COP 26 and influenced the resulting agreement, known as the Glasgow Climate Pact.

At COP26, countries consented to work towards capping global warming at 1.5C and achieving net-zero by 2050. To do so, numerous ambitious pledges for 2030 were established. Further, agreement was finally reached on the rulebook for the Paris Agreement meaning that the focus can move from discussion to implementation.

Important goals with a 2030 target date were established. Some examples include the reduction of methane emissions (methane is short-lived in the atmosphere but is a more powerful greenhouse gas than CO₂ and responsible for about 1/3 of human-generated warming), halting and reversing deforestation, phasing-down coal power, and ending international support for fossil fuels to redirect funds to cleaner energy.

Sentiment coming out of the conference seems to be that while important progress had been made, more could have been achieved. The most talked-about disappointment was a last-minute change regarding coal. Originally, the wording of the deal was to “phase-out” coal, but this was replaced with “phase-down”. Coal is of particular importance given that it is responsible for about 40 per cent of annual CO₂ emissions. The good news is that this is the first time fossil fuels were directly targeted in a COP agreement.

Developing nations are also justifiably concerned about funding to help them implement their climate transition plans. A previous pledge of US$100 billion per year failed, fueling skepticism about the fulfillment of future promises. COP26 saw wealthier nations agree to fulfill this obligation within a couple of years and potentially increase funding considerably by 2025. It was also decided to continue discussions on the topic of “loss and damage” which seeks monetary assistance for countries struggling with the costs already being incurred by climate change. Although doubts about delivering this assistance persist, there was a bright spot on this front. South Africa presented a bold plan to transition from coal to green energy and successfully secured US$8.5 billion from several nations to help in its execution.

There was also significant private sector participation and numerous decarbonization initiatives. Interestingly, hundreds of companies committed to net-zero, including many financial sector companies collectively representing about US$130 trillion. These commitments are encouraging but of course, it remains to be seen whether they hold water. There are already challenges for countries to follow-through, let alone corporations.

So, is it possible to have a sense of what the COP26 action plan can do for climate change? The group Climate Action Tracker attempts to answer this question. The firm measured the impacts of global policies which are already in place and estimates warming to be about 2.7C above pre-industrial levels by 2100. Accounting for new 2030 targets may reduce this to about 2.4C and if long-term targets are considered, it falls to 1.8 – 2.1C. Note that 1.8C is the result of a highly optimistic scenario whereby every country implements their long-term net-zero policies. Clearly, COP26 goals have helped but further changes are required to get to the 1.5C. Countries have agreed to come back in one year with strengthened policies to address this gap.

Overall, COP26 results and the willingness to collaborate are promising. We will continue to follow changes in climate policy and action as they unfold. 2022 should be an interesting year and we are eager to see implementation of climate programs and the development of ever-more ambitious goals by both countries and corporations.

Julia Ainsworth is Associate Director Investments at Blue Bridge International Wealth Solutions and Family Office Services

PBY Capital Limited is a distributor registered as an exempt market dealer with securities regulatory authorities, servicing family offices and their professionals. For more information, visit: https://www.pbycapital.com.

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