Snapshot of COP25

Source: Adapted DeviantArt

By Ciara Shannon

COP25 was stymied by a failure to agree on market mechanisms and a failure to agree on financing loss and damage for countries being impacted by climate change. Reaching consensus on these decisions has been pushed to next year under “Rule 16” of the UN climate process. Although, this COP was not supposed to announce increased climate pledges, there was still hope that Parties might send a strong message of the need to enhance ambition. This didn’t happen – revealing instead a deep and dangerous disconnect between the UN process, the climate crisis and the loud calls for action from around the world.

Greta Thunberg summed it up well when she said: “Finding holistic solutions is what the COP should be all about, but instead countries find ways to negotiate loopholes, double count and do clever PR to avoid raising their ambition.” 

Outside of the negotiating rooms there were many positive announcements. The EU Commission announced it will formally unveil a “Sustainable Europe Investment Plan” on January 8th, 2020 outlining a Green New Deal, that includes one trillion euros of investment over the next decade and a lengthy taxonomy on green standards. One aspect of this is the Just Transition Fund, a mechanism of at least €35 billion that would support “regions most exposed to decarbonisation challenge”. In the future, the Commission plans to mobilise €100 billion worth of investment to help the EU’s economies transition away from fossil fuels. The announcement that revenue from Germany’s carbon emissions from heat and transport will be used to pay to support the country’s just transition was also welcome news.

Plus, some 73 governments, 14 regions, 398 cities, 786 businesses, 16 investors and 2,100 signatories of the ICC Chambers Climate Coalition committed to achieving net-zero CO2 emissions by 2050 through the Climate Ambition Alliance.

Tricky Negotiating Points at COP25

A difficult negotiating point was Article 6 – the rules for “the use of internationally transferred mitigation outcomes” also known as carbon trading.  A key aspect of this is how to deal with existing credits in the Kyoto Protocol’s Clean Development Mechanism (CDM). Australia, Brazil and the US blocked progress on Article 6 (note the US is leaving the Paris Agreement, but remains a (blocking) party until next year). The draft final text proposed that Kyoto-era credits could be accounted against climate pledges until 2025, a view that many countries found unacceptable and many of the details of what this means remain vague with many saying: “No Deal is better than a Bad Deal”.

Australia (the third biggest fossil fuel exporter and 16th largest emitter of absolute emissions ) is a good example of a country wanting to use a double counting ‘loophole ‘ to claim its 367 Mt of Kyoto Protocol credits and ‘carryover’ these over towards meeting their Paris commitments. Including carryover credits could cut Australia’s 2030 target to a 14% cut, even though their emissions from transport, industry, deforestation and fossil fuel extraction continue to rise. According to Climate Analytics, if Kyoto carryover units are allowed to be used to meet the #ParisAgreement they could lead to an additional 0.1˚C of warming or more, that what would not have otherwise occurred.

To counter this, 31 countries led by Costa Rica published the ‘San Jose Principles‘ minimum standards for carbon markets that rule out double counting and use of Kyoto-era credits.

Despite the uncertainty of the rules governing carbon markets, some 40 countries (including the US, EU and China), 20 cities, states and provinces already use carbon pricing mechanisms covering about half their emissions or equal to about 13% of annual GHGs. Carbon markets are often favoured as they enable countries to decarbonise their economies at a lower cost. All emissions trading markets operate in a similar manner: – the regulating body sets a cap on emissions and divides this into allocations for each smaller division, a state for example. The state then determines the levels each individual polluting company can emit.

Applying meaningful carbon pricing – be that tax or trade, is critical to reducing GHGs and it has been said that a carbon price of between US$50-$100 per tonne will be needed by 2030 to deliver on the Paris commitments. (Stern, 2017).

Whenever I think about carbon trading, I think first about carbon “cowboys” and then John Maynard Keynes who once famously dismissed an optimistic view of market forces by arguing that classical economical theory might be right in saying that, in the long run, markets would always find a way to solve problems and regulate themselves. But, he added, in the long run, we are all dead.

I also think, so far, the rule of thumb has been that ‘polluter profits’ rather than ‘polluter pays’. In the past, in addition to cap and trade, the CDM did not represent an “emission reduction”, as there was no global benefit because offsetting became a “zero sum” game. An example being that if a Chinese mine cut its methane emissions under the CDM, there was no global climate benefit because the polluter that bought the offset avoided the obligation to reduce its own emissions.

I will write more on this once the new rules on Article 6 are clearer on ways the new market, referred to as the “Sustainable Development Mechanism” (SDM) will replace the CDM. In the meantime, see Carbon Brief’s good overview here.

