The climate conference saw an unprecedented reliance on the potential of private finance to fund climate action, which could ultimately undermine the collaborative spirit of the UNFCCC

The dust has settled on COP26, the climate change conference held over the first two weeks of November in Glasgow, UK. Most of the 30,000-odd people who had descended on the Scottish city have now filtered out after a fortnight of frantic activity in the once-industrial centre. The end of the conference has left behind a residue of mixed sentiments, with clear progress on one hand and a plethora of deep unresolved issues on the other.

With the conference commencing after a break of two years due to the global COVID pandemic, the UK COP Presidency was under immense pressure to deliver, while contending with challenging economic and geopolitical circumstances around the world. Meanwhile, climate change had hardly taken a breather over the past two years, with most regions of the world experiencing worsening climate impacts. 

Keeping the 1.5 degree goal alive, barely

The Paris Agreement, signed in 2015, provides a broad demarcation of ambition. The Agreement gave an overview of the different tasks and goals that needed to be pursued through multilateral cooperation from all 197 parties of the agreement, in accordance with national circumstances and developmental objectives. How this would actually be operationalised, though, was to be deliberated over following sessions of the conference as part of what is now known as the Paris Agreement Rule Book. 

While the agreement itself was supposed to be operationalised by 2020, completing the rule book proved far more complex than originally imagined, with several thorny issues. Two in particular remained far from any sort of consensus at the end of COP25, held in 2019 in Madrid. The first, around how market mechanisms for emission offsets would be developed, and the second on reporting modalities and standards that countries would have to follow in order to maintain transparency and coherence. With these two outstanding issues to resolve, and with the global pandemic forcing a cancellation of last year’s talks, the Paris Agreement was effectively on the brink of collapse before even becoming operational. 

The UK Presidency of the COP this year had one clear objective—to deliver a completed rule book for the smooth operationalisation of the Paris Agreement. And in as much as ticking that box, the COP delivered.

Particularly tricky was the infamous Article 6 of the Paris Agreement. This part seeks to set out the modalities and a framework for the conversion of emissions reductions into tradable units, which can then be used to offset emissions through purchase. Carrying the added baggage of being the successor of a failed market structure that came out of the Kyoto Protocol, the article carried two major unresolved issues coming into COP26. After several rounds of fraught negotiations and numerous iterations of text, both of these were ultimately resolved while the conference went into overtime. 

According to Kelly Kizzier, vice president of Global Climate at the Environmental Defence Fund, “(The) agreement on Article 6 provides the rules necessary for a robust, transparent and accountable carbon market to promote more and faster climate ambition and create a further avenue for finance flows from developed to developing countries. The decision eliminates double counting for compliance markets and establishes a strong framework to ensure appropriate accounting for voluntary carbon markets that also supports emission reductions in countries hosting carbon market activities. The carry over of credits left over from the Clean Development Mechanism is not fully restricted with some 120 million tonnes carried forward, but their use is restricted to the first cycle of national commitments.”

Resolutions, however, came with concessions on all sides, which could ultimately dilute the true impact of the market mechanism. In addition, the number of carbon credits that will be reserved for cancellation has been set at 2%, markedly limiting the true mitigation impact of the carbon market that ensues. Critics have pointed out that instead of delivering real reductions in carbon emissions, the final version of Article 6 would simply offer an avenue to widespread greenwashing by allowing corporations and countries to continue emitting while depending on cheap carbon offsets.

“The agreement closes down some of the outrageous loopholes that had been considered, but the language remains unclear in some areas and we have much to do to stop companies and countries gaming the system. We have no room or time for Markets like buckets of water, with 100 tiny holes. It will spill out and dilute the Paris Agreement and make keeping warming to 1.5C that much harder. What the deal does do, however, is make it even more important that voluntary use of carbon markets is limited, high quality and used in specific circumstances. Science drives integrity and integrity may drive scale. That makes the job of the UN Secretary General’s export group on setting standards for corporate net zero commitments all the more important,” said Rachel Kyte, dean of the Tufts Fletcher School in the US.

With all eyes on how this tricky issue would play out, the spirit of compromise did shine brightest in the end. The resolution of Article 6 is critical for the completion of the rule book, which in effect saves the more ambitious goal of limiting warming to 1.5 degrees, even if only by the skin of its teeth.

Nowhere near enough

Despite the celebration of completing the rule book, the chances of actually translating the 1.5 degree ambition into reality remain minute. The world is currently on the path to increasing carbon emissions by 13.7% by 2030 compared to 2010 levels, according to the UNFCCC’s NDC synthesis report released on November 4. By comparison, emissions must be reduced by a whopping 45% over the next decade in order to keep warming below 1.5 degrees.

According to Ugandan activist Vanessa Nakate, “Even if leaders stuck to the promises they have made here in Glasgow, it would not prevent the destruction of communities like mine. Right now, at 1.2 degrees Celsius of global warming, drought and flooding are killing people in Uganda. Only immediate, drastic emissions cuts will give us hope of safety, and world leaders have failed to rise to the moment. But people are joining our movement. 100,000 people from all different backgrounds came to the streets in Glasgow during COP, and the pressure for change is building.”

In this regard, the outcome at COP26 offers little in terms of hope as it neither secured any definitive end to coal, nor any progressive steps on limiting further fossil fuel dependence. Last minute drama at the COP, in fact, saw language in the draft decision text watered down to reflect a reduction of coal rather than complete elimination, with coal being “phased down” rather than “phased out”. The difference is that while the former reflects an end to coal, the latter offers a mere reduction. 

