“Climate vulnerable communities are particularly at the forefront of my mind, and will be so throughout these negotiations. They, and the generations to come, will not forgive us if we fail to deliver in Glasgow.”
Strong words from COP President Alok Sharma, from the press conference that opened the COP26 Week 2 proceedings. With some progress over the weekend, parties are beginning the hard slog of political negotiations on a range of unresolved issues. Country ministers have been paired up to drive momentum towards success on issues including adaptation, loss and damage; finance; keeping 1.5 alive; and of course the key rulebook issues of: Common Time Frames; Article 6 on carbon markets; and transparency.
Week Two is off and racing, so lets dig right in:
Adaptation, Loss & Damage in Focus
The Heat is On (Article 6)
Negotiators have worked through to the end of Saturday, producing a revised fourth iteration of the Article 6 texts, with substantially fewer bracketed sections (sections up for negotiation), than previously seen. These versions were finalised over the weekend and handed over to the Presidency to continue high-level, intense political negotiations into week 2. As we thought, the really contentious issues have not seen resolution and will move forward for political negotiations – issues around mandating a share of proceeds (adaptation funding) under 6.2; the need for corresponding adjustments and avoiding double counting of emissions reductions (carbon trading activities inside/outside of NDCs); and the transition of the CDM into the new 6.4 mechanism (treatment and use of pre-2020 units).
The Article 6 political negotiation process has now handed over to Singapore’s Environment Ministers Grace Fu and her counterpart Sveinung Rotevatn from Norway, who have been leading similar virtual and in-person ministerial discussions since June this year. These two ministers are tasked with keeping ministerial negotiations on track, keeping momentum and ambition high, and coordinating with the COP26 Presidency to get agreement and finalise the Article 6 rulebook. This is by no means an easy job, but many observers and negotiators are positive about outcomes, and are feeling confident that we will get an outcome by the end of this conference.
With increased scrutiny on negotiations, comes the increased scrutiny on the role of carbon markets in reaching Paris goals, led by a range of climate justice, grassroots community and Indigenous groups. While arriving at a global consensus will require concessions, it is critical that any outcome of the Article 6 negotiations guarantees climate and wider environmental and social integrity, and supports the delivery of the Paris Agreement, and enhances countries’ ambitions – not dilute them. The same goes for private sector participants; credible use of markets will enhance decarbonisation ambition, rather than be used as a mechanism to stall the transformational change required by business in the next decade.
Ambitious countries agreed to the “San José Principles” back in 2019 in Madrid. These principles could be the base-line for finding an environmentally and socially sound consensus and for the operation of all market activities thereafter.
Discussion on Article 6 rules hangs in the balance with reasonable progress last week but many of the above issues still in contention. Australia was a major obstacle in 2018 with its insistence that it should carryover national Kyoto units, but has since stated it will not need to use these. Australia has been a supporter of including human rights into the Article 6 rulebook.
The next few days will be critical in making sure the Article 6 Rulebook will be an engine turbo boosting cooperation, ambition and investment, not the alternative. Whilst the impact on voluntary markets is yet to be fully understood, the momentum is continuing and expanding – as discussed in this opinion piece by CMI’s own Georgia Cox.
Expanding the Investor Agenda
Ahead of COP26, A record 733 institutional investors with more than US$52 trillion in assets under management presented an ambitious statement to governments, calling for a range of measures to help avoid catastrophic temperature rise and manage climate risk. These include measures to end fossil fuel subsidies, phase out thermal coal-based electricity, and mandate climate risk disclosure.
Late last week, global investors came together once again to launch the International Sustainability Standards Board (ISSB) which will aim to develop TCFD-aligned sustainability disclosure standards that are focused on enterprise value. The ISSB will act as a ‘sister body’ to the International Accounting Standards Board (the IASB Board), and will aim to drive globally consistent, comparable and reliable sustainability reporting approaches. This approach will allow sustainability reporting to make its way towards being on the same footing as financial reporting, allowing national and regional jurisdictions to build on a global baseline and set supplemental standards that serve their specific jurisdictional needs.