Loss and Damage

Another tricky negotiating point was financing the Warsaw International Mechanism for Loss and Damage (WIM), that was created in 2013 at the Warsaw COP to address climate liability of developed countries in addressing the damages already incurred by developing and vulnerable countries. A technical point was whether the WIM is under the Paris Agreement’s Green Climate Fund, Adaptation Funds or the UNFCCC Conference of Parties (COP). However, a US-led group, blocked it from becoming a financial instrument, fearing it would open a Pandora’s box.

Previously, there has been no additional financial support allocated for loss and damage and many developing countries think it should not be channelled from finance for adaptation or mitigation. Instead, finance for loss and damage needs to be its own funding mechanism – additional and predictable to allow countries to plan and respond effectively.

Groups such as the Least Developed Countries (LDC) Group, the Africa Group of Negotiators (AGN), the Alliance of Small Island States (AOSIS) and the Latin American group (AILAC) – wanted a bespoke funding facility set up to compensate the victims of climate change. However, many developed countries instead discussed insurance saying it is the only mechanism they will consider.

Tensions escalated when some developed countries threatened to invoke Paragraph 51 of Article 8 which says developed countries cannot be held responsible or accountable for the losses and damages that developing countries have, are, and will experience, either by way of compensation or by legal means.

Disappointingly, requests for additional finance to help developing countries deal with loss and damage were not included in the draft final of the text. Instead, the text called for finance to be scaled-up, a reference was made to ‘the importance of scaling up the mobilization of resources’, and the board of the Green Climate Fund was invited […] to continue providing financial resources. An expert group, the Santaigo Network was formed to explore further ways of supporting vulnerable countries.

Civil society groups (and others) for some time now have spoken about a Climate Damages Tax that are ‘polluter pay’ sources of finance including, for example, a climate damages tax on the fossil fuel industry, international aviation and maritime to pay for the transition to renewable energy, green transport and jobs etc.

A report by Climate Analytics (2015) for Oxfam estimates that economic damage for developing countries could be US$ 428 billion per year (about 0.61% of GDP) by 2030 and goes up steeply to US$ 1.67 trillion per year (about 1.3% of GDP) by 2050 for 3 ºC of warming.

Source: Typhoon Haiyan, Getty Images

In addition to loss and damage, climate finance was addressed in a number of the negotiation streams, in connection to Long-Term Finance ie. mobilizing US$100 billion by 2020, but there was no decision reached on this financial support from developed countries to developing countries. Understandably, this caused anguish among several developing countries who were concerned that some Parties were backsliding on the Paris Agreement. There was also discussions on the Green Climate Fund, reporting on climate finance and support for the implementation of the Gender Action Plan.

Country Rankings – Leaders and Laggards

The Climate Change Performance Index (CCPI, 2020), published by Germanwatch, NewClimate Institute and the Climate Action Network (CAN) was released at a side event at the COP. Top four performers on overall results are Sweden, Denmark, Morocco and the UK. Bottom four performers: Korea, Taiwan, Saudi Arabia and the United States sinking to the bottom of the ranking. Denmark is high up due to national policy changes including the adoption of a national climate law, a 70% emission reduction target by 2030 and an official coal-phase out target. Poland is the worst performing EU country due to its increase of GHGs and low level of investments in renewable energy, as well as its opposition to the EU’s climate neutrality by 2050 goal and its plans to open new coal mines. (see my next post for more on this).

The CCPI 2020 (considers 57 selected countries and the EU) and is based on a methodology covering GHG Emissions, Renewable Energy and Energy Use. The Index is useful as it provides a comparison of the climate performance of countries that together are responsible for more than 90% of global GHGs.

Is IEA Fit for Purpose?

Throughout the corridors of the COP, there was a growing chorus of criticism against the International Energy Agency’s (IEA) energy modelling as being too fossil-fuel friendly. In their World Energy Outlook (WEO 2019) report, their most ambitious scenario, the Sustainable Development Scenario (SDS) doesn’t go far enough in mapping the deep cuts in carbon emissions needed and models net-zero carbon emissions from energy by 2070 (ie. 20 years too late). Their modelling holds important sway as it is used by governments to inform (and justify) energy policy, investment and infrastructure decisions and it’s a real concern that the IEA only dedicated a few pages to a 1.5°C trajectory, while the rest of the report outlined unacceptable levels of warming with not enough on the potential of renewables. See Oil Change International’s analysis here.

UK Green Finance and Buildings

A new Coalition for Energy Efficiency of Buildings (CEEB) was announced by the Green Finance Institute which aims to develop the market for financing net zero and carbon resilient buildings in the UK. The CEEB will develop some scaleable demonstrators of new financial solutions and outcomes of the CEEB’s market review will be published in Spring 2020. This is another positive intiative as there are 29 million homes in the UK which need to become low carbon.

Business Leadership

Another strong voice pushing for greater policy ambition came at the High-Ambition Day at COP25 from 177 leading businesses that signed the 1.5ºC pledge to set science-based targets across their operations and value chains. Business are seizing the opportunities of zero carbon and they are innovating and disclosing probably faster than any other sector.

