COP26: What to expect for energy

• COP26 to discuss steps towards net-zero carbon emissions

• Coal phaseout and renewable generation on the agenda

• Absence of China’s Xi Jinping could limit productivity

LONDON (ICIS)–Decisions made at the upcoming UN climate change conference (COP26) are likely to shape energy policy in the decades to come, especially if targets are set to accelerate the phaseout of coal-fired power generation and increase investment in renewables.

However, concrete decisions are by no means guaranteed with some key parties potentially absent and a recent emphasis on individual country targets.

COP26 will be held in Glasgow between 31 October-12 November and will look to build on agreements reached at previous conferences, including the Kyoto Protocol and Paris Agreement.

Each previous agreement has contained a commitment to reduce carbon dioxide emissions, and energy market participants will be watching closely for further emissions reductions targets as well as any specific recommendations in order to meet them.

Pressure is mounting for decisive action on climate change, and recently-elected US president Joe Biden will likely be keen to make his mark on proceedings, but the potential absence of key leaders including China’s Xi Jinping may limit the productivity of talks.

COP26 GOALS

There are four key goals for the conference outlined on its website, of which the most significant for the energy industry is the first, to “secure global net zero” carbon emissions by 2050.

Countries will need to set “ambitious 2030 emissions reductions targets” in order to achieve net zero, and actions including accelerating the coal phaseout and the switch to electric vehicles, as well as increasing investment in renewables will be necessary to meet these targets.

Any specific actions relating to these targets, as well as any significant reduction in carbon emissions targets, will impact the energy industry.

However, as these targets are set on a country-by-country basis, specific actions impacting energy market participants are more likely to be determined in the months following the conference than during the summit itself.

NDCS

Several aspects of the 2016 Paris Agreement will be discussed at COP26, including nationally determined contributions (NDCs). These are the Paris Agreement signatories’ specific emissions-reduction targets, which they must prepare every five years.

These targets should “reflect the highest possible ambition,” according to the agreement, and should become progressively stricter.

The EU Council will also submit one NDC on behalf of all member states, aligned with European Climate Law. The main goals under this law are a 55% reduction in carbon emissions compared to 1990 by 2030, carbon neutrality at an EU level by 2050, and a commitment to negative emissions after 2050. A separate 2040 target will also be set.

EMISSIONS TRADING

One of the most significant developments to emerge from the Kyoto Protocol, adopted in 1997 and entered into force in 2005, was the creation of the emissions trading system.

The establishment of market-based mechanisms to aid countries in meeting their emissions reduction targets was set out in the protocol, although it stated that these mechanisms should be “supplemental” to actions taken to reduce emissions.

This led to the creation of the traded carbon market.

Further market-based mechanisms are unlikely to emerge from COP26, with the focus on actions to reduce emissions such as coal phaseout and increased renewable generation.

STICKING POINTS

China’s president Xi Jinping is not expected to attend COP26, while Russia’s Vladimir Putin has also said he may not attend.

None of the leaders of the world’s top five emitters – China, India, Japan, US and Russia – attended the last COP meeting in 2019.

A lack of support from key world leaders such as China may limit the productivity of the upcoming summit, with other countries less likely to sign an agreement.

The conference is held annually, with the first summit taking place in Berlin in 1995, but only a small number of significant agreements have resulted from COP proceedings in this time.

If no new agreement is reached this year, the most significant aspect of the conference for the energy industry will likely be the discussions of targets set in the Paris Agreement, including NDCs.

Any new deal will also only be agreed late in the conference, although there may be indications of the direction of such an agreement during the two weeks preceding this.