COP26: Financial and Economic Impacts

COP 26 was the 26th session of the Conference of Parties (COP) to the “UN Framework Convention '' on Climate Change. This year’s edition was hosted by Glasgow, Scotland. Held every year as a global response to climatic change, these meetings produce a set of key decisions on the environment. The resultant set of decisions from the COP26 were termed collectively as the Glasgow Climatic Pact.

WHEN, WHERE, WHY?

COP26 was held at Scottish Event Campus (SEC) Centre in Glasgow, Scotland with numerous sessions starting from October 31, 2021, till November 12, 2021.

This was the third such major meeting since the Kyoto Protocol in 1997 and the Paris Agreement in 2015. This time the primary purpose of the conference was to finalize the rules and regulations for the implementation of the Paris Agreement. In the Paris agreement, a Ratchet Mechanism was determined wherein 2020 (postponed to 2021) was determined as the year in which countries would announce nationally determined contributions to limit greenhouse gas emissions. Provisions like the ‘carbon markets’ were also touched upon.

CLIMATE FINANCE

Every climate action has financial implications. It is estimated that trillions of dollars are required every year to fund all the actions necessary to achieve the climate targets. But, money has been in short supply. Developed countries are under an obligation, due to their historical responsibility in emitting greenhouse gases, to provide finance and technology to the developing nations to help them deal with climate change. Money is needed to bring these goals and ambitions to work. The mitigation, implementation, and watching these action countries adapt to the 1.5-degree temperature net-zero emissions goals can be monitored only with adequate finances.

The theme of COP26 on November 3 was ‘finance’ according to the official schedule. A coalition of private financial institutions announced that its members have collectively pledged $130 trillion to transition the global economy to clean energy. The Glasgow Financial Alliance for Net Zero — which represents more than 450 banks, insurers, and other asset managers — is led by Mark Carney, the former head of the Bank of England, and Michael Bloomberg, the former New York City mayor and billionaire financier.

In 2009, at the UN Climate summit, developed countries promised to bring in $100 billion annually to help developing countries transition to greener economies, and 12 years later it only amounted to a failure (rich countries last year fell $20 billion short of what was promised). The developed nations have now said that they will arrange this amount by 2023. President Joe Biden promised to boost US contribution to $11.4 billion after congressional approval.

The developed countries were demanded to at least double the money being provided for adaptation by 2025 from the 2019 levels. In 2019, about $15 billion was made available for adaptation that was less than 20 percent of the total climate finance flows. Developing countries have been demanding that at least half of all climate finance should be directed towards adaptation efforts. Over 30 countries signed on to a declaration promising to work towards a transition to 100 percent zero-emission cars by the year 2040, at least in the leading car markets of the world.

CARBON MARKETS

Carbon markets facilitate the trading of emission reductions. Such a market allows industries to earn carbon credits for the emission reductions they make more than their targets. These carbon credits can be traded to the highest bidder in exchange for money. The buyers of carbon credits can show the emission reductions as their own and use them to meet their reduction targets. Carbon markets are considered a very important and effective instrument to reduce overall emissions.

A carbon market existed under the Kyoto Protocol but no longer exists because the Protocol itself expired last year. Developing countries failed to build trust in these markets as the quality of their carbon credit was questioned by the developed nations. They had excess credit with them which was of no good earlier. A deadlock over this had been holding up the finalization of the rules and procedures of the Paris Agreement. The Glasgow Pact has offered some reprieve to the developing nations. It has allowed these carbon credits to be used in meeting countries’ first NDC targets. These cannot be used for meeting targets in subsequent NDCs. Talking in terms of time series, these credits can be bought by these nations to meet their NDCs by 2025. The resolution of the deadlock over carbon markets represents one of the major successes of COP26.


LOOKING AHEAD

Developed countries can no longer escape their obligations and shrug off culpability. It is time for all countries, especially the global north, to rise up to the occasion. While it is necessary to carefully execute the aforementioned plans, we must not lose cognizance of the urgency of the issue. With the intention of minimizing short-term losses, we may end up incurring the biggest possible loss- losing our planet to climate change.

The U.N. meeting in Glasgow, Scotland, was billed as humanity’s last and best chance to keep the all-important goal of 1.5 degrees Celsius alive. Only time will tell whether we acted soon enough or not.


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