RaboResearch - Economic Research

COP26, What Can We Expect?

Economic Comment

  • We need more stringent targets for 2030, not only for 2050. That will be the main theme at the COP26: to “keep the 1.5°C target alive”.
  • COP26’s agenda calls for countries to accelerate the energy transition: we expect a push for faster integration of electric vehicles and encouraging investments in renewables
  • Phasing-out coal will be an especially sensitive topic
  • A potential pledge for methane gas emissions reduction could be one of the positive outcomes
  • Progress can also be made on the Paris Agreement Rulebook and on climate finance
  • In a context far from unanimity, it seems unlikely that COP26 will have an impact as big as its Paris predecessor 

Leaders from 196 countries are meeting for the 26th United Nations Climate Change Conference or, as it is more broadly known, COP26, between 31 October and 12 November 2021 in Glasgow, UK. Under the United Nations Framework Convention on Climate Change, each signatory party must avoid climate change and reduce their greenhouse gas emissions. Except for 2020, due to the Covid-19 pandemic, the Conference of the Parties (COP) has taken place each year since 1995 and serves as a platform for discussing terms of extensive global agreements, the required rules for their measure and implementation, and deciding on the progress made or progress still to be made in relation to climate change in the light of new scientific evidence.

Some previous editions failed to live up to the expectations and some led to significant steps forward. Most notably, COP21 got the most attention as it led to the widely-discussed Paris Agreement in 2015, under which 196 parties committed to reduce global emissions and to limit temperature increase to 2°C, while aiming for a 1.5°C threshold. It seems unlikely that COP26 will have an impact as big as its Paris predecessor. Below an outline of some of the expectations surrounding this year’s COP edition in the light of the energy transition.

Higher ambitions for 2030 are needed in order to keep the 1.5°C target alive

For Alok Sharma, President of COP26, this event is all about making sure that “we are able to credibly say that we have kept 1.5 degrees alive”. To achieve this goal, besides pushing towards more commitments with regards to deforestation, COP26’s agenda calls for countries to accelerate the energy transition by phasing-out coal, speeding up the switch to electric vehicles and encouraging investment in renewables.

This is easier said than done as, through the Nationally Determined Contributions (NDC), countries can choose themselves the path and the speed at which they want to meet their greenhouse gas emissions targets. The UN’s Emissions Gap Report 2021, released just a week before the start of COP26, suggests that, under the most recently updated NDCs, we are more likely on a path towards a “global temperature rise of 2.7°C by the end of the century”. To reduce that figure, more ambitious targets are needed for 2030, not only for 2050. The Intergovernmental Panel on Climate Change (IPCC) claims that, compared to 2010 levels, we need a reduction in emissions of around 45% globally by 2030 in order to keep the 1.5°C target alive. This seems unlikely to be achieved under the current national pledges. While certain countries are already pushing for a fast decarbonisation of their economies in this decade, in other geographies we do not see ambitious targets being set for 2030.

On one hand, the EU, with its Fit for 55 list of proposals, and the UK, have set the path towards more ambitious targets for emissions reduction by 2030. The US administration aims for a similar path, but Biden’s ambitions must first pass through Congress before becoming a binding reality. On the other hand, other relevant geopolitical players take a different stance, as they have to deal with various types of internal pressures for energy security, sustained economic growth and societal stability. For example, China’s pledge for net-zero by 2060 (a decade later than most other countries) mentions that emissions will start decreasing only from 2030 onwards. Ahead of COP26, Russia also set a carbon neutrality target by 2060. These recent updates in climate goals coming from China and Russia, combined with the fact that both Xi Jinping and Vladimir Putin are not expected to be present (at least in person) at COP26, suggest that we should not expect big climate-related announcements involving these two geographies in the following days. Moreover, according to Climate Action Tracker, countries like Australia, Brazil, Indonesia Mexico, New Zealand, Russia, Singapore, Switzerland and Vietnam “have submitted the same or even less ambitious 2030 targets than they had put forward in 2015”. Climate Watch estimates that over 60 countries submitted less ambitious or equal targets as compared to their previous NDC versions.

To date, 148 countries submitted new or updated NDCs. These countries are jointly responsible for about 80% of total global greenhouse gas emissions. Since most countries already unveiled their updated NDCs, it is unlikely that major announcements will be made that include more ambitious pledges for 2030. Maybe India, a major country which is still to release its updated NDC, could be a potential source of a positive announcement. However, even if India is expected to increase its ambitions with regards to investments in renewables, we do not expect the country to commit to net-zero by 2050 within this year’s COP. For all the reasons mentioned above, the expectations on Glasgow to deliver enough reassurance to keep 1.5°C within reach are rather low.

It is unlikely that COP26 will make coal history, but it could put methane in the spotlight

Among the three main energy transition topics on the agenda of COP26, phasing-out coal is the most sensitive one. The sentiment regarding the push for a fast integration of more renewables and more electric vehicles is positive in most countries. As for coal, that is a different story. Organizers have high ambitions to make Glasgow “the COP that consigns coal power to history”. The reality that we see playing out in front of our eyes suggests the opposite. The developments in Australia and China (see articles from Bloomberg and The New York Times) indicate that coal will still be part of our global economy for the foreseeable future. Also in India, where electricity demand is expected to grow in the following decades, it is not clear how this demand will be met without coal, also considering the importance of energy security. Another example comes from South Africa, which also still struggles to agree on how to phase out coal.

While not being included in the main COP26 objectives, methane is likely to be put in the spotlight. The UN’s Emissions Gap Report 2021 explains that methane, even if it stays in the atmosphere for only around 12 years, is a “powerful heat trapper” as it has a warming potential up to 80 times higher than CO2. An EU-US joint initiative for a Global Methane Pledge is getting increasing traction, with over 60 countries expected to back this pledge within the COP26. Countries backing this initiative aim for a 30% cut in methane emissions within their jurisdictions by 2030, compared to 2020. An implementation of such a pledge would require adaptations in various sectors, most notably in livestock, rice cultivation, oil and gas, landfill and waste and coal mining. However, as with coal, not everyone is ready to commit to significant methane emission reductions, Australia already ruling out a sizable commitment from their side. Besides, even if 9 out of the 20 biggest methane emitters already joined the pledge, the top-four countries in terms of methane gas emissions (China, India, Russia and Brazil) did not.

COP26 can bring energy transition progress in various forms

COP meetings are often judged by how ambitious the new pledges made are. However, progress can be made in other ways too. For example, in Glasgow we could see the Paris Agreement Rulebook, the rules and guidelines which can make the Paris Agreement operational, being finalized. While most of the guidelines were finalized at COP24 back in 2018, the outstanding article 6., which defines how countries can use international carbon markets for reducing their emissions, is still to be decided upon. To speed up the energy transition we need implementation, reporting and verification rules and any progress with regards to article 6 can be considered as an important step forward. Another source of potential progress can come from discussions surrounding the USD 100bn climate finance proposal. Initially announced in 2009, and formally ratified in 2015, this initiative should have already been fully implemented by 2020. The COP26 Presidency is now aiming to set credible plans to achieve this target by 2023.

Last but not least, beyond geopolitics, global leaders and targets, energy transition comprises companies and civil society too. Some of those actors will be present in Glasgow and many others will be observing the conference. The debates generated throughout the 200+ so called Green Zone events can stimulate new ideas and business opportunities and could lead to speeding up the energy transition. As all sectors in the economy will eventually have to decarbonise, for businesses, these events can provide insights not only into current and future business trends, but also into key points of concern for society.

Cristian Stet
RaboResearch Netherlands, Economics and Sustainability Rabobank KEO

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