While the United Nations Climate Conference of the Parties (COP26) ended with mixed results, we believe the outcomes are more positive than the media has portrayed. We think the resulting Glasgow Climate Pact will serve as a framework for accelerating coordinated action to limit global warming and avoid the worst effects of climate change.
More ambitious top-line targets: the Parties agreed to limit global temperature rise to 1.5°C (below the original 2°C goal) and reduce emissions by 2030, rather than 2050.
Going beyond CO2: the focus has expanded to the reduction of methane, a much more powerful warming agent than carbon dioxide.
Phasing out coal: the Parties agreed that unabated1 coal must become a smaller percentage of the global energy mix sooner than previously agreed. For the first time at a COP event, fossil fuels’ contribution to the climate crisis was explicitly acknowledged.
Robust climate finance: from the public sector, governments committed an additional US$100 billion per year for the next two years to fund climate-resilience projects. In the private sector, 220 companies have pledged to align US$57 trillion with net-zero goals by 2050. Recognising their important role in repricing climate risk, it was significant to see more than 450 capital-markets firms form a new affiliate organisation, the Glasgow Financial Alliance for Net Zero (GFANZ), with the stated goal of aligning lending with net-zero emissions ambitions.
Carbon credits: the Parties agreed that carbon offsets can be used to meet climate pledges.
The media has criticised the Parties for failing to provide sufficient details for the implementation of these goals and for watering down some of the original goals set out by the Paris Agreement at COP21 in 2015, and we don’t entirely disagree. Pulling emissions targets forward to 2030 results in implied reductions of just 45% from 2010 levels, and the Parties acknowledged that global emissions would continue to rise until at least 2025. No wonder there is the perception of a worse outcome from a well-intended change.
And, although coal came under greater scrutiny, the language in the Pact was softened at the last minute from the “phasing out” to the “phasing down” of unabated coal. Wording on bridge fuels such as natural gas also became more accommodating. Finally, while endorsing carbon offsets to facilitate global carbon reduction is constructive, offsets are not of uniform quality and can be challenging to commoditise, arguably limiting their efficacy. In addition, not every country has strengthened its carbon-reduction goals, which is ultimately what matters most.