Climate change and COP26

World leaders met at Glasgow for the 26th annual Climate Change Conference.

In the first weeks of November, world leaders met at Glasgow for the 26^th annual Climate Change Conference of the Parties for the purpose of accelerating the goals of the Paris Agreement and UNFCCC. The aim of COP26 was to:

1. Secure global net zero by mid-century and keep 1.5 degrees within reach by:
   1. Accelerating the phase-out of coal
   2. Curtailing deforestation
   3. Speeding up the switch to electric vehicles
   4. Encourage investment in renewables
2. Adapt to protect communities and natural habitats
3. Mobilise finance by honouring the COP15 pledge of $100 billion in climate finance per year by 2020 
4. Finalise the Paris Rulebook (making the Paris Agreement operational)

There were some major achievements at COP26 but it was not of the same magnitude as the Paris agreement. Nevertheless, to the extent that policy will shift, this should be seen as a structural economic change. The major achievements include:

• Adaptation: a work program was established to define the global goal on adaption. The registries for NDCs and Adaptions Communications were approved, which will act as the server for the global stocktake every five years, starting in 2023. Over 150 countries released their NDC which outlined more aggressive emissions reductions targets by 2030 (though by UN calculations would only get us to 2.5 degrees Celsius warming – an improvement from 4 degrees Celsius prior to the Paris Agreement). Finance for adaptation is to be doubled by 2025 and the adaptation fund received new pledges for $356 million.
• Finance: the yearly $100 billion pledge from developed to developing countries by 2020 was reaffirmed but is predicted to be delivered by 2023, mobilising multilateral institutions to offer finance in creative ways that would avoid debt burdens, and agreed to new climate finance goal from 2025 (which is expected to be set by 2024). 
• Mitigation: an agreement was made by 100+ countries to end and reverse deforestation by 2030 in an attempt to preserve global carbon sinks. A further agreement was made by 196 countries to phase down coal and fossil fuel subsidies.
• Paris Rulebook: agreement was made about a new global carbon market under Article 6 of the Paris Agreement, replacing the Un Clean Development Mechanism. Common timeframes for issuing new carbon targets will be give years for a new target and ten years after that.

Although Australia announced a commitment to net zero emissions by 2050 in the week before COP26, Australia opted not to sign the Global Coal to Clean Power Transition Statement as drafted by the UK delegation. This Transition Statement would see the phasing down of coal in the 2030s for high income countries and 2040s for low income countries, a significant shift for the global energy market. In the 11^th hour of negotiation, the final draft has introduced the phrase “or as soon as possible thereafter” and moved away from “phasing out” to “phasing down”. This open ended drafting leaves room for major economies to mitigate and adapt its economies as best possible but has attracted significant criticism for its open-endedness, with some dubbing it an unnecessary ‘loophole’. There is no mechanism to ensure signatories follow through on this commitment.

The Australian energy market will be impacted by COP26 irrespective of whether it signed on to each individual pledge, for example because major coal customers including South Korea, Vietnam and Indonesia did agree to a phase down of coal (in varying degrees). Additional voluntary side deals were made which included the halting of public funding (estimated to be around $18 billion per year) for international fossil fuel energy projects by the end of 2022 – an agreement made by Canada, the UK and the US and supported by five public banks.

These developments may impact approvals processes in Australia because some of its largest export partners are the same countries who signed up to the Transition Statement, and therefore the substitution argument that has been used in the past may be compromised. We will see more mines going into closure in the next 10 years, with post-industrial land uses and rehabilitation being increasingly invested in, so the chance for extension may be further diminished.

Companies should critically examine how its future business outlook and operations align with the commitments made by states under the Paris Agreement, relevant country NDCs and the additional pledges and achievements made at COP26.