Finally the Net-Zero Asset Managers Initiative, launched in December last year released their first progress report, noting that:
- 43 asset managers have shared their first interim targets for the proportion of assets managed in line with achieving net zero by 2050, and set shorter term targets for reducing emissions within their investments;
- Signatories disclosed that 35% of their total assets under management, totalling USD 4.2 trillion out of a possible USD 11.9 trillion, is being managed in line with achieving net zero by 2050;
- A record 92 new asset managers representing USD 10.8 trillion in assets have joined the initiative, bringing the total to 220 investors managing USD 57.4 trillion; and
- Network partners managing the initiative have set out expectations on fossil fuel investment, asking signatories to adopt robust and science-based policies aligned with a 1.5°C scenario.
Together, these three recent announcements represent a clear market signal that the pace of the transition is increasing, and that the investor community will play a strong role in driving the economic transformation towards a carbon-constrained future.
Adaptation and Loss & Damage in Focus
The COP26 Presidency’s ‘Adaptation, Loss & Damage Day’ kicked off Week 2, and it came with a range of exciting announcements and pledges focused on supporting adaptation funding and initiatives. This included:
- Global leaders committing to a shift towards locally-led adaptation through over 70 endorsements to the Principles for Locally Led Adaptation and over $450m mobilised for initiatives and programmes enhancing locally-led approaches [LIFE-AR, FLLoCA, CRPP and the Taskforce on Access to Finance].
- The Race to Resilience campaign announced new transformation partners to accelerate its mission to strengthening the urban, coastal and rural resilience of 2 billion people worldwide.
- The Champions Group on Adaptation Finance announced several new climate providers committed to supporting stronger adaptation action.
- $232 million committed to the Adaptation Fund, the highest single mobilisation to the Fund and more than double the previous highest collective mobilisation with a $20m contribution from the UK. Commitments came from the USA, Canada, Sweden, Finland, Ireland, Germany, Norway, Qatar, Spain, Switzerland, the UK and the Quebec and Flanders governments.
- The UK announcing £290 million in new funding for adaptation, including £274 million for the Climate Action for a Resilient Asia (CARA) programme.
- Confirmation that 88 countries are now covered by Adaptation Communications or National Adaptation Plans to increase preparedness to climate risks, with 38 published in the last year.
Around these announcements have been an increased push from developing nations for developed nations to take a stronger role in supporting adaptation finance, and noting that a resolution on Article 6 would support this. The commitment by President Biden at the beginning of COP, for the US to provide $3 billion in global adaptation funding per year by FY2024, has helped to build momentum, but in political negotiations this week developing countries are pushing for much stronger commitments and targets, including Bangladesh, who is looking for a quadroupling of adaptation finance. A lot of consensus yet to be build around climate finance, so watch this space.
Scaling Global Carbon Markets
As part of Monday’s focus on finance, came the launch of the Asia Development Bank’s Climate Action Catalyst Fund. Designed to operate from 2022-2033, with initial financing of $100 million or more, the fund will aim to drive Asia Pacific climate action through the sourcing of Paris-eligible carbon credits.
The fund aims to catalyse voluntary cooperation under Article 6 amongst ADB member countries, help them to meet NDCs and support increased ambition through carbon markets. Projects financed by the CACF would generate Internationally Traded Mitigation Outcomes (ITMOs) for fund investors, with residual credits likely to be retained by the host country, depending on the finance structure, and needs of the host country. The ADB has confirmed the Fund will be Paris-aligned; support high-integrity, transformative projects; and develop a multi-asset class portfolio that delivers on a range of carbon and other sustainable development outcomes. Given the ITMO/carbon crediting focus of the fund, it is likely that some details will be dependent on how Article 6 rules are finalised in the coming days.
We’ve also been delighted to see over the weekend the launch of the private sector-focused NCS Investment Accelerator campaign. Led by the Natural Climate Solutions Alliance, the campaign’s goal is to ‘aggregate corporate demand for 1 Gigatonne of CO2e emissions from natural climate solutions (NCS) reductions and removals per year by 2025’. The program will provide the market with greater confidence, reduced reputational risk, and a clearer demand signal focused on high-integrity NCS investment; provide greater visibility on the role of NCS in the transition; support and profile corporate leadership; and encourage a pipeline of high-quality nature-based projects and the generation of liquid carbon markets out to 2050.
What’s Coming Next
So we will be watching article 6 negotiations closely this week and look forward to what comes out of the updated text expected any time. As it usually does, things will come down to the wire, and will likely be resolved in the early hours of Saturday morning (Glasgow time).
There will continue to be a focus on business action, and the role of carbon markets, but equally the importance of human rights, First Nations leadership, and the need for a just transition will be front of mind, to make sure that the least developed and most vulnerable nations to climate change are not left behind.
