How the world could miss its climate goals
At the end of October, all eyes will be on the 26th UN Climate Change Conference (COP26) in Glasgow, Scotland. The overdue summit is widely touted as the world’s last best hope to slash emissions to at least half of 2010 levels in just under a decade if we are to prevent average temperatures rising above 1.5C. Any triumphs in Glasgow will be a realization of the ideals enshrined in the Kyoto Protocol two decades ago, and the world’s first formal steps toward net carbon neutrality, building on the groundwork laid by the 2015 Paris Agreement.
We are in a decisive decade for tackling climate priorities and making substantive progress on curbing harmful emissions responsible for temperatures rising faster than anticipated, according to reports by the Intergovernmental Panel on Climate Change. Recent findings demonstrate how, despite bold targets and ambitious deadlines, most countries are not doing nearly enough to initiate critical transformations that are key to meeting shared climate goals. Further inaction, and reported pushback by countries such as Australia and Japan, risk diminishing such a rare opportunity for taking decisive action. The world cannot risk COP26, and future high-level climate summits becoming occasions for much pomp, circumstance and fanfare, with little to nothing to show for it.
While the agenda in Glasgow has largely been narrowed down to four key areas, i.e., finance, energy, transportation, and industry, very little discourse is available on emergent threats to growing consensus on urgent climate priorities. In finance, current commitments are commendable but far from ideal levels given how crucial concessional finances are for the world’s poorer nations. The developing world is the least equipped to tackle climate priorities mandated by far-off advanced economies that are yet to fulfill promises to provide as much as $100 billion a year in climate finance.
COVID-19 has shifted priorities across the developing world in favor of stemming socioeconomic collapse rather than pursuing the perceived “luxury” of transitioning battered economies away from a dependence on cheap, readily available fossil fuels. It is a tall order for the wealthier economies, which remain the world’s biggest emitters, to demand acquiescence from much of the Global South while not making adequate support mechanisms available to reduce the massive burden that are climate-focused, whole-of-nation transitions. Ideally, sustainable progress on climate change mitigation is only achievable if the global response is not just fast but also just.
The biggest vulnerability of climate change diplomacy is that the shared threat of a warming planet makes threats of non-compliance more potent.
It can only be hoped that COP26 will address some, or hopefully all, of these concerns given how a warming planet constitutes a crisis for all, requiring massive mobilization and adequate responses from every country. Unfortunately, there is a growing, less discussed, risk of climate change-related opportunism in global finance, focusing on secretive investments made by little-known private equity firms into increasingly discounted fossil fuel assets. Since 2010, private equity investments in some of the world’s dirtiest energy sources have totaled more than $1 trillion, which is roughly $100 billion a year — or the same amount of money wealthier nations have committed to providing the developing world in climate finance.
Pressure is building on the fossil fuel industry, forcing many companies to adapt business models swiftly due to changing regulatory environments, shareholder concerns and increased scrutiny on investments in upstream projects. An energy sector trying to rid itself of fossil fuels creates lucrative opportunities for private equity and shadow financing seeking to profit from underpriced assets still delivering returns, but could end up potentially stranded as climate-focused transitions accelerate.
In short, such secretive transactions allow the fossil fuel industry to transfer massive carbon footprints to little-known investment firms that have far fewer incentives or need to reduce emissions. Additionally, many analysts do not anticipate the world reaching peak oil demand for at least 10-15 years, which translates to lucrative returns for even the least desirable assets responsible for rising levels of greenhouse gas emissions such as methane and carbon dioxide.
With more than $7 trillion in assets under management across the globe — or roughly double the GDP of the GCC countries — private equity has an enormous influence on how quickly the fossil fuel industry can adapt to transitions, or resist them. it is simply not enough to make financing available for green projects when little effort is being made to plug loopholes, which secretive entities use to skirt environmental regulations and/or disclosure requirements to the tune of tens of billions of dollars a year.
Beyond ensuring global finance is fully onboard with urgent climate action, COP26 must also address growing institutional rivalry on measuring emissions and establishing the efficacy of carbon offsets. Currently, there is no reliably accurate way to measure total global greenhouse gas emissions, or even how much carbon dioxide is produced by individual countries. The resolution of this issue has eluded diplomats since before the Paris Agreement, and there is little indication that COP26 will settle differences or allay concerns brought up during negotiations.
The last thing the world needs is a situation similar to the disputes caused by different interpretations of the Law of the Sea Convention, where opposing sides insist on standards that support their claims. In this case, different methodologies in accounting for emissions, as well as their offsets, only lead to uncertainty and confusion, discouraging participation or accession by countries disadvantaged by some of the findings.
After all, a wide gap exists between the priorities of decarbonized economies versus those still dependent on a fossil fuel sector propped up by secretive financing that shuns transparent disclosures on emissions. The biggest vulnerability of climate change diplomacy is that the shared threat of a warming planet makes threats of non-compliance more potent, thus potentially derailing the entire agenda despite the well-known catastrophic consequences.
Closely tied to the gaps in data impacting the verification of climate-related commitments, the Glasgow summit must also make strides in strengthening carbon market mechanisms. Carbon markets allow countries to trade “carbon credits,” enabling emitting sectors to continue operating without contributing to global greenhouse gas levels. Outstanding issues yet to be resolved involved double-counting of emissions (an accounting problem), what will happen to countries that have already bought or sold carbon credits, and whether carbon trading would lead to actual reductions in emissions and not just passing them around.
Regardless, carbon trading schemes are integral to achieving most climate targets. They incentivize deeper cuts, reduce the cost of transitions, as well as channel finance more toward the Global South given its yet untapped net negative emissions potential. However, it is simply not enough to simply tick the box when agreements are finalized, it must be done right so that resolutions in Glasgow aid — rather than undermine— shared climate ambitions.
• Hafed Al-Ghwell is a senior fellow with the Foreign Policy Institute at the John Hopkins University School of Advanced and International Studies.