Weekly Update - COP26: less multilaterialism and greater demands on the private sector

Modest progress
The Glasgow agreement, ratified by 190 countries, signed off on some fairly modest advances compared to the Paris accord. Signatory states committed to i) gradually reduce unabated coal power and eliminate inefficient fuel subsidies, ii) create a new carbon market, iii) submit new country targets (nationally determined contributions or NDCs) from 2022 rather than waiting until 2025, and iv) developed economies (re)committed to contribute USD 100 billion a year to help fund the energy transitions of their emerging peers. On the sidelines, the United States and China committed to do more to cut carbon emissions faster, starting in 2022, and end illegal deforestation. As for companies, the biggest announcements came from the finance sector as 145 institutions joined together in the Glasgow Financial Alliance for Net Zero. This alliance binds the sector to the principles of net zero emissions and alignment with the 1.5°C target, a commitment that will involve USD 130,000 billion of funding.

Public commitments fall short of 1.5 degree target
The measures in the Glasgow agreement are thought to fall short of what is required to cap warming at 1.5°C. NGO Climate Action Tracker estimates that we are likely on track for 2.4°C by 2100 assuming full compliance with current national targets and 2.1°C if all Glasgow commitments are also met. These estimates include the new commitments for 2060 made by heavy carbon emitters such as India, China, Australia and Saudi Arabia. What is more, spending commitments by public authorities are wholly inadequate to achieve carbon neutrality by 2050. For instance, the University of Princeton reckons the United States needs to invest USD 2,500 billion over the next 8 years, but the infrastructure plan voted through by Congress earmarks just USD 80 billion for energy transition investment.

Heading for bilateral deals and stricter regulation
COP26 commitments remain voluntary, with no penalties for non-compliers. The fear is that if certain countries fail to live up to their promises, others may come together and strike bilateral deals in response. The first signs of such a
policy is the US/EU steel deal, which imposes carbon taxes on “dirty” steel imported from outside the two blocks. Also, given the gap between public funding commitments and what is needed, it seems likely that pressure will be cranked up on the private sector by ring-fencing finance and/or toughening industrial and financial regulations.

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