Day 4 of COP26 was another jam-packed one, with a focus on energy. We at Ortec Finance were energized by the Global Coal to Clean Power Transition Statement, disheartened by the Global Carbon Project report’s sobering news, and reminded of all the work still to be done to mobilize global climate action. Whilst we stay optimistic, today came as a forewarning— not all will (nor can) be solved in one conference alone.
The optimistic: A Global Coal Pact
On Thursday, more than 40 countries signed the Global Coal to Clean Power Transition Statement. From that 40 at least 23 nations have made new pledges to phase out coal power, including Indonesia, Vietnam, Poland, South Korea, Egypt, Spain, Nepal, Singapore, Chile and Ukraine. In this new Global Coal Pact, countries also committed to scaling up clean power and ensuring a just transition away from coal. Good news, but it would’ve been better if major coal consumers and producers US, Russia, China, India and Australia also would have committed themselves to phase out domestic coal production and use.
The reason why the US, the world’s third-largest coal consumer, refrained from signing the statement is unclear. Commentators point to the continuous negotiations over the infrastructure proposals and say that the Biden administration is avoiding to take a clear stance on coal at COP26, to avoid upsetting senators from coal-dependent states. Also the election of a Republican as governor in Virginia shook the Democratic Party.
The disappointment of the US opting out was given a silver lining by the news that banks and financial institutions made significant commitments to end the funding of unabated coal. Among the financials were major international lenders like HSBC, Fidelity International, and Ethos.
China, Japan, and South Korea announced prior to COP26 that they would end overseas coal financing—which means that public international financing for coal power is decreasing, fast. In fact, President Xi has said China’s massive Belt and Road Initiative will “step up support for other developing countries in developing green and low-carbon energy” rather than financing new coal plants.
Moreover, a group of 25 countries, among which is the US , together with public finance institutions have signed a UK-led joint statement committing to end international public support for the unabated fossil fuel sector by the end of 2022 and instead prioritize support for the clean energy transition. It strikes us at Ortec Finance odd, that the US is planning to decrease fossil fuel finance abroad, but not at home. Therefore, increasing the already high systemic transition risks the country is facing.
Collectively, this could shift an estimated $17.8 billion a year in public support out of fossil fuels and into the clean energy transition. Developing countries including Ethiopia, Fiji and the Marshall Islands offered their support, signaling a growing unity in the global community. The pact is an inclusive agenda that must recognize the continued development and meet energy needs of all economies.
This is a historic step. It is the first time a COP presidency has prioritized international fossil fuel finance and with these statements, a bold end date. COP26 has set a new gold standard on the Paris alignment of international public finance sending a clear signal for private investors to follow.
On Thursday, 28 new members also signed up to another initiative to phase out coal: the Powering Past Coal Alliance, launched and co-chaired by the UK and Canada. New members include Chile and Singapore, joining more than 160 countries, sub-nationals, and businesses.
The reality check: Global CO2 emissions back to record levels
Amidst all the optimism that COP26 will deliver on real action, there was a sobering moment on Thursday, with the Global Carbon Project (GCP) report publication. The research shows that 2022 could set a new record for global emissions. The world could avoid that from happening if the expected increase in oil consumption as travel returns to pre-pandemic levels, is offset by reversal of the surge in coal burning seen in 2021.
The scientists who contributed to the report said the finding is a ‘reality check’. During the pandemic, CO2 emissions fell by 5.4%. With all the promises of build back greener, fossil fuel consumption has grown faster than expected in 2021, as the report shows.
Emissions of the world’s biggest polluter, China, increased slightly during the pandemic in 2020 and are expected to rise another 4% in 2021. India will see CO2 rise 12.6% in 2021, almost double that of fall 2020.
After declaring a Just Energy Transition Partnership with South Africa, the EU, US, and UK need to simultaneously give effect to their domestic commitments towards decreasing emissions and help others like South Africa decarbonize. For example, emissions in the US and EU27 will increase by 7.2% in 2021. Though the increase is part of an overall longer term trajectory towards decreasing emissions at an increasing rate, these countries need to demonstrate by example and accelerate their own decarbonization.