Over 8,400 companies have disclosed their carbon through CDP, 732 major corporations have signed up to science-based targets and 211 companies have made a commitment to go 100 % renewable (RE100) (by no year). Over 50 companies in the fashion industry have committed to align with a 1.5ºC future through the Fashion Pact. Plus, traditionally hard to abate sectors such as cement and steel are making progress and trailblazers are thyssenkrupp AG, Royal DSM and HeidelbergCement.

Many large companies are already using internal carbon pricing as a shadow price which is added to future investments and operational costs and this is done to ‘price-in’ and prepare for climate policy decisions and carbon pricing mechanisms. 

(I wasn’t at this COP, but am grateful for daily updates from ClimateHome, Carbon Brief and ECIU).

The Glare of the Glasgow Gavel

Source: VectorStock

By Ciara Shannon

We all heard the bang of the Paris Agreement gavel – the tears, cheers, the joy and France’s diplomacy played a key role in the success of this historic event. Five years on from the Paris Agreement, the 26th Conference of the Parties (COP26) to the United Nations Framework Convention on Climate Change (UNFCCC) in Glasgow in November 2020 will be a critical milestone for global climate action globally.

It will also be one of the biggest global events ever held here and with people-powered climate movements stronger than ever, the world will be looking to the United Kingdom to lead. The UK must use its diplomatic might to corral countries to commit to reduce green house gas emissions (GHGs) by 50% by 2030 and be net-zero by 2050. Developed countries must commit to the US$100 billion climate finance price tag, so as to match the reality of climate science and the climate emergency.

Source: Global Carbon Project

The stakes are high. If COP26 doesn’t deepen the level of ambition and sort out the finances needed, we have little chance of keeping to 1.5 °C. We must keep to 1.5 °C to avoid the risk of setting off the tipping points or feedback loops within the climate system that, if passed, could send the Earth into spiralling warming and runaway climate change.

We must act fast. According to modelling by the Global Carbon Project, there is only 9% of the 1. 5 °C carbon budget left, which will be gone in roughly ten years at current emissions.

Starting now, the UK must outline an ambitious agenda for COP26 using its diplomatic clout and single out big GHG emitters and fossil fuel producers such as Argentina, Australia, Brazil, Canada, Japan, Korea, Nigeria, South Africa and the United States.

The UK is well positioned to build momentum and establish a powerful legacy at COP26. Since 1990, the UK has reduced emissions faster than any other G7 nation, and it was the first advanced economy to legislate a net-zero 2050 target and it has so far achieved a ¬42% cut, marking a big stride in decarbonising its electricity sector and investing heavily in offshore wind. However, the lion’s share of UK’s GHGs come from heat, transport, industrial processes and manufacturing and this where (like for many countries) the largest decarbonisation challenge lies.

As COP hosts, our leadership also rests on ramping up and delivering our own climate policies and programmes. The UK is currently projected to not meet its medium-term climate targets for its fourth (2023-2027) and fifth (2028-2032) carbon budgets. There has been a lack of significant climate policies recently and there is a need to show a commitment to switching transport and industry to renewable energy, significantly upgrading our household heating systems, and increase finance supporting local, corporate and national actions for a just transition. Etcetera.

COP25, Madrid

Underway is COP25 hosted by the Presidency of the Government of Chile in Madrid and the two main negotiating points are working on finalizing the Paris Agreement’s rules including getting agreement on issues such as Article 6 on carbon markets and financing loss and damage. At this COP, there is no formal negotiation scheduled to build political momentum to increase national climate reduction targets. However, most countries are not on target to even meet the modest commitments they made in Paris four years ago, never mind enhance to meet 1.5°C.

According to the UN Environment Programme’s Emissions Gap Report (2019), global carbon emissions continued to rise (up by 1.5% per year in the last decade) and from 2020 emissions will need to be cut by 7.6 % per year for the next 10 years to reach the 1.5 °C goal and 2.7 % per year for the 2 °C goal. To match this, Nationally Determined Contributions (NDCs) must increase in ambition by at least fivefold for the 1.5 °C goal and threefold for the 2 °C.

Many of the EU member states have signed up to an EU-wide pledge to be climate neutral by 2050 and Denmark, Sweden, and Finland all aim at carbon neutrality well before 2050. Austria aims for carbon neutrality by 2040 and (significantly) commits to 100% renewables in the electricity sector by 2030. However, Poland (has sought exemption), the Czech Republic and Hungary have been delaying the process on EU wide carbon neutrality. Once there is agreement, the next step is that the EU carbon neutral 2050 target needs to turn into EU law, agreed by both the European Commission and the European Council and the expected date is around June 2020.

Globally, 80 countries or so have indicated their ‘intent’ to enhance their NDC’s by 2020, but they represent just 10.5% of global emissions. Big emitters like Australia, the United States, Canada, Russia, India, China and Brazil, so far have not submitted revised NDC plans. Two useful platforms that track national climate commitments is Climate Watch‘s NDC Tracker and Climate Action Tracker.

Source: WRI

Reducing Both Emissions and Fossil Fuel Production is Vital

Countries must slash both their emissions, and their fossil fuel production and this doesn’t seem to be happening anytime soon. The Production Gap Report (2019), produced by the UN Environment Programme (UNEP) and the Stockholm Environment Institute (SEI), highlighted that the fossil fuel production gap is wider than the emissions gap. Countries are planning to produce about 50% more fossil fuels by 2030 for 2 °C and 120% more than is feasible to keep temperatures to 1.5°C. The production gap is the largest for coal, and oil and gas will also exceed carbon budgets.

Source: UN Production Gap Report (2019)

Countries such as France, Costa Rica and New Zealand have committed to banning new oil and gas exploration and extraction and to phase-out existing production. The UK needs to do this too, we continue to extract coal, oil and gas and we need to #KeepInTheGround our 10 to 20 billion barrels of oil equivalent in recoverable reserves and resources, of which a significant portion is gas.

In recent years, the UK oil and gas industry received £176 million more annually in government support than it paid in taxes and in 2016, and we spent the most in Europe on fossil fuel subsidies (£10.5bn), more than we spent on renewable energy (£8.6bn). Reducing subsidies must be a priority in 2020, as well as ensuring the just transition for workers and communities currently dependent on high carbon industries.

The UK also needs to reduce its funding of fossil fuels in developing countries, which according to CAFOD and ODI equalled £4.6 billion or 60% of £7.8 billion between 2010 and 2017. However, this might change given that the World Bank has stopped and the European Investment Bank (EIB) will stop funding new upstream* oil and gas projects. It will be interesting to see if and when the UK’s CDC and other development banks follow.

Eyes to the East

In China, they will soon annouce their ‘Clean, low carbon, secured and highly efficient’ 14th Five-Year Plan for 2021-2025. While China continues to reduce its carbon intensity, increase energy efficiency and has announced that it will reduce coal power production in the north-west of China by at least a quarter – it is still the largest global producer and consumer of coal (= 55% of China’s fuel mix). It also plans to install new coal power capacity equal to the EU’s entire coal capacity.

New coal-fired power plants in China need to be banned and reducing emissions connected to the Belt and Road Initiative (BRI) (spanning across 68 countries = 65% of the world’s population) should be an urgent priority in the lead up to COP26 as many of these investments are skewed towards coal power. For more thinking on this, it’s worth looking at China’s Energy Research Institute, the think-tank of the National Development and Reform Commission (NDRC) and their proposal for ‘2C Asia’ an initiative to look at decarbonising energy systems in Asia. See more here on this from China Dialogue.

Climate Finance

An ambitious result in Glasgow also requires that developed countries deliver on the US$100 billion commitment by and annually after 2020. While it’s promising to see 27 countries recently pledge nearly US$9.8 billion over the next four years to the Green Climate Fund – many countries are yet to pay their share. Even then this funding is a drop in the ocean compared with the estimated US$ 1.6 – 3.8 trillion p/a trillion energy system investment needed to avoid the most harmful effects of climate change (IPCC, 2018).

A significant breakthrough could occur if countries cut their fossil fuel subsidies. Just 10-30% of the world’s fossil fuel subsidies, that equal US$775 billion to US$1 trillion per year, could pay for a global transition to clean energy, according to the International Institute for Sustainable Development (IISD) report. Reducing subsidies must be a priority in 2020, as well as ensuring the just transition for workers and communities currently dependent on high carbon industries and living in high risk climate impact countries.

Encouragingly, the UK is considered a global leader on sustainable finance and the Bank of England is the first regulator to start to stress test its financial system against different climate pathways. The UK is doing pioneering work on risk and ESG disclosure – waxing and weaving this into the heart of the financial system and it’s very positive that Mark Carney, Governor of the Bank of England, has been appointed the UN Special Envoy for Climate Action and Finance. See his ‘Fifty Shades of Green’ speech for the IMF here.

Ultimately though, how fast the sustainable financial system can make an impact and channel capital towards decarbonisation, adaptation and loss and damage will be determined by the ambition and implementation of climate policies. This leadership is much needed, given the recent stark warning from scientists Lenton et al in Nature, that the world may already have crossed a series of climate tipping points and the impacts could lead to a cascade of unstoppable events. This is frightening, to say the very least.

* Upstream is an industry term that refers to exploration of oil and natural gas fields, as well as drilling and operating wells to produce oil and natural gas.