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Good COP or bad COP?: What to look out for from the COP26 Climate Conference

World leaders will be gathering in Glasgow for the COP26 climate negotiations. After a year which has seen yet more record-breaking temperatures and severe weather events, the urgency of taking action is clearer than ever.
October 2021
Vicki Bakhshi

Vicki Bakhshi

Director, Analyst, Responsible Investment Team

World leaders will be gathering in Glasgow this week and next for the COP26 climate negotiations. After a year that has seen yet more record-breaking temperatures and severe weather events, the urgency of taking action is clearer than ever.

What is COP26 and why is it important?

COP26 is the 26th annual meeting of the ‘Conference of the Parties’, a UN-convened forum where the world’s governments gather to tackle climate change. It was originally due to take place in 2020, but was delayed by the Covid pandemic.

This year’s meeting has a particular significance. To understand why, we need to look back to another critical COP meeting – COP21 in Paris, in 2015. This was the meeting where for the first time, the world’s governments agreed on a common objective to limit global warming to well below 2 degrees, and aim for 1.5 degrees, as the foundation for the Paris Agreement. Under this agreement, countries committed to bringing forward national plans (Nationally Determined Contributions, or NDCs), setting out how to cut emissions – and agreed a five-year review cycle to update these plans, with the upcoming COP26 meeting the deadline for these to take place.

What are the objectives for the meeting?

The COP26 meeting has four formal objectives:

  • Secure global net zero by mid-century and keep 1.5 degrees within reach;
  • Adapt to protect communities and natural habitats;
  • Mobilize finance; and
  • Work together to deliver.

Aside from the objectives for governments, the COP26 meeting – more than any other before it – aims to catalyze action by non-state actors, including cities, regions, businesses and investors. The ‘Race to Zero’ collaboration is working to bring these commitments together.

What are the chances of success on these priorities?

Close the gap to 1.5 degrees

Cows grazing on the clearing

Globally there is a wide ‘emissions gap’ between countries’ emissions targets, and the cuts that the scientific community tell us are needed to limit the temperature rise to 1.5 degrees. Achieving this limit implies a cut in global greenhouse gas emissions by around 45% by 2030 from 2010 levels. However, the UN, which tracks all the latest national plans, recently published a report showing that these imply a 16% increase by 2030 – resulting in an eventual temperature rise of 2.7 degrees Celsius.

So will COP26 close the gap? We already know what many of the key players in the negotiations are offering, as 113 countries have so far submitted their new or updated national plans (or NDCs) in the run-up to the meeting. Some have shown an increased level of ambition starting with the UK, presiding over the COP26 presidency, with a pledge to cut emissions by 68% from 1990 levels; the EU, with a 55% target, and the US, which has now re-entered the Paris Agreement, and has a 50-52% emissions target from 2005 levels. Other plans have disappointed, such as Australia’s plan, which failed to raise the level of ambition. Canada falls somewhere in between as earlier this year Trudeau increased its commitment to 40-45 percent below 2005 by 2030, still behind what CANC estimated was Canada’s fair share – 60 percent.  

At the time of writing, we are still waiting on updated plans from the world’s largest and third-largest emitters – China and India. China’s current plan is to peak carbon emissions by 2030, and reach net zero by 2060. Negotiators hope that China may shift these dates forward – a key point to watch for as the meeting progresses.

Also, up for discussion is ‘Article 6’ – a clause in the Paris Agreement that allows for emissions trading between countries. In theory, this would allow countries with high costs of cutting carbon to trade with those that can cut carbon more cheaply, making the achievement of ‘net zero’ more economically efficient. In practice, implementation has been hampered by concerns about environmental credibility and transparency. COP26 will see a further attempt to push through these barriers.

Prediction: Some increase in ambition likely, but pledges will fall well short of what is needed to close the gap.

Coal – Commit to the phase-out of coal-fired power

Top view of the city skyline with huge smoking chimneys

Coal has by far the greatest impact on the climate of all the fossil fuels, and also has damaging impacts on air quality. The G7 nations in June committed to scaling up technologies and policies to transition away from unabated coal power, and to end any government finance for domestic or overseas coal power. 41 national governments now stand behind the Powering Past Coal Alliance, which calls for a full phase-out of coal power by 2030 for developed countries, and 2050 for emerging economies. However, this remains a difficult area for countries such as China and India who remain heavily dependent on coal.

September saw a significant announcement from China, with President Xi Jinping announcing that China will no longer finance coal-fired power projects abroad. However, the country has been quiet on any domestic pledges. Coal will remain an intensive area of focus, and negotiators will press hard for further progress.

Prediction: Expect some new national announcements, but a full global agreement on phase-out remains a long shot.

Cash – Deliver on $100 billion a year in climate finance

Destroyed house on the beach

Since the very start of international climate negotiations, the question of equity has been paramount. Emerging economies have argued that the developed world enjoyed the fruits of economic growth based on cheap, abundant fossil fuels– but that less advanced economies are being denied that same opportunity. At the same time, many of the most severe physical impacts of climate change will be felt by the countries least able to afford to adapt.

In 2009, at COP15 in Copenhagen, developed countries made a pledge to mobilize $100bn a year in climate finance by 2020 to address the needs of developing countries. But details around implementation, and the balance of public and private finance, were vague; and progress has been slow – with the latest estimate from the OECD suggesting that the figure stood at less than $80 billion in 2019.

The pressure on international aid budgets resulting from the Covid pandemic is proving a headwind, but President Biden’s commitment to double climate change aid to over $11bn a year by 2024 was a significant step forward. Diplomatically, there is no doubt of the critical importance of delivering on this commitment to key players such as India, as well as to groupings such as the Small Island Developing States, a group of countries that face some of the most severe impacts of the changing climate. Recognizing this, every effort will be made by developing countries to get this objective over the line.

We can also begin negotiations on what happens after the $100 billion target is met. The cost to developing countries adapting to climate change is set to rise to $140-300 billion by 2030, and the ramp-up in clean energy investment needed to deliver net-zero will run into the trillions. Whilst much of the cost will need to be met by private sector finance, some public spending is inevitable, and developing countries will expect more support as costs rise.

Prediction: Good chance of delivery; future commitment levels could be a thorny issue.

Cars – All new cars to be zero-emissions by 2040

Smiling woman refueling the car

The International Energy Agency’s report on achieving a 1.5 degree temperature limit shows that 60% of all new car sales would need to be electric by 2030 to keep on track. But an analysis by the 2° Investing Initiative earlier this year suggested that based on the current strategies of automotive companies, only around 4% of global car sales in 2025 will be electric, with a further 8% in hybrids.

Stronger regulations are needed to force the pace of change, such as the UK’s policy to phase out the sale of new petrol and diesel cars by 2030, as well as rapid investment in charging infrastructure.

With a fleet of electric vehicles ready to transport world leaders around at the COP26 summit, this will be a highly visible issue, but one where it is hard to see space for harmonized global commitments.

Prediction: Potential for steps by individual governments, but not much chance of international consensus.

Trees – Halt and reverse the loss of trees and biodiversity by 2030

A bird's-eye view of the forest and the surrounding green glades

If tropical deforestation were a country, it would rank third in the world for greenhouse gas emissions. Forests also serve a range of other essential needs for nature and the planet, as home to most of the Earth’s terrestrial biodiversity.

Two key countries here are Brazil and Indonesia, home to two of the world’s largest forested areas. Both countries have faced major political, social and economic barriers to reducing deforestation, with Brazil’s annual rate reaching the highest ever in the past year, following policy changes under President Bolsonaro.

According to the UN’s Food and Agriculture Organization, the rate of global deforestation has slowed over the past three decades – but we are still losing around 10 million hectares of forest a year, down from 16 million in the 1990s, with conversion to agricultural use the main driver. The rate of improvement needs to accelerate dramatically to meet the goal of entirely ending deforestation by 2030. Furthermore, many pathways to 1.5 degrees imply significant ‘negative emissions’ (removing greenhouse gases from the atmosphere), with reforestation being one mechanism to achieve this. Next year’s COP15 – the biodiversity equivalent of the climate COP – will also emphasize the importance of avoiding unintended negative impacts on biodiversity when taking steps to cut greenhouse gas emissions.

Prediction: Good prospects for a high-level commitment, but questions likely to remain about implementation.

"Race to zero" – Accelerated action by cities, regions, business and investors

Glowing green road light for cyclists

However, the formal negotiations progress, action by governments alone is not enough. As reflected in the COP26 objective of ‘working together to deliver’, action across all parts of society and the economy will be needed to achieve the transformation to a low-carbon world.

Businesses, investors and civil society are expected to be in Glasgow in force, to place pressure on governments to achieve an ambitious outcome. And we can already say that COP26 has achieved success in catalyzing action from the private sector. According to the UN’s Race to Zero campaign, over 3000 businesses and over 170 investors have now made net-zero carbon emissions by 2050 at the latest. BMO Global Asset Management is one of these institutions, as a founder signatory to the Net Zero Asset Managers Initiative, which now has signatories with $43 trillion in assets under management, representing around half of all AUM in the asset management industry.

We can expect more announcements at and around COP26, which we hope will amplify the efforts of the public sector.

Prediction: Significant private sector commitments will help to put pressure on governments.

Next steps

A woman is taking a break while cycling

While it is easy to be pessimistic about COP26 given the scale of the emissions gap, the meeting has already proven a catalyst for increased levels of ambition from both individual governments and from companies. Making further progress will depend on the ability of the negotiating teams to find the right levers to persuade governments to take further steps, not just in setting far-off targets, but in implementing measures at home, including on the key issue of providing climate finance.

The COP26 outcome won’t be a single ‘piece of paper’, rather a collection of commitments – so success or failure will be judged on how compelling these look in aggregate. Whether COP26 is judged as a success will also depend on the mood around the meeting, where factors such as media coverage and civil society protests will play a role.

We will be attending the COP26 meeting and keeping track of progress on the objectives, and will report back both during and after the meeting on whether it delivers on its promise.

Disclosures

This communication is intended for information purposes only. The comments contained do not necessarily represent the views of BMO Global Asset Management. The views are subject to change without notice as markets change over time. The information contained herein is not, and should not be construed as, investment advice to any party. Investments should be evaluated relative to the individual’s investment objectives and professional advice should be obtained with respect to any circumstance.

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