The state of climate action in the lead up to COP27

Around this time each year, hotly anticipated reports are published by UN agencies, the IEA and NGOs ahead of the annual climate negotiations, or COP (Conference of the Parties). The UN reports cover global activity on climate action, whereas the IEA’s Outlook focuses specifically on energy scenarios and provides predictions for likely climate outcomes under those. The details might vary, but the narrative is constant: the world is not on course to deliver its climate goals – to limit global temperature increases to well below 2°C (ideally 1.5°C) above pre-industrial levels. This year’s climate summit is the 27^th annual meeting of world leaders, policymakers and businesses. COP27, ‘the African COP’, is taking place in Sharm El-Sheikh, Egypt, between 6^th – 18^th November.

With temperatures already 1.2°C warmer than pre-industrial levels, the slogan for last year’s COP26 summit in Glasgow was “to keep 1.5°C alive”. Analysis published during COP26 concluded that under the commitments made, the world would warm by approximately 2.5°C. As attention turns to Egypt with COP27 negotiations starting this week, a key question is: what progress have we made in ambition and action since COP26?

Climate action since COP26

Last year in Glasgow, all countries agreed to revisit and strengthen their 2030 climate commitments, or NDCs (Nationally Determined Contributions) [1], by the end of 2022. As of the end of September, only 24 of the 166 NDCs representing 193 Parties to the Paris Agreement had been updated following COP26.

While progress is moving in the right direction, it’s not moving fast enough. The latest UN Climate Change report and UNEP Emissions Gap Report, both published in October, found that the combined pledges of all countries under the Paris Agreement still put the world on track for around 2.5°C warming by the end of the century – no change since COP26. There’s still a discrepancy in current policies (2.8°C), near-term NDC targets (2.4-2.6°C) and long-term net-zero targets (1.8°C).

Global GHG emissions under different scenarios and the emissions gap in 2030

The 24 updated climate commitments since COP26, primarily driven by Australia, Brazil, Indonesia and the Republic of Korea, only reduce emissions in 2030 by c.1% of annual global emissions. Overall, combined NDCs for 2030 are estimated to reduce global emissions by 5-10% compared with current policies. To limit temperature rise to below 2°C and 1.5°C, global emissions must fall by 30% and 45%, respectively, in the next eight years, compared with current policies. Beyond 2030, emissions must continue to decline rapidly.

Looking further into the future, countries’ long-term transition plans indicate that emissions would be roughly 68% lower in 2050 than in 2019. This strongly signals that the world is starting to aim for net-zero emissions. But the challenge with long-term targets is that they postpone critical action that needs to take place now and rely heavily on carbon capture technologies.

While commitments are essential, to be effective, they must be translated into action. So, what are we seeing on the policy side of things?

The estimated emissions under current policies for G20 counties are decreasing. This is mainly due to the expected emissions reductions from the 2022 Inflation Reduction Act (IRA), a landmark federal law in the USA. However, at present, these countries aren’t on track to deliver on their NDCs. Policy changes, such as the IRA, must accelerate in the next couple of years to match commitment levels.

2022 energy crisis – a boost or setback for the energy transition?

Russia’s invasion of Ukraine has reduced the focus on climate change and has contributed to turbulent energy markets. Natural gas prices have reached levels never before seen, coal prices have hit record levels, and the cost of oil also rose well above $100 per barrel in mid-2022, over double to 2020 average[2].

While the scramble to find alternatives to high-priced natural gas has provided a short-term boost to the demand for oil and coal. Overall, the crisis seems to be accelerating the energy transition, as renewables (and in some cases, nuclear) gain cost advantage. This is alongside slowed energy demand and faster progress in efficiency and electrification (especially of vehicles).

The IEA’s World Energy Outlook 2022 suggests that coal demand will peak in the next few years, gas demand will plateau by 2030 and oil demand will reach a high point in the mid-2030s. From 80% today, the share of fossil fuels in the global energy mix is expected to fall to less than 75% by 2030 and around 60% by mid-century. In parallel, all IEA scenarios point to a rising share of electricity in global energy consumption – from 20% today, reaching more than 50% by mid-century in the Net Zero Emissions by 2050 (NZE) scenario. This is associated with a huge overall increase in global electricity demand – the bulk of this growth comes from emerging markets and developing economies.

So what? On the road to COP27…

The current state of climate action makes clear that urgent, system-wide transformation is needed to deliver the necessary short and long-term emissions reductions. The UN finds that while some progress has been made since COP26, with several countries ratcheting up their commitments, it’s far from enough to limit temperature rises to below 2°C. Meanwhile, the IEA Outlook offers a glimmer of hope, as it expects the energy crisis to accelerate the transition to a low-carbon energy system.

The financial system is a critical enabler of this transformation. A smooth, secure and just energy transition requires a significant uptick in global clean energy investment flows, especially in emerging markets and developing economies. If clean energy investment fails to accelerate, higher investment in oil and gas would be needed to avoid future fuel price volatility – but this would also mean putting the 1.5-2°C goal in jeopardy. According to the latest UN estimates, the global transformation requires annual investments of at least $ 4-6 trillion.

Recent progress toward 2030 and 2050 targets for global total climate finance

So, at this critical point in time, COP27 provides an opportunity for world leaders to regain momentum on climate change and for the finance sector to step up.  In particular, the agenda at this year’s COP focuses on the following:

1. Mitigation: reducing emissions globally.
2. Adaptation: helping countries to prepare for and deal with climate change.
3. Loss and damage: securing technical support and funding for developing countries for the above (successfully on the agenda after years of lobbying by developing countries).

At the end of COP26, there was consensus that 1.5°C was still within reach. The question is whether this belief will remain the same following COP27. We’re hoping it will be ‘the implementation COP’ that radically accelerates the delivery of countries’ climate pledges.

Unless indicated, these are the views of the author and may differ from those of the firm.

[1] NDCs form the basis for countries to achieve the objectives of the Paris Agreement. They contain information on targets as well as policies and measures for reducing national emissions and on adapting to climate change impacts. NDCs also contain information on either the needs for, or the provision of, finance, technologies and capacity building for these actions. Countries communicate new or updated NDCs every five years, and have done since 2020.

[2] https://www.statista.com/statistics/262860/uk-brent-crude-oil-price-changes-since-1976/