Monica Frassoni, Teneo Senior Advisor, former MEP and Co-President of the European Green Party; Sarah Ladislaw, head of the U.S. program at Rocky Mountain Institute; and Michal Meidan, Director of the China Energy Programme at Oxford Institute for Energy Studies, joined Kevin Kajiwara for a discussion on policy and regulatory implications surrounding global climate change literature and COP26 and assessed how deeper commitments and greater scrutiny of companies, investments, and government action can shape the path forward.
The 26th United Nations Climate Change Conference (COP26)
On October 31, COP26 will convene in in Glasgow, Scotland. The world has placed vast importance on these meetings for their role in setting a considerably more ambitious and urgent climate agenda. However, many critics remain deeply skeptical because, while multilateral agreements can be made, enforcement is challenging when execution is dependent on the political will and accountability of each country.
The “Big Three”
Three of the most influential markets coming into COP26, are the United States, China and the EU, which represents 27 different countries. The Biden administration is looking to make up for lost political time, increase the pace and scale of the energy transition within the United States, and re-energize the multilateral apparatus to make COP26 as impactful as possible.
The EU’s main goals include galvanizing a multilateral climate agenda, agreeing on and financing a set of nationally determined contributions, and preventing the Earth’s average temperature from increasing beyond the 1.5-degree target threshold.
Despite China’s carbon neutrality 2060 pledge having generated a huge amount of momentum, they have issued their pledges unilaterally, asserting their desired climate leadership role. Additionally, China has positioned itself as the leader of the G-77 and will demand more financing from developed countries to fund their ambitious climate agenda.
Energy Market Risks
The transition to cleaner energy such as wind and solar has increased demand for gas, the most environmentally friendly fossil fuel. Additionally, the long-term net-zero target is curtailing investors’ willingness to invest in fossil fuels that could be largely obsolete in the future, driving up the prices of non-renewables. This, combined with the shortage in supply of critical minerals essential for clean energy technologies such as copper, hydrogen and aluminum, has contributed to an imperfect, turbulent energy transition.
Market Mechanisms
It is largely argued that market-based solutions are not enough to confront the extreme climate emergency. Over the last decade, it has been the seismic shifts in the EU’s environmental targets that have created huge amounts of innovation in clean energy technologies, rather than market mechanisms. Despite carbon pricing dominating many political discussions and having great potential to change the behavior of the world’s polluters, it has lacked public support over the transparency of where the income is invested and how effective those investments are in tackling climate change. To be most effective, carbon pricing must be accompanied by complementary, well-aligned and integrated policies.
Taxonomy
The recent adoption of the EU’s Sustainable Finance Taxonomy, a tool to help investors understand whether an economic activity is environmentally sustainable, is the source of ongoing debate as member states are raising concerns over the inclusion of nuclear energy. Many argue that nuclear power is incompatible with the taxonomy regulation’s “do no significant harm” principle and does not take into account that high-risk technology can be more damaging to human health and to the environment than other forms of energy. Therefore, including nuclear power in the taxonomy would undermine its credibility and integrity.
Carbon Border Tax
In efforts to stop “carbon leakage” and fight climate change, many countries have considered a carbon border tax. However, it is difficult to see how any country is going to make genuine inroads in deep decarbonization of their heavy industry sectors without trying to protect those industries from competitive disadvantage. Countries must understand the complex realities of this transition and explore a global collaboration effort for high-emitting sectors to encourage these industries to transition faster.
Geopolitical Power
China sits in a prime position to benefit from this energy transition due to their access to supply chains of new minerals such as cobalt and lithium. In addition, developing countries continue to demand non-renewables, which places China in an influential position in both current and emerging supply chains.
Concluding Remarks
Countries around the world must adapt to address the adverse impacts of climate change and complement efforts to mitigate it. Such mitigation and adaptation will build resilience to reduce vulnerabilities and risks to the environment, human health and the economy; stimulate innovation; and protect the standard of living across the global community.