This, reportedly, was done at the behest of India’s demands that language around coal be diluted. For much of the western press looking for a villain on which to pin the COP’s failures, India emerged as a clear scapegoat. This, despite the fact that the dilution had first been put forth jointly by China and the US in a joint statement that had been released days before the conference concluded. While China has struggled to cleave away from coal in recent years, consumption in the US is expected to be up by 20% this year over 2019. India, for its part, has also belatedly tried to distance itself from taking responsibility for environment minister Bhupendra Yadav’s statement that triggered the change in the final decision text.

In the larger scheme of things, this dilution holds little value as a phase-out will necessarily have to pass through a reduction first. The prescription for the overshot in projected emissions, however, is hitched more closely to the urgent ramp up of mitigation ambitions such as the deployment of low-carbon energy systems. How this will be funded and carried out, particularly in developing countries where eight out of every 10 people reside, though, remained unanswered. With the promise of $100 billion a year made over a decade ago by developed countries still remaining unmet, the developing world dug its heels in for better and bigger guarantees of financial flows in order to undertake more ambitious decarbonisation strategies.

“There is nothing much. There is no real commitment on part of developed countries to move ahead with serious & urgent domestic action let alone in terms of global collaboration and truly significant climate finance for tackling climate change,” reacted Manjeev Puri, distinguished fellow at TERI, at the outcomes of the climate conference.

The demands for increased financial flows, while vociferous, came to naught as developed country counterparts pushed back. According to estimates from the International Energy Agency, developing countries need anywhere between $2.6-$4.6 trillion per year in spending on adaptation and mitigation. On finance, the developed world has remained stubbornly reticent to even discuss the definitions of climate finance and terms of its delivery. Instead, developed parties have effectively thrown their hands in the air. Frans Timmermans, European Commission’s first vice-president, suggested that the pool of donors be expanded to include large developing economies, too, and forwarded “creative” financing options, seemingly in an attempt to downplay the value of equity in the response to climate change. His American counterpart, John Kerry, hailed the role of private finance in bridging the massive deficit.

A new narrative builds up

The fact that public disaffection with the UNFCCC-led multilateral process is growing by the day is no secret. As Kafkaesque negotiations at the conference seemed to be headed nowhere, protests and demonstration marches demanding climate action and not just empty words gathered crowds of over 100,000 people in Glasgow’s streets, forcing the world to take notice of the popular anger and distrust in those stalking the corridors of power mere kilometres away.

But in a parallel reality, COP26 had a multitude of progressive announcements of which to boast. Perhaps sensing popular disillusionment with the entire process of multilateral climate process that seemingly goes round and round each year without providing any real sense of progress in tackling climate change, the UK Presidency sought to come out ahead of the criticism. Over the first few days of the COP, in glaring dissonance with the public discontent, a barrage of climate responsive deals involving big money were splashed across media as a sign that things were finally changing. 

Take for instance the Glasgow Financial Alliance for Net Zero (GFANZ), which is chaired by Mike Carney, UN Special Envoy on Climate Action and Finance, and unveiled a finance pool of $130 trillion through a coalition of banks, asset managers, pension and insurance funds at the commencement of the COP. The message is clear, where big governments are failing to provide financial guarantees, private money will be the parachute the world so desperately seeks.

In the neoliberal economic agenda, however, money is the only motivator that moves money. Lending by GFANZ or any other private financial coalition will not be concessional and will be driven solely in pursuit of returns on investment. This is the basis of yet another alliance initiative launched by American President Joe Biden and US climate envoy Kerry, named the First Movers Coalition, which seeks to bring businesses that are looking to be the early birds in the emerging decarbonisation economy. 

But how exactly will money flow to poor and low-income developing countries that are most in need of financial support if returns on investment are the prime motivators in mobilising the required finance? The answer put forth by Larry Fink, chairman and CEO of world’s largest asset management firm BlackRock, is a bailout plan funded by multilateral banks such as the IMF and the World Bank to absorb the losses from investing in Africa, Asia and South America until markets for clean energy and carbon mature enough to sustain themselves.

While such bailout measures have been utilised before—most notably following the financial crash in 2008 and for recovery from the 2020 global COVID pandemic—it is far from the fool-proof system it is advertised to be. As historian Adam Tooze writes in The Guardian, “It is a neat solution, the same neat neoliberal solution that has been proffered repeatedly since the 1990s. The same solution that has not been delivered…Those (bailouts in 2008 and 2020) were desperate efforts, faute de mieux, to save the status quo at home. And that was toxic enough. Stretched to a global scale, it has zero political appeal.”

This is perhaps the reason that apart from the celebratory tone that has ushered coalitions such as the GFANZ, there is deafening silence around any concrete plans of action of finance mobilisation beyond large and abstract numbers. 

The neoliberal experiment with climate finance is unlikely to be any different from the larger economic experiment that has seen the proliferation of debt and unprecedented concentration of wealth through steady and gradual redistribution over the past 30 years. The narrative of our new financial saviours is well underway. Unfortunately, what it means in effect is an erosion of any semblance of public accountability that has persisted in the multi-governmental collaborative approach that was envisioned in the creation of the UNFCCC.