- The ratchet mechanism works: temperature alignment will continue to be wound down towards 1.5 degrees centigrade over subsequent cycles of negotiations – this is a clear indication of the direction of future policy
- The private sector has stepped up: when including all pledges
– net-zero targets and other commitments not currently
incorporated in policy – they add up to an end result of 1.8 degrees
- Carbon markets: rules on international carbon trading have
been established. Loopholes remain so caution is needed
- Civil society is unconvinced: despite COP26 yielding better
results than anyone on the inside expected, protestors and civil society have reacted negatively. Pressure to achieve 1.5 degrees has, if anything, increased. Attention to pledges and especially net-zero commitments will be strong. Companies will face reputational risk if they try to fudge net-zero pledges.
Temperature rise (degrees centigrade)
If all NDCs, pledges and net-zero targets and corporate pledges agreed at COP26 are achieved (optimistic scenario)
NDCs plus the US and China net-zero targets
NDCs submitted at Paris 2015 only
Current policy (does not include policy proposals)
- Deforestation: 130 countries promised to collectively halt and reverse forest loss and land degradation by 2030. Countries representing 85% of global forests, including Brazil, Indonesia and the Democratic Republic of Congo (DRC), backed this commitment but scepticism remains around whether it will be delivered. $12 billion in public funds for forests, and more than $7 billion in public-private investments have been committed towards this. Thirty financial institutions with more than $8.7 trillion of global assets committed to eliminate investment in activities linked to deforestation.
- Methane: led by the US and the EU, 109 countries committed to reducing methane emissions by 30% before 2030, including Indonesia, Canada, Brazil, UK, Bahrain, Uruguay, Cuba and Malaysia. China has committed to continue the discussion with the US in the first half of 2022 to focus on the specifics of enhancing measurement and mitigation of methane. Russia is a notable absence.
- Internal Combustion Engines: a group of companies and countries are working towards 100% electric vehicle sales by 2035 in leading markets and 2040 in developing markets. Members include the UK, Canada, Norway, Chile, India and Kenya, along with Ford, General Motors, Jaguar Land Rover , Mercedes-Benz and Volvo.
- Innovation: COP26 saw multiple announcements on innovation in hard-to-abate sectors such as cement, steel and green hydrogen. Some of these are focused on stimulating demand rather than supply, which in turn should encourage existing producers to innovate and increase supply – “if you make it, we will buy it”.
- Oil and gas: the attention is broadening beyond coal, and new initiatives are targeting the supply side as well as demand.
- Coal: underwhelming agreements outside of South Africa’s “just transition” partnership, but the economics are starting to win this battle. For example, even under Donald Trump the US retired the most coal globally and installed the second highest capacity volumes of renewable energy globally after China. The South African mechanism provides a framework to move other coal dependent nations beyond the fuel.
- Asset management aiming for net zero: the Glasgow Financial Alliance for Net Zero announced that firms with a combined $130 trillion owned or managed have committed to net zero (through the Net Zero Asset Managers commitment, Net Zero Asset Owners and similar pledges covering nearly every corner of the financial services industry). This figure includes a large amount of doublecounting and has been widely misinterpreted. Nonetheless, it is a huge share of the world’s largest financial institutions committing to net zero – Columbia Threadneedle Investments’ AUM is included in this figure as a signatory of the Net Zero Asset Managers Initiative.
Methane pledge – buying time
Article 6 and carbon trading
Innovation in hard-to-abate sectors – The Glasgow Breakthrough Agenda
- Hydrogen: the World Business Council for Sustainable Development (WBCSD) and the Sustainable Markets Initiative (SMI) announced pledges of 28 companies to drive growth in the demand for, and supply of, hydrogen. This can be in four categories: supply, demand, financial support or technological support. On the demand side pledges add up to 1.6 million tons per annum (mtpa) of low-carbon hydrogen to replace grey hydrogen which is currently used in the chemical industry and refining. On the supply side the pledges add up to 18 mtpa of low-carbon hydrogen. In emissions terms this would save the equivalent of the annual emissions of Netherlands and Tunisia combined. Also, African and Latin American green hydrogen alliances are aiming to accelerate green hydrogen adoption in those areas. Namibia has already made progress with the Dutch, Belgian and German governments, with Germany committing to provide €40 million.
- Steel and cement: The UK and India led the Industrial Deep Decarbonisation Initiative (IDDI), alongside Canada and Germany, which aims to drive demand for “green” steel and green cement which will in turn accelerate supply. Currently, cement and steel each account for around 7% of energyrelated emissions globally but do not have easy decarbonisation options. This is because the high temperatures required are harder (but not impossible) to achieve via electricity rather than fossil fuel energy. The most common process of steelmaking also uses coal as a reagent, although it is possible to use hydrogen. The initiative will work to set criteria for green cement and steel, encourage greater transparency and traceability and look to set a globally recognised target for public procurement of green steel and cement. Member governments also committed to the disclosure of embodied carbon of major public construction by no later than 2025.3
- Steel, trucking, shipping, aviation, cement, aluminium, chemicals and direct air capture: The first movers coalition is a US-led coalition of corporates to stimulate clean tech demand for hard-to-decarbonise areas which will in turn incentivise supply. Its statement said: “Members will use their global purchasing power to create new markets for these emerging technologies. These new demand signals empower suppliers to develop and scale their innovations between now and 2030 – helping us to reach our global emission targets.”.4
- Shipping: there were three announcements/initiatives of note. More than 200 businesses have committed to scale and commercialise zero-emissions shipping vessels and fuels by 2030. In turn, nine blue chip companies have committed to shift 100% of their ocean freight to zero carbon options by 2040, including Amazon, Ikea, Michelin and Unilever. Finally, 19 countries have signed the Clydebank declaration to support the establishment of six zero-emission shipping routes by the middle of this decade with more by 2030. With the International Maritime Organisation meeting in less than two weeks to negotiate emissions standards, this is a positive move that should pave the way for productive talks.