There is a massive buildup in the media around the COP 26 conference coming up this weekend in Glasgow. Now usually these ‘mega events’ are just another excuse for another subset of the global elite to gather somewhere nice (think Davos), have a great pow wow. What comes of these talk shops is often so macro that it is hard to see whether they generate any traction at all.
So lets start there. I think COP 26 is different. What is it?
Firstly, the acronym COP has nothing to do with law enforcement. Instead, it stands for ‘Conference of the Parties’. If that wasn’t obscure enough, I’m going to throw in a few more acronyms for now. COP is the supreme body of the ‘Convention’.
So you ask, what is the ‘Convention’? The convention refers to the UNFCCC. At this stage, it is understandable to roll one’s eyes to try and figure out what the marketing team at the UN was thinking when they crafted all this lingo. So lets go further. It will make sense soon.
The UNFCCC stands for the United Nations Framework Convention on Climate Change. Ok, now we’re getting somewhere. So UNFCCC, the convention etc all basically refer to a grouping of 196 countries who have all ratified the UN’s framework on how to deal with climate change.
What does that mean practically? It means that as members of the UN subject to this convention, member countries will participate in activities to actively address climate change and environmental degradation. As the supreme body of the convention, COP implicitly ‘polices’ member states commitment to addressing climate change through intergovernmental processes. Wow that’s a mouthful.
This COP’s been around the block
COP is not new. In fact, the first COP summit was held in 1995 in Berlin and one is held each year unless members agree otherwise. From time to time, a particular summit takes the headlines in that some operational breakthrough is made in terms of policy and movement on climate action.
The big name summits of the years have been Kyoto (1997-COP3)which yielded the Kyoto Protocol. This was one of the first attempts to craft a policy to limit greenhouse gas emissions. One of the notable failures of Kyoto was the failure to get the US to agree.
Fast forward to Durban (2011-COP17) mainly because it was in my home country at the time. At COP 17, attendees agreed to have a legal framework by 2015.
The next ‘big name’ event was Paris (COP 21 – 2015). This was notable in that it yielded the Paris Accord in which called for a balance between adaptation and mitigation. It also brought the role of climate finance to the fore. The issues were that it was deemed as not binding enough. It also didn’t help that immediately following the Paris COP, we has a US administration which actively backtracked on its commitments, setting the agenda back materially over the subsequent years.
Interestingly, in this fray, China rose to the fore in positioning itself as a global champion of the environment. We wont go into the optics vs. the realities of this.
And in this context, we now have the UK pushing to make Glasgow – COP 26 the next ‘name’ event.
Is COP 26 different and why does it matter?
The UK is keen to get a big signature deal across the line. The sense of urgency is palpable. The effects of climate change have been more severe in the last few years and evidenced by large scale natural disasters in both the emerging and developed world.
So no fault in the fact that climate change is URGENT and needs to be addressed. That said, the conference should also be viewed with a skeptics lens in that not all attendees may be as altruistic. Large banks will attend salivating at the prospect of fees and advisory revenues for green finance. Asset managers will be rubbing their hands at the prospect of showcasing their capabilities in stewarding the capital of the masses toward a more responsible investment framework.
Yes, all these may have good outcomes, but lets not ignore the fact that money and power are drivers of the narrative and how things align. With the Biden administration now championing the US’s participation on climate change issues, it is a little disappointing to see that President Xi from China may not be attending COP26… The world needs all hands on deck and all at the same time.
So let’s get our hands dirty
Countries are setting aggressive targets to achieve emissions targets. What’s on the agenda?
No doubt, the emphasis on climate finance will revolve around the obligations of wealthier and developed countries toward the emerging markets. There is distinct merit in this in that EM’s cannot be expected to bear the brunt of a transition along with attendant costs after the developed world contributed so materially to cumulative carbon over the decades.
There are also issues around carbon border taxes and access to markets. This has long term ramifications and, in a world, already beset by supply chain bottlenecks and rising de-globalization trends, will present a further challenges to emerging markets and export orientate economies.
There are the issues around how carbon is priced regionally and globally and whether this is appropriate. Fiscally constrained sovereigns have been slower on implementing carbon taxes as they grapple with low growth. But in the context of the above, the decision to price and tax carbon appropriately may be made for them.
Decisions at COP 26 will impact trade agreements, taxes and the flow of finance. This will have a material bearing on companies and countries alike. The scope of this is well beyond the scope of this particular blog post but if you want to know more, feel free to reach out for a consult.
Lastly, countries like South Africa are beset with a plethora of challenges such as an energy deficit, carbon intensity and fiscal shackles. South Africa has a large vested interest in COP 26 succeeding and in positioning itself as the beneficiary for concessional finance. But like its larger counterparts, the US and China, South Africa will need to ‘show up’ at the party.
Do as I say not as I do
There is plenty of finger pointing in the global climate stakes. That said, SA is usually really good at large delegations at these events. However, participation is different from commitment.
In committing to climate action, SA will also need to commit to an implementation plan, governance framework and ACTUAL delivery on what it sets out to do. These issues, ironically hinge more on structural reform than climate.
International capital is becoming increasingly discerning. In the conventional space, SA’s track record has not been stellar. As such, I would argue that the diplomats work will be cut out for them in convincing them that ‘this time is different’. If they can pull this off, arguably, the whole planet may be better off for it.
Climate change is topical . Check out this Magic Markets podcast , ‘Heroes and Net Zeroes’ where we interview Kate MacKenzie. Kate is the contributing Green Columnist at Bloomberg.
These blog posts are commentary. There is ALOT more beneath the surface.
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