COP26: Key Outcomes from the UN Climate Change Conference

COP26, the 26th United Nations Climate Change conference in Glasgow, has concluded. The conference has been characterized by some observers as both a victory and a disappointment. One key outcome of the climate summit was the sheer number of new US climate-related initiatives announced. The Administration’s numerous policy and regulatory announcements—from the EPA’s landmark proposal to regulate methane emissions from existing sources in the oil and gas industry for the first time to the FAA’s plans to transition the aviation sector to sustainable aviation fuel—will present both challenges and opportunities to companies doing business in the US. Major outcomes from COP26 are discussed below.

Glasgow Climate Pact

The Glasgow Climate Pact—the final agreement of COP26, negotiated by nearly 200 countries over two weeks—has garnered both praise and criticism. Notably, it features an agreement to phase down some fossil fuels and to increase aid to developing countries that are bearing the brunt of climate change impacts. The Pact calls for “accelerating efforts towards the phase-down of unabated coal power and inefficient fossil fuel subsidies.” This is the first explicit reference to coal and fossil fuel subsidies in a UN climate agreement. But some nations had advocated for a “phase out” rather than a “phase down.” And some nations were unhappy with the insertion of the qualifier “unabated” coal power, which they read to imply that some amount of coal generation would remain acceptable, for example, if its emissions were addressed through carbon capture and sequestration. The Pact was also criticized by some observers because it does not include quantitative commitments sufficient to put the world on track to avoid warming beyond 1.5 degrees Celsius above pre-industrial levels.

International Carbon Markets

After a week of tense negotiations that built upon six years of discussion, parties were able to reach agreement on the rules governing Article 6 of the 2015 Paris Agreement, which calls for the establishment of a global emissions credit trading system. As discussed in our prior blog post, an emissions trading mechanism would be aimed at both the public sector (government-to-government trading) to allow countries to meet emissions reductions goals as well as the private sector to allow private entities to meet their emissions reductions targets. In particular, parties reached agreement on three key sticking points from prior negotiations: (i) a “tax” on sales of emissions credits that would generate proceeds for adaptation financing in developing nations; (ii) carry-over credits from the emissions trading regime developed under the Kyoto Protocol; and (iii) mechanisms to ensure no double-counting of emissions credits.

On the tax issue, parties agreed that bilateral government-to-government credit trading would not be subject to a tax, but that a separate, centralized system for trading would divert 5% of the proceeds from offsets to adaptation funding, and 2% of offset credits would be canceled. On the Kyoto Protocol credits, parties agreed to carry forward credits that had been registered after an agreed cut-off date (2013). And on double-counting, parties agreed that a country selling emissions credits could not count those toward its own emission reduction goals. While there are some concerns being expressed about the legitimacy of offsets to create real additional emissions reductions, the deal represents a major step toward a functioning global emissions market, to provide significant additional adaptation funding through the mechanism described above, and to create opportunities for the private sector to reduce emissions.

Global Methane Reduction Pledge

In a recent post, we discussed how a main focus of COP26 was reducing methane emissions around the world. A key piece of that was the Global Methane Pledge. One hundred and ten countries, and counting, have now signed onto the pledge, which aims to reduce global methane emissions at least 30 percent from 2020 levels by 2030. This is a global collective target, as opposed to a national reduction target. Some of the highest emitters of methane, including the United States, Brazil, and Indonesia signed onto the pledge. However, other high methane emitters notably did not sign on, including India, Russia and China (although China did recognize the short-term need to reduce methane emissions). There will be an annual ministerial level meeting to review the progress of the pledge.

Standards for “Net-Zero” Commitments by the Private Sector

In a previous post, we discussed the announcement by the UN Secretary General, Antonio Guterres, that a group of experts was being created to “propose clear standards to measure and analyze net-zero commitments from non-state actors.” The goal of such recommendations is to create consistency regarding the criteria to evaluate private sector net-zero targets. COP26 ended with an update on timing for the development of such standards: the high-level expert group will submit a series of recommendations to the UN throughout 2022. In the meantime, Guterres called on every company and financial institution to act now to “radically, credibly and verifiably” reduce their emissions and to decarbonize their portfolios. The recommendations and ultimate standards from this expert group will be important to follow for companies who have announced climate-related goals and commitments, for example, as part of their ESG policies.

US Long-Term “Net-Zero” Strategy Report

On the first day of COP26, the US released a report detailing its long-term strategy towards reaching net-zero by 2050. The move came as the current US administration was working to build credibility as a climate leader in the nation’s first COP since re-entering the Paris Agreement. In the final text of the Glasgow Climate Pact, the net-zero by 2050 ambition was referenced twice: once in paragraph 22 “recognizing” that reaching “net zero around mid century” is necessary to limit global warming to 1.5 degrees, and once in paragraph 32 “urging” Parties to communicate their long term net-zero strategies to the international community. More information on the content of the US Long-Term Strategy is available in our previous post.

Sustainable Aviation Fuel

In a previous post, we detailed how sustainable aviation fuel was poised to play a central role in the US plan to make the aviation sector net-zero by 2050. COP26 led to new intergovernmental commitments in this area, as by the end of the conference twenty-three nations had signed on to the UK-introduced Declaration establishing an International Aviation Climate Ambition Coalition. The conference was also effective in galvanizing non-governmental action in support of sustainable fuels: Amazon Air, Alaska Airlines, JetBlue, and United Airlines became the first airlines to join the Sustainable Aviation Buyers Alliance, a group formed earlier this year with the mission of driving investment in sustainable aviation fuel; the International Air Cargo Association released a sustainability road map; DHL Express announced a partnership to supply sustainable aviation fuel to one of its major airport hubs in the UK; and Kuehne + Nagel announced a program that will allow customers to choose a sustainable fuel option for all shipments.

Climate Finance

Even as new promises for funding from private sources were made at COP26, developing countries at the summit criticized wealthier nations for weak commitments in the area of climate finance. Various proposals were put forward, including having wealthier countries provide at least $1.3 trillion per year for climate mitigation and adaptation by 2030 and asking those wealthier countries to provide $500 billion over five years. Ultimately, the final pact pressed such countries at least to double their provision of climate finance for adaptation in developing countries from 2019 levels by 2025. The pact also called on such countries to deliver on their goal of mobilizing $100 billion per year for developing countries. Even with these resolutions, observers pointed out the pact’s weak language and soft commitments.

What’s Next

While the announcements made during COP26 represent progress towards the goal of preventing the global average temperature from rising more than 1.5 degrees Celsius above pre-industrial levels, the UN has recognized that they are “far from enough.” Now the focus turns to the implementation of net-zero commitments from both the public and private sector—including measurement, reporting, transparency, and accountability. While still short of certainty, the Glasgow Climate Pact represents a further signal to companies and investors regarding the increasing importance of net-zero plans. Our environmental team will continue to follow and report on developments in this area.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This blog post is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.