Conference of the Parties, Glasgow (COP26) and its impact on the business environment

The annual United Nations climate conference is known as the Conference of the Parties (COP). Every year, negotiators from nearly every country in the world gather to decide on a worldwide strategy for combating climate change. In 1992, a regular meeting was held to prevent and control climate change, and was called in the Rio Earth Summit; COP was first held in Berlin in 1995 and has been held practically every year since then. Once every five years, United Nations Framework Convention on Climate Change (UFCCC) member countries’ convene to revise their national plans and agendas to reflect the most recent climate situation and make essential decisions about future action. The last conference took place in 2015, called the Paris Agreement, which committed governments to keep global warming below 2°C by the end of the century, and ideally to 1.5°C above pre-industrial levels. The 26th Conference of UFCCC took place in Glasgow from October 31st to November 12th. The Glasgow meeting is expected to be a watershed moment for worldwide climate cooperation, which had been rescheduled from November 2020 owing to the COVID-19 pandemic. 

The meeting improves on the promises made in the ‘2015 Paris Agreement’ but acknowledges that they fall short of the objective of keeping global warming to 1.5 degrees Celsius. The historic summit ended with nearly 200 countries joining the Glasgow Climate Pact in the hopes of halting global warming and speeding up climate action¹.

COP26 has four objectives are following:

1. Net zero-emission by mid-century and keep the global warming threshold by 1.5 degrees²:

• Obtain a new national carbon reduction commitment for 2030, to reach net-zero emissions by 2050. To meet this ambitious target, governments will need to accelerate the phase-out of coal, stimulate renewable energy investment, reduce deforestation, and accelerate the transition to electric vehicles

• Around 40 coal-dependent countries signed the 'Global Coal to Clean Power Transition Statement.' It binds them to entirely halt local and international investment in new coal-fired power projects. Several big economies have pledged to phase out coal power by the 2030s, while poor countries have been given until the 2040s to do so

• By 2030, more than 40 countries have committed to increasing the use of renewable technology, including zero-emission automobiles

1. Protect Natural Habitats:

• Encourage the countries affected by climate change to protect and restore ecosystems, build defenses, implement warning systems, and strengthen infrastructure and agriculture to avoid the loss of homes, livelihoods etc.

• Leaders from more than a hundred countries assured to halt deforestation by 2030 to protect the world's crucial forest cover. The Glasgow Leaders' Declaration on Forest and Land Use was endorsed by major countries such as Canada, Russia, Brazil, China, Colombia, Indonesia, and Congo

1. Organize finance

• Meet the developed countries' previous commitment to investing $100 billion every year for energy transition and climate mitigation efforts

1. Work Together to deliver

• Finalize the Paris Agreement, and enhance collaboration across government, business, and civil society to meet the climate goals hastily

Global Coal to Clean Power Transition Statement

“The Global Coal to Clean Power Transition” statement, issued during the COP26, promises to end the installing of unabated coal power plants by 2040 or 2050, depending on the country's development status and to a quicker installing of green energy. So far, 46 countries have signed the statement, including five of the top 20 coal-fired power users globally includes South Korea, Indonesia, Vietnam, Poland, and Ukraine. According to Climate Action Tracker, this agreement will decrease the overall carbon emission by the equivalent of 200 million tonnes. However, the coal-fired power industry accounts for more than 30% of worldwide carbon emissions, and current reductions are insufficient to reach the goal³.

Through an assessment of the current situation, electricity generation from coal-fuelled power plants has declined from 1401TWh in 2017 to 898.6TWh in 2020 with a negative CAGR of 13.76%, and this can decrease swiftly by 2030 as major economics like Mexico, Canada and the US have committed to reduce its coal consumption rate. Germany, Russia, UK, Italy, France and Spain have started decommissioning their existing coal power plants and published their coal phase-out timeline evidently, which impacted the European market enormously and coal consumption has decreased with a negative CAGR of 13.51% from 2017 to 2020; but within the same timeframe (2017-2020), electricity generation from coal has increased at a CAGR of 2.22% in the Asia Pacific region and it is expected to grow for the next few years to maintain the huge demand-supply scenario.

Notable Green Finance Announcement at COP26⁴

Sources: S&P Global, Beroe Analysis

 India's net-zero pledge:

The world's fourth-largest carbon dioxide emitter is India following China, the US, and the EU. According to the emission database of global atmospheric research in 2019, India produced 2597 mega tonnes of CO2, compared to 5107 mega tonnes in the US and 11535 mega tonnes in China and 3304 mega tonnes in the EU. The Prime Minister of India has said at the 26th Conference of Parties in Glasgow, that the country will achieve net-zero emissions by 2070. India's non-fossil fuel capacity would be increased to 500 GW by 2030 compared to 103GW in 2021, which will secure 50% of the country's total electricity demand. India has also pledged to eliminate 1 billion tonnes of emissions by 2030, with a 45% reduction in carbon intensity over 2005 levels⁵.

In India, electricity generation from fossil fuel production has decreased over the years as the country is moving towards renewable energy according to the Paris agreement to reduce environmental pollution. In 2010, the share of non-hydro renewable power generation was 4% and now it has increased to 11% in 2020 whereas the generation share of fossil fuel has decreased from 83%in 2000 to 76% in 2020. The government of India has proposed to increase renewable energy production across the country in the current scenario as the demand-supply situation is volatile. In the current market situation, the baseload of the country is dependent on coal-fired plants, though, the overall share of fossil fuel generation is decreasing throughout the year. It is anticipated to decrease in future as the renewable will acquire the market share by 2030.

Impact on Business Environment:

The COP26 signifies a break-even occasion in the combat against climate change, with far-reaching consequences for businesses and markets in the near and long-term future.

• New regulations and amendments:

It is anticipated that COP26 will accelerate the pace of environmental legislation in the near future significantly. It will give an impeccable framework for states to describe how they intend their policies to evolve the current market situation. To sustain in the market, business leaders should have a clear and prompt understanding of where regulation is likely to reach as a result of COP26, which will allow them to collaborate with governments to meet the net-zero emission target. Businesses that want to include climate-related policies into their planning can also benefit from this. The worldwide industrial sector will be impacted extensively by new regulations, innovations in the next decades but they must support the measures coupled with protecting jobs, promoting economic growth and prosperity

• Multifold the renewable energy business:

Renewable technologies are attracting investors in a large group which would offer greater long-standing returns in future. COP26 is expected to boost the renewable finance industry, especially as one of the summit's goals is to help private financing support a whole-economy transition to net-zero emissions. Capital will progressively move to more environmentally friendly enterprises and countries. According to the Bloomberg New Energy Foundation, between $78 trillion and $130 trillion in new investments would be required by 2050 in areas such as power generation and hydrogen manufacturing for the world to reach its environmental goals. According to an OECD analysis, total climate financing commitments has reached $78.9 billion in 2018, up from $52.2 billion in 2013. The UN Environment Program believes that the true requirement by 2030 would be closer to $300 billion⁷. This increase in demand and financing will result in enormous investment in activities to mitigate and reduce emissions around the world

• The electric vehicle market:

Few countries are leading the response to the climate emissions by increasing the electric trucks and buses sales by 2040 to achieve 100% zero emission, which is a turning point for the global transportation sector. Austria, Canada, Chile, Denmark, Finland, Luxembourg, the Netherlands, New Zealand, Norway, Scotland, Switzerland, Turkey, UK, Uruguay, and Wales have signed a new net zero-emission global memorandum of understanding (MOU) for heavy and medium-duty automobiles, which is a short-term goal to achieve 30% zero-emission from new vehicle sales by 2030. Subnational governments such as Québec (Canada) and Telangana (India), as well as leading manufacturers and fleets, including Scania, DHL, and Heineken, have signed on to the MOU and agreed to work together toward the same goals by 2030 and 2040. Participants agree that zero-emission trucks and buses are critical for decreasing transportation emissions, mitigating climate change, and improving air quality⁸

• Effect on consumer behavior:

Consumer expectations and behaviors are being influenced by growing awareness of climate calamity. Some businesses are already distinguishing themselves by utilizing carbon footprint labels to inform customers about their product's environmental impact. After COP26, this tendency is likely to accelerate

• New business model:

Businesses will see new opportunities as technology advances, regulatory concerns for high-emission assets rise, the cost of finance for green initiatives falls, and the price of carbon emissions rises. These possibilities could include the development of new products and services, as well as completely new business models. Some companies are looking into substitutes such as construction materials made from waste glass, plastic, and even paper

Conclusion

Switching from coal to renewable and gas reduces CO2 emissions quickly and partially, although it is dependent on gas linkage, availability of renewable fuel sources, geology and geography. When energy demand isn't expanding as quickly as it is in rapidly emerging countries, making the switch to renewable energy sources is easier. To achieve this target, developing countries will require financial support from richer countries. The COP26 agreement was a historic step in the right direction, but the hard task of putting it into practice still lies ahead of us. This is an opportunity for us to lead the world toward more sustainable economic, social, and environmental systems.

References

1. https://ukcop26.org/cop26-goals/

2. Climate Deal 2021: As 200 Nations Sign Glasgow Pact, Here’re Hits and Misses of Historic COP26 | The Weather Channel - Articles from The Weather Channel | weather.com

3. Global Coal to Clean Power Transition Statement - UN Climate Change Conference (COP26) at the SEC – Glasgow 2021 (ukcop26.org)

4. What Came Out of COP26? | S&P Global (spglobal.com)

5. COP26: India PM Narendra Modi pledges net zero by 2070 - BBC News

6. https://edgar.jrc.ec.europa.eu/country_profile

7. https://phuketimes.com/commentary-whats-at-stake-at-cop26-for-asia/

8. https://globaldrivetozero.org/2021/11/09/landmark-commitment-at-cop26-countries-subnational-governments-vehicle-manufacturers-and-fleets-target-100-zero-emission-new-truck-and-bus-sales-by-2040-10-nov-2021/