For almost three decades, the United Nations has brought together nearly every country on the planet for an annual global climate summit, called the Conference of the Parties (COP). This November, the world will intently watch the COP26 summit, which runs from October 31 to November 12 in Glasgow, UK, after its one-year delay due to COVID-19. As the world still reels from the disruptions of the pandemic, governments, businesses, and civil societies are beginning to pay more serious attention to climate crisis, a more menacing global systemic threat. Along with the release of the sixth Intergovernmental Panel on Climate Change (IPCC) report this August, which predicted that warming will exceed 1.5℃ within the next two decades, many experts regard COP26 to be the world’s best last chance to get runaway climate change under control.
Given the historical significance of COP26, there is unprecedented pressure on all countries to effectively mobilize resources to tackle climate change. The IPCC estimated that USD3.5tr in investment is needed to keep global warming below 1.5℃. Therefore, climate finance will be a focal point in COP26 discussions and likely one of the most challenging issues. This article will review the role of finance in the most prominent international climate treaty, the Paris Agreement, as well as key issues to watch for in the upcoming COP26.
The Paris Agreement on Finance
The 2015 COP21 summit was a momentous event in the global fight against climate change. At COP21, 196 countries adopted the Paris Agreement, a legally binding framework for an internationally coordinated effort to tackle climate change. The Agreement formally set the goals to limit global warming to well below 2℃ before the Industrial Revolution and make efforts to hold warming within 1.5℃. For the first time in history, all signatories would develop plans on how to contribute to climate change mitigation and communicate their nationally determined contributions (NDCs). COP21 also established the principle of common but differentiated responsibilities and respective capabilities, requiring developed countries to take the lead in mitigating climate change and help developing countries implement their climate goals. In this spirit, climate finance entered the Paris Agreement as the vehicle for international collaborations on climate action.
The Paris Agreement made two significant advances on the topic of finance. First, one of the Agreement’s key directives is making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. It effectively called on the entire financial system, from sovereign funds to private investors, to invest in alignment with the Agreement’s long-term temperature goals. Second, the Paris Agreement reaffirmed the pledge made by developed countries in the 2009 COP15 to provide USD100bn per year for climate mitigation and adaptation in developing countries by 2020, as well as extended that commitment for another five years. While developed countries have scaled up financial support to developing countries, a study by the Organization for Economic Co-operation and Development (OECD) showed that the effort is still far from the pledged mark of USD100bn.
Although developed countries have failed to meet their USD100bn pledge by the original 2020 deadline, the UK published a Climate Finance Delivery Plan just five days ahead of COP26 to clarify when and how developed countries will meet the USD100bn goal. The Plan sets a new deadline in 2023.
Legacy from Paris: What to Expect from COP26
Six years after the signing of the Paris Agreement, the world is still lagging behind what is needed to fund adequate climate actions. Non-profit charity CDP released an analysis on October 27, showing that less than 1% of the USD27tr global fund assets analyzed in the study are aligned with climate goals set in the Paris Agreement. World leaders, policymakers, and businesses urgently need to reassess their capital flows and mobilize both existing and new financial resources to complete a global net-zero transition by mid-century. There are two key issues to watch for regarding finance in the upcoming COP26.
International Carbon Market: the Last Piece to Complete the Paris Agreement
To meet long-term goals set out in the Paris Agreement, at the 2015 COP21, countries gave themselves three years to agree on the implementation guidelines, also known as the Paris Rulebook. Countries successfully adopted the majority of the Paris Rulebook at COP24 in 2018. However, a few contentious issues were left out in the Rulebook at COP24, which failed to be resolved again at COP25. As a result, COP26 will once again attempt to address these issues and finalize the adoption of the Paris Rulebook.
One of these issues entails the creation of an international carbon market governed by the UN. This carbon market, also called the Sustainable Development Mechanism (SDM), will allow both public and private sectors to trade emissions reduction credits created anywhere on Earth as a means to reduce emissions globally. The SDM will effectively replace the Clean Development Mechanism (CDM) established in the Kyoto Protocol in 1997. The CDM has long been subjected to controversy for reasons such as counting emissions reductions that would have happened regardless of mitigation measures. In view of this, countries disagree over whether and which CDM methodologies, projects, and carbon credits can be inherited for the SDM. Host countries of a large number of CDM projects, such as Brazil and India, prefer a full transition, while others oppose this as it may undermine the effort to cut emissions effectively. Debates continue over how to mitigate global emissions through the SDM.
If issues in the Paris Rulebook may be resolved successfully at COP26, it will offer businesses an opportunity to incorporate their climate commitments into the wider UN process, which may greatly incentivize decarbonization by private entities. In fact, oil and gas companies such as Royal Dutch Shell have shown support for a global market-based approach to reduce emissions. Furthermore, the Environmental Defense Fund issued a paper suggesting that a global emissions trading system can lower political resistance to more ambitious targets, potentially doubling climate ambition over the next 15 years.
Closing the Gap in Climate Adaptation Finance
With the planet already much warmer than historic norms, extreme weathers and abnormal climatic events have already been set into motions, battering the most vulnerable populations living in Least Developed Countries (LDCs) and Small Island Developing States (SIDS), such as Bangladesh, Seychelles, and Tuvalu. For these nations, adaptation is a matter of survival in an already warming world. As such nations are the least responsible contributors of climate change but also least capable of resisting its impact, adaptation finance from developed countries is critical to help them brace upcoming climate impacts such as storm surges, sea level rise, and water scarcity. In August 2021, President of COP26 Alok Sharma mentioned that one of the key COP priorities is to get both public and private finance to flow toward climate action, especially to emerging markets and developing economies. Specifically, he called for particular attention to climate adaptation.
Currently, most of the capital for climate financing flows towards mitigation projects such as renewable energy development and sustainable transport, as these are crucial for deterring the worst impacts of climate change. According to an analysis by the Climate Policy Initiative (CPI), adaptation projects received just USD46bn between 2019 and 2020, a figure dwarfed by USD571bn invested into mitigation activities. Furthermore, only 2% of such adaptation finance came from the private sector. Dr. Megan Bowman, Director of Climate Law and Governance Centre from King’s College London, remarked that adaptation projects, such as drought-resilient agriculture and sea wall constructions, are less appealing to private investors compared to renewable energy projects which have a good rate of return.
As COP26 approaches, the call for more adaptation financing is getting more exposure. At the UN General Assembly in September, Ireland, the Netherlands, Denmark, Sweden, the UK, and Finland jointly launched a new Champions Group on Adaptation Finance. The group will push for increasing the total share of climate finance spent on adaptation for LDCs and SIDS through a balanced approach in their own public climate finance. The group also called on bilateral, multilateral, and private finance providers to improve the quality, quantity, and accessibility of adaptation finance, and join this champions group if they can commit to such objectives.
Additional hope on adaptation financing is also tied with a conclusion on the international carbon market. If successfully established, the SDM may generate a stream of finance from emissions trading, which would serve as another route to channel climate finance from high-emitting developed nations to low-emitting developing nations and fund adaptation efforts in the most vulnerable nations on Earth.
출처:
https://ukcop26.org/uk-presidency/what-is-a-cop/
https://www.un.org/sites/un2.un.org/files/100_billion_climate_finance_report.pdf
https://www.sei.org/perspectives/beyond-the-100-billion-dollar-goal-for-climate-finance/
https://www.nature.com/articles/d41586-019-02712-3
https://www.wri.org/paris-rulebook
https://www.cdp.net/en/articles/investor/under-1-of-27-trillion-global-fund-assets-are-paris-aligned