With our guest speaker: Chris Stark, CEO, The Climate Change Committee.
Summary of what came out of COP26
Hoggett Bowers hosted an online event with a select group of guests to hear Chris Stark, CEO of The Climate Change Committee (CCC), share his reflections on COP26.
Chris opened by saying that it certainly was not the perfect outcome but showed good progression. Clearly, the US and China are the big players.
On reflection it felt like the COP we should have had 20 years ago, society made itself heard (as it always does) but so did business. There was a lot of talk about it being a very corporate COP, as companies were there in force. There were also new side deals and an ongoing stream of announcements, which gave momentum to the event. Which should give leaders confidence to take more rapid action on coal, methane, deforestation and other negative climate issues.
What ultimately matters is what impact COP26 has on climate and the overall outcomes.
We know we haven’t yet reached the trajectory needed, to meet the Paris emissions targets. However, it’s remarkable that 90% of the world’s economy is citing net zero targets by mid-century. This is huge progress.
As the gavel finally fell on COP26 nearly 200 countries in attendance agreed on the Glasgow Climate Pact. It’s not a new treaty, the Paris treaty is what we’re still all trying to meet, but it’s an amazing piece of diplomacy from the UK to bring this together. If you’d asked me before if we’d have text that mentioned fossil fuel and coal phase-out, I wouldn’t have thought it possible.
The Glasgow Climate Pact
We now have 1.5oC very clearly recognised as the aim. There’s an explicit reference to the need to cut emissions in the next 10 to 20 years by 45%, which is exactly what the science says, and to strengthen national targets in Egypt (who has the COP presidency in 2022). It can’t be underestimated how diplomatically important this is. Some of the key issues to take forward:
Ratchet it up
The Nationally Determined Contributions (NDCs – individual country emissions targets to 2030) which some countries did not offer, such as Indonesia, Russia, Brazil, Australia, Mexico, China etc were a disappointment. A significant achievement was finalising The Paris rulebook. This will help transparency and shorten the gap between NDC reviews from five years to one to improve accountability. We need a ratchet moment next year to tighten these.
There’s the doubling of adaptation finance from the wealthier OECD countries to support energy transition in the weaker economies. We very nearly agreed the $100bn of funding, this needs to happen.
Loss and Damage
This is a highly sensitive subject and will be a big theme next year. It is in the Pact, having moved the wording from a ‘facility’ to a ‘dialogue’. Clearly there is a long way to go.
12 Months to Build on the COP26 Deal
It is very clear that new commitments are not typically made at the COP, that’s just the milestone to measure progress over the prior year. That’s important because the UK holds the Presidency for the whole of next year, until Egypt takes over. Most holders don’t view it in that way, notably the French didn’t and dismantled their diplomacy effort after COP24. It’s really important for the UK to keep the momentum going which will require a big diplomatic push.
What does this mean for the UK?
Apart from our domestic ambitions, the UK can have an important role to play on the international stage.
Climate action pledges and bold targets are a lot easier than the actions to deliver them. An example is the political declaration on the ‘Deal for South Africa’, which has the US, EU, UK, France and Germany, offering $8.5bn of loans to South Africa to phase out coal as quickly as possible. This is a possible template which may be applicable for other countries to follow.
For me, the most important aspect is for the UK to demonstrate 12 months after announcing the UK’s Net Zero strategy that we’re delivering against it – with real actions.
CCC’s Comments on the UK’s New Net Zero Strategy
We now have the Government’s own plan to halve UK emissions in a little over a decade. Overall, it is a good outline plan.
The UK is the first industrialised nation to set Net Zero into law – we now have the policy plans to achieve this.
The objective is for UK’s emissions to be Net Zero by 2050. At its core is to decarbonised electricity by 2035 and phase out of fossil fuels for transport, home heating and industry as soon as possible.
The Government has proposed wide scale deployment of low carbon renewables and new energy options with credible proposals for driving delivery and scaling up private investment in almost every area of the economy. Supply chains will need to be revamped.
But there are gaps
Plans for tackling emissions from agriculture are still unclear.
There is less emphasis on reducing the demand for high carbon activities, which require consumer behaviours to change. This has yet to be tackled.
‘Market based mechanisms ‘which favour gas over electricity need to change if the heat pump market is to become viable for new builds.
The onus is on private business to make the large investments, citing £60bn extra each year and also bringing affordability to the consumer. There is a lack of detail on how this will happen.
The Treasury have endorsed the case for Net Zero but it is unclear how the Treasury will use the tax system to support the transition to Net Zero, or how it will fill the fiscal gap implied by falling fuel duties.
All in all, a good framework on what we need to do to achieve Net Zero. It’s not about setting policies and ambitions any longer – it’s about delivering both in the UK and internationally.
The ending to COP26 was quite extraordinary, with China and India colluding to the very end to weaken the text on coal from “phase out” to “phase down” in the deal. Chris wasn’t overly worried about that, as the rest of the Glasgow Climate Pact was an impressive feat of international diplomacy. In summary, it wasn’t the COP that will change the world but gives the UK a strong platform to build on the summit’s progress and demonstrate the role the UK can play on the world stage.
Q: The UK energy supply chain has been involved in long cycle projects for delivery from 2030 onwards. What really frustrates is not the capability of the supply chain but the consents, overbearing regulation and aspects of the regulator’s actions which increases the timescales. This requires more anticipatory investment and results in uncompetitive lead times. How can we ‘clear the decks’ to move projects forward faster?
A: There is no easy answer as consenting issues and planning regimes differs across the country, there is no central function. There should a new role for regulators to speed up processes for major investment.
Q: Do you think there’s anything we can do collectively as a sector to give a stronger voice to Government to make positive changes?
A: Probably some sort of concerted proposal to Government will have more weight than individual companies trying to move things on their own. It takes leadership to do this.
Q: The differing planning regimes for renewables will not accelerate the deployment of new assets, especially onshore. There seems to be a real mismatch between Government’s ambition and the realities of getting projects onstream. How can this change?
A: We fully understand this at the CCC and we will spend the next 6 to 18 months building a new real time dashboard of major progress with transparent metrics. We need to look from the flow of finance to the capability of the supply chain to deliver. This will include highlighting the ‘blockers’ such as slow planning etc.
This will become more than just a set of indicators against policies and green gas emissions. The dashboard will be updated every week/month to be used in a meaningful way.
Q: Much of the offshore wind supply chain involves equipment from overseas, notably China. This comes with a significant carbon footprint. Therefore, what role could we play in the next 12 months to have a really significant impact on reducing this?
A: We are set up to look at territorial emissions defined by the UN. We’re moving to a greater understanding on this, with better tracking and the Government acknowledge that they are thinking more about carbon taxes and associated carbon border adjustments – we are not there yet. The EU were noted by their absence at these discussions, which is surprising.
It does appear that these potential mechanisms are starting to have an impact, as China believe they may be hit three ways:
1. Carbon border adjustments
2. Pressure to reduce domestic emissions
3. Scope 3 emissions as OECD companies look further into their supply chain’s carbon impact.
This is a complex area needing more work on common standards and not just slipping in a carbon boarder tax.
Q: How resilient is the Government’s Net Zero strategy and the associated investment required over the next 10 years if there is an inflationary environment with increasing interest rates, which increase the cost of borrowing and reduce ROI on investments?
A: No doubt life is easier in a low inflation environment. However, we’ve looked at a range of differing inflation scenarios and we are confident that generally the energy transition can still progress as the underlying economics still stand up, as there are big savings to be made in Opex. I do appreciate if the cost of capital significantly increases then it becomes more challenging.
Q: The UK has benefited from the offshore hydrocarbon market as North Sea expertise and technology has been exported around the world. In contrast, with the offshore renewables market we are playing catch up and have already missed significant opportunities. How do we re-address this?
A: I agree that a lot more has to be done to support the UK industrial base to ensure we gain the maximum benefits and import less. We need more creative thought, and the Government is prepared to invest in new technologies such as hydrogen. The primary route to decarbonisation is through electrification, which the UK must take a leading role on.
About our speaker:
Chris Stark has been Chief Executive of the Committee on Climate Change since April 2018. His previous role was Director of Energy and Climate Change in the Scottish Government, leading the development of Scotland’s approach to emissions reduction and the accompanying energy system transition.
Hoggett Bowers are very grateful to all our guests and a special thank you to: