ForTheDoers Blog

The Paris goals can only be achieved through private investment

Kari Kankaanpää  ·  09 November 2021

Six years ago, after years of false starts and missed opportunities, COP21 delivered the Paris Agreement. I had the privilege of witnessing on the spot the birth of the landmark global treaty committing nearly 200 signatory nations and blocs to keeping global temperature rises to well below 2°C – and aiming for 1.5°C. Now all eyes are on Glasgow – but what can we expect to come out of COP26?

Wind power plants and highway in the city

The parties of the UNFCCC have convened during the first two weeks of November for their 26th conference to discuss the global mitigation efforts on climate change. The meeting is facing increasing expectations on climate ambition, financing, and finalising the rules of the Paris Agreement.

There has definitely been positive development since the adoption of the Paris Agreement in 2015. Before Paris, the world was heading towards a 4°C global temperature rise. Since then, countries have been increasing their commitments; by Glasgow’s COP26, the estimate was that we might reach a 2.7°C temperature rise with the existing pledges.

During COP26, the IEA released a new analysis indicating that by achieving all net-zero pledges to date (including those given in COP26) and the commitments of the Global Methane Pledge it would be possible to limit global warming to 1.8°C. Therefore, the goal of the Paris Agreement would no longer be a daydream but a real opportunity.

However, there is a big BUT: will the pledges be fully implemented on time. We also have to acknowledge that the global carbon budget is diminishing on a daily basis. The budget for 1.5°C is 2,900 gigatonnes CO2 – and out of this, 2,400 have already been exhausted. With emissions at a constant level, the budget would be expected to be depleted in less than a decade from now.

I see another big challenge as well: the focus of pledges is on long-term commitments (2050-2070), but fewer commitments have been made for the short-term (around 2030). To meet the 1.5°C target, global emissions must halve by 2030 and reach net zero by 2050; so there is urgency to reach short-term emissions reductions. Unfortunately, many countries have not indicated any milestones or intermediate targets on how to reach net zero.

So far, tightening and expanding emissions reduction targets have not shown a reversal of emissions growth; vice versa. Recent statistics indicate that global emissions are rising back to pre-pandemic record levels.

Private money is crucial for the green transition

Climate change will not be curbed at COP summits. The change is taking place in companies planning their investments, investor decisions, and consumer choices. Essential to carbon neutrality goals is that they should look credible in the eyes of companies and investors. Only then will private investments be triggered. Public money is not enough for climate action; companies will finance the majority of the green transition. In my view, this is well illustrated by the following comparison. Developed countries have promised to annually mobilise at least 100 billion USD in climate finance by 2023. This is peanuts compared to the demand: according to the IEA, globally we need 4 trillion USD in clean energy investments annually by 2030. The IEA also estimates that 75% of investments should become from the private sector and the majority of the required investments will be outside the OECD countries.

COP26 needs to speed up global carbon pricing

The private market is full of money looking for investment if there is a demand for clean solutions. Carbon pricing is crucial for mobilising these investments because it can create long-term competitive advantage for low-carbon and energy-efficient businesses. Global carbon pricing needs to be accelerated. Currently, only one quarter of global emissions is subject to some kind of a carbon price. A carbon market that is configured to the mutually agreed long-term climate targets is the best overarching policy to deliver the needed investments in mitigation.

*****

COP26 is the first real checkpoint after the adoption of the Paris Agreement. Traditionally, global climate negotiations have proceeded slowly, but we should not forget how far we have come since Paris, and how much momentum there already is towards net zero. Right now, I’m noticing exceptional hope in