More countries than ever committed to achieving net zero emissions, but short-term plans are still vague and inadequate. 33 new countries, including Brazil, Argentina and most notably India, announced net zero emissions targets at COP26. This makes the total emissions covered by the net-zero target account for about 90% of global emissions. India has the greatest impact, although its net zero target applies to 2070, while other major countries target 2050 or 2060.

Due to the positive momentum of the new announcements-especially regarding methane, deforestation and net zero targets-the updated analysis now shows that in the best case, if all announcements are completed on time, they can control global warming to 1.8 °C until the end of this century. It is still above the 1.5°C target, but it is a big improvement from the 2.7°C at the beginning of the meeting.

According to the IEA scenario, the new pledge can bring the world to a temperature of less than 2°C, which is closer than ever to the target of 1.5°C in 2100.

Source: ING Research, based on IEA data

But there is still a big gap between intentions and policy measures: new and updated Nationally Determined Contributions and announced 2030 commitments are still not enough to close the gap between the level of emissions that should be reached in 2030 and the Paris Agreement goals, and these Promise where they will be taken. The emissions gap is still large, and global emissions are expected to increase by 13.7% by 2030 over 2010; during this period, they will need to fall by nearly 50% in order to remain on the road to net zero by the middle of this century.

Before COP26, we believed that Covid-19 recovery spending could promote low emissions and climate adaptation measures. Unfortunately, the window of opportunity for multilateral initiatives is closing, and the "green" pandemic recovery plan has yielded nothing or almost nothing new.

Countries agree to phase out coal instead of phasing out coal is still the world's largest source of power generation (accounting for 35% of the global power structure). It is also the biggest cause of greenhouse gases, accounting for 39% of global carbon dioxide emissions. Therefore, before the meeting, only seven countries (especially France, the United Kingdom, Germany, and Chile) pledged to do so, so the risk of reaching an agreement on the phase-out of coal is high.

It took 26 COP meetings to take a stand on coal. In this regard, the Glasgow Conference of the Parties is a good meeting. But, as always, details determine success or failure. The final agreement talks about "phasing out the unabated coal-fired power", not "phasing out" coal. This is the wording of the draft text.

After India and China intervened at the last minute, the wording has undergone subtle but important changes. The world's largest coal user.

China and India determine the future of coal demand in terms of million tons of oil equivalent (Mtoe) in the IEA scenario based on current policy measures

Source: ING Research, based on IEA

Please note that the statement gradually reduced the "unreduced coal" but did not prohibit its use. This can facilitate emission reduction technologies such as carbon capture and storage (CCS) for existing and new coal-fired power plants.

CCS can reduce carbon emissions by 85-95% and is a relatively mature and cheap emission reduction technology.

The declaration also aims to stop "inefficient" subsidies for fossil fuels. This can promote the gradual reduction of coal use, because many countries subsidize the use of coal in terms of direct support and implicit subsidies by not including the cost of external pollution in the price of coal.

Despite the weak commitments of China and India in the finish line negotiations, more than 40 major coal users including Poland, Vietnam and Chile agreed to phase out coal earlier. Poland's pledge may change the rules of the game in Europe for phasing out coal, because Poland is notorious for blocking coal market and carbon trading reforms.

Although vague and non-binding, the other two important announcements are still commendable.

The first such government coalition led by Denmark and Costa Rica launched the Beyond Oil and Gas Alliance (BOGA), and the six full members (France, Greenland, Ireland, Quebec, Sweden and Wales) pledged to end the oil and gas licensing round. Natural gas exploration and production recommended by the International Energy Agency earlier this year.

The United States and China unexpectedly issued a joint pledge to mitigate climate change. On the positive side, this clearly shows that both superpowers realize that they are essential to achieving the Paris climate goals. The downside is that the declaration does not have clear deadlines and specific commitments, especially with regard to coal.

The government takes action on methane and deforestation, but promises may be undermined. In addition to formal negotiations, other deals have laid the foundation for stimulating more direct action during the future COP, especially reducing methane leakage and stopping deforestation.

More than 100 countries including the United States, the European Union, Brazil, and Indonesia are involved. The methane commitment means that by 2030, all countries need to jointly reduce methane emissions by at least 30% relative to the 2020 level.

Although methane has a relatively short lifespan in the atmosphere, reducing methane emissions is a very effective way to slow down global warming because it is a more powerful greenhouse gas than carbon dioxide. Methane leaks mainly come from agricultural activities and poorly managed oil and gas production, but they also come from energy use for internal combustion engines, heating, and power generation.

However, since the world's largest methane emitters—especially China, Russia, and India—have yet to sign this ambition, the positive impact of this pledge has been largely diminished.

The top 3 methane emitters have not signed the methane pledge. The country with the highest methane emissions (megatons of carbon dioxide equivalent in 2018)

Source: ING Research, Climate Action

In another global commitment, countries pledged to end deforestation by 2030. This commitment is two-way. Stopping deforestation can end the greenhouse gas emissions associated with logging and land use changes, which account for 2.8% of global emissions. It also enhances the role of forests as the main carbon sink for absorbing carbon dioxide from the atmosphere.

The most notable commitment comes from Brazil, which owns 12.2% of the world's forests, so the impact could be considerable. But some people are skeptical of Brazil's commitments, because since President Jair Bolsonaro took office and weakened environmental law enforcement, the country's deforestation rate has been rising every year.

In other words, for methane emissions and deforestation, the success of the pledge will depend on the implementation of the pledge country. The key issues that need to be paid attention to include whether the funds will be in place on time, how to allocate them, and what promised policies the government will introduce.

Bittersweet after the money negotiations Despite the huge demand and pressure to provide climate financing, especially to compensate for losses and damages, the negotiations did not achieve a breakthrough.

Developed countries have not yet fulfilled their pledge made twelve years ago to raise US$100 billion annually by 2020 to help developing countries adapt to climate change and reduce emissions. Their commitment should not be fulfilled before 2023, but the final text has stipulated that by 2025, adaptation contributions should be doubled from 2019.

Climate finance in developing countries is still not enough

Source: ING Research based on OECD

In terms of compensating for the losses and damages that developing countries have already caused due to climate change, COP26 has failed to implement a financing mechanism, so such financial flows are still voluntary. There, the main opponents are the United States, the United Kingdom, and the European Union-these three countries have historically been responsible for climate change, but fear that such recognition may lead to litigation and financial compensation claims.

On the bright side, COP26 finally agreed to the long-awaited Article 6 of the Paris Agreement Rulebook, which stipulates the operation of the international carbon market. Basically, it describes how countries cooperate across borders to achieve their climate goals. One way to do this is for a county that has exceeded its climate target to sell its blocked emissions to a backward country. Another way is through carbon offsets from foreign emission reduction projects. In order for all of this to work effectively, Article 6 now outlines common rules to avoid double counting of emission credits and closing tricky loopholes, such as the carry-forward of credits previously obtained under the Kyoto Protocol. Source: ING