• BDO on COP26

BDO COP26 Digest #6 - 05-07 November 2021

Welcome to the second half of COP26. 

Here are the highlights from this weekend’s negotiations.

Sustainable agriculture and land use

  • 45 governments pledged urgent action and investment to protect nature and shift to more sustainable ways of farming
  • 95 high-profile companies from a range of sectors committed to being ‘nature Positive’ and agreed to work towards halting and reversing the decline of nature by 2030
  • Governments and businesses are joining farmers and local communities to secure new agreements to protect nature and accelerate the shift to sustainable agriculture and land use practices by making them more attractive, accessible and affordable than unsustainable alternatives.
  • Twenty-six nations set out new commitments to change their agricultural policies to become more sustainable and less polluting, and to invest in the science needed for sustainable agriculture and for protecting food supplies against climate change, laid out in two ‘Action Agendas’. All continents were represented, with countries including India, Colombia, Vietnam, Germany, Ghana and Australia.
  • Sainsbury’s, on behalf of the big 5 UK supermarkets, will commit to halving the environmental impact of the average UK shopping basket by 2030 through a new partnership with WWF called ‘basket measures.’ The aim is to turn the food and agriculture system from a driver of climate change into a nature hero by cutting negative impacts and boosting regenerative agriculture to restore nature. It will focus on seven key themes, climate change, deforestation, sustainable agriculture, sustainable diets, marine, waste and packaging. 

100,000 people in Glasgow call on world leaders to do more to stop the rise in global temperatures

More than 100,000 people braved rain and wind on Saturday to point to the world’s biggest emitters for not doing enough to cut planet-warming pollution, according to the COP26 Coalition, a U.K.-based network of environmental groups and non-governmental organisations. They said that about 300 demonstrations took place around the world. 

The protestors also emphasised the need for more climate justice, with chants such as “stop the greenwash, stop the whitewash” and “system change, not climate change.” Swedish activist Greta Thunberg, who was among the demonstrators, earlier called COP26 a “Global North greenwash festival.” 

Carbon trading progress

Agreement on a market-based mechanism to allow countries to use international carbon credits and offsets to meet goals set under the 2015 Paris climate agreement is among the most complex and important of the tasks facing COP26 negotiators.

Article 6 of the Paris climate agreement envisages linking emissions trading schemes globally, allowing for the international transfer of carbon credits, and aims to establish a new mechanism to trade carbon credits from emissions reductions generated from low-carbon projects. This makes Article 6 the most important issue to be discussed in week two of COP26 for all climate projects that cross national boundaries. Negotiators still have to agree on how countries trade carbon offsets — either informally or as part of a new centralised market mechanism — and how they use non-market-based approaches to cut emissions in other countries.

Explainer:

Carbon credits, also known as carbon allowances, work like permission slips for emissions. When a company buys a carbon credit, usually from the government, they gain permission to generate one ton of CO2 emissions. With carbon credits, carbon revenue flows vertically from companies to regulators, though companies who end up with excess credits can sell them to other companies. Carbon offsets flow horizontally, trading carbon revenue between companies. When one company removes a unit of carbon from the atmosphere as part of their normal business activity, they can generate a carbon offset. Other companies can then purchase that carbon offset to reduce their own carbon footprint. The difference is that credits are regulated while offsets are voluntary.

EU carbon border tax

Lively discussions around the EU’s proposed carbon border adjustment mechanism (CBAM) began over the weekend. The CBAM forms part of a strategy to cut EU-wide emissions by 55% by 2030 and seeks to incentivise companies to invest more in green technologies, both in Europe and overseas, by driving up the cost of polluting. The aim is to create a level playing field so not to penalise heavily polluting EU industries that pay for their pollution (whilst polluters in ​many other countries do not).

From 2023, EU importers of industrial products such as steel, aluminium and cement would start assessing and reporting the overseas carbon footprint of these imports: put simply, how much carbon was emitted to make the product. The next step in 2026 would be to tax the emitted carbon under the market price in Europe that domestic producers must pay. The idea is to prevent leakage, whereby strict standards in one jurisdiction cause production to shift to places with laxer rules.

John Kerry, US Special Climate Envoy, has said that President Biden wants to evaluate Europe’s CBAM and that the United States could deploy its own border adjustment tax. 

The UK’s environmental secretary George Eustice said the proposed tax on imports from countries with poor environmental records would protect green businesses in the UK. Eustice said that the proposals were being examined by the Treasury and Department for Business, Energy and Industrial Strategy. They would take several years to implement and would ideally happen in collaboration with other governments, saying “If you don’t want to export pollution, then you do at some point have to consider something like a carbon border tax.”

Critics argue that a mechanism for how to fairly account for emissions related to the production of imported goods has not been identified yet. This will need to consider the costs that companies already face in complying with climate regulations in exporting countries.

Other events of note

Business Council for Sustainable Energy (BCSE) is a coalition of companies and trade associations from the energy efficiency, natural gas and renewable energy sectors that also includes investor-owned utilities, public power, independent power producers, project developers, equipment manufacturers and environmental/energy market service providers.

In its COP26 plenary, the BCSE called on countries to complete the negotiations on Article 6, so that emissions trading, a cost-effective tool for achieving our climate ambitions, can be deployed globally and with environmental integrity.

Strengthening NDC ambition through circular economy: the path for 1.5 degrees

The UN Environment Program (UNEP), UN Development Program (UNDP) and the UN Framework Convention on Climate Change (UNFCCC) came together in a plenary to discuss the necessary update to Nationally Determined Contributions (NDCs) and Long-Term Low Emissions Development Strategies (LT-LEDS) providing a key opportunity to increase global climate ambition in line with pathways towards 1.5°C goal. 

The plenary discussed how a transition to a circular economy (CE) can help countries on their path to the 1.5°C target.

  • CE can help solve 3 interlinked crises: climate change, pollution and loss of biodiversity as well as support achievement of the Sustainable Development Goals (SDGs)
  • 50% of global emissions are related to extraction, processing and consumption of materials
  • Adopting CE resource efficiency measures can reduce emissions by 20% in 2050
  • CE stimulates economic activity including creating an estimated 6m jobs by 2030 in waste management, product design and maintenance

Explainer:

A circular business model articulates the logic of how an organisation creates, delivers, and captures value for a broad range of stakeholders whilst minimising ecological and social costs.

Linear business models are based on the following logic: take natural resources, make products for consumers that eventually become waste. Circular business models contribute to a circular economy by adhering to the circular economy’s three fundamental principles.

  • ‘Design out’ waste and pollution
  • Keep products and materials in use 
  • Regenerate natural systems

Summary

Week two will be crucial for putting more detailed plans on the table regarding how all countries are going to meet their national emissions targets and how the transition financing especially for the Global South nations will be structured.