With the COP26 global climate talks in Glasgow just a month away, world leaders have been engaged in intense diplomatic efforts to secure a successful summit.
The 26th UN Climate Change Conference of the Parties, known as COP26, to be held in Glasgow, Scotland on 31 October – 12 November 2021 is likely to focus on a few critical issues, including:
• Stronger commitments by countries to climate action, known as nationally determined contributions or NDCs, including cuts in greenhouse gas emissions and efforts to improve resilience against climate change.
COP26 will be the fifth such summit since the Paris Agreement was adopted in 2015. It is meant to be where all 191 governments that signed the Paris Agreement strengthen their commitments to cutting carbon emissions and fighting climate change. Many have already done so, but over 70 countries have yet to submit updated targets (Exhibit 1).
Much more still needs to be done: On the current trajectory, the latest NDCs taken together still imply an increase of about 16% in global greenhouse gas emissions by 2030 compared to 2010, according to the latest UN report published on 17 September 2021.
Such an increase could lead to a temperature rise of about 2.7°C by the end of the century, far above the Paris Agreement’s goal of limiting global warming to well below 2°C, the UN report said.
Exhibit 1: Many countries have strengthened their decarbonisation commitments since the 2015 Paris Agreement, but even more is needed
Note: NDC = nationally determined contribution, each country’s decarbonisation commitment under the 2015 Paris Agreement. Source: Climate Action Tracker.
Many of those that have yet to submit new decarbonisation targets are poorer, developing countries. This highlights the second key issue facing world leaders as they go into the summit next month:
• How to deliver on a commitment by rich countries to channel USD100 billion a year in climate finance to help poorer countries retool their economies to cut emissions and adapt to climate change.
This promise was first made over 10 years ago and reiterated in the 2015 Paris Agreement, but has not been met. Mobilising the USD100 billion to help poorer countries make the low-carbon transition has been challenging because foreign aid tends to be politically unpopular, and world leaders have been focusing resources on emergency measures to fight the Covid-19 pandemic and rebuilding their own economies.
However, leaders in advanced economies such as the US and Europe also recognise that failing to follow through on this commitment to provide financial support makes it far less likely that poorer countries will deliver on the emissions cuts needed to reach the Paris Agreement goals.
At the latest UN general assembly meeting on 21 September 2021, US President Joe Biden promised to double US climate aid for developing countries to more than USD11 billion a year, “to support the countries and people that will be hit hardest and that have the fewest resources to help them adapt”.
To speed up efforts to decarbonise the world economy, the COP26 summit will also focus on:
• Accelerating the adoption of renewable energy and green technologies, and reducing reliance on fossil fuels – in particular, coal.
Global carbon emissions from fossil fuel use and industry remain a long way from net zero, despite last year’s decline due to the Covid-19 pandemic (Exhibit 2).
Exhibit 2: Global carbon emissions remain far above the levels needed to reach the Paris Agreement goals
Notes: Growth rates are compound annual growth rates over the specified period. Grey band shows levels 5% above/below emissions estimates to indicate uncertainty in the emissions estimates. Source: Global Carbon Project.
There is growing international momentum to phase out coal, which remains the biggest contributor to global carbon emissions from fossil fuel use and industry (Exhibit 3).
Exhibit 3: Coal remains the biggest contributor to global carbon emissions from fossil fuel use and industry
Source: Global Carbon Project.
China President Xi Jinping told the UN general assembly on 21 September 2021 that China would no longer build new coal power projects abroad and would step up support for other developing countries in developing green and low-carbon energy.
Although no details have been announced, China’s latest move could drastically reduce the financing of coal plants in the developing world, while increasing its investments abroad in clean energy and green technologies.
Earlier, on 13 September 2021, President Xi stated that China’s own coal industry must develop along a “green and low-carbon” trajectory that would match the country’s climate goals to reach peak emissions before 2030 and net zero emissions by 2060.
In April, he had pledged that China would begin phasing out its coal use starting in 2026-2030.
COP26 President Alok Sharma has said that his goal for the upcoming climate summit is to “consign coal to history”.
Building international consensus around climate action will be a key goal of the COP26 summit.
In particular, cooperation between the US and China will be key to securing broader international climate commitments in the coming years. There is a clear risk that the current uneasy relationship between the world’s two largest economies could undermine global efforts to fight climate change.
“China-US climate cooperation cannot be separated from the wider environment of China-US relations,” China foreign minister Wang Yi said on 1 September 2021 during a meeting with US special presidential envoy for climate John Kerry.
On 10 September 2021, China President Xi and US President Biden discussed climate change among other issues in their first call since January.
Both countries “may continue their engagement and dialogue to advance coordination and cooperation on climate change” and other key issues, while “respecting each other’s core concerns and properly managing differences”, Xi said.
Other key issues we expect to see discussed at the summit include how to channel investments into technologies that will enable the transition to net zero emissions, and how best to embed the cost of carbon pollution into business and investment decisions to align economic activity worldwide with climate goals.
New opportunities ahead amid disruptive transition
As we have highlighted earlier, we fully expect to see an intensifying race among the world’s biggest economies for leadership in supplying and financing clean energy, green technologies and enabling infrastructure such as electric vehicles, wind generation and hydrogen fuels for years to come.
Our longstanding view is that global efforts to pursue sustainable, climate-resilient development paths and mitigate the threat of climate change will drive profound structural changes to the global economy for years to come, creating both significant disruption and new opportunities for businesses.
Heavy investments within the next few years are needed to reshape entire industries across a wide range of economic activity including power generation, manufacturing, transport and agriculture to ensure that global emissions peak by around 2030 – a key milestone to set the world economy on a path that limits global warming to 1.5°C by the end of the century.
The required investments span electricity generation – especially wind and solar energy – buildings, appliances, transport and industry, as well as supporting infrastructure and advanced clean technologies such as carbon capture and storage that would improve the likelihood of reaching net zero emissions by mid-century.
Increasingly, we see new opportunities emerging in clean energy technologies such as hydrogen, which is attractive as a low-carbon energy source to decarbonise a wide range of economic activity such as power generation, transport, and heating and power for buildings.
The rapid decline in the cost of renewable energy in recent years has been a critical driver of increasingly widespread adoption of clean technologies.
We continue to advocate a prudent strategy of adding diversified exposure to a wide range of potential beneficiaries of the global transition to a carbon neutral economy, given the all-encompassing nature of decarbonisation efforts worldwide and the fast-evolving but uneven rollout of supporting legislation and regulations across the world.
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Version: July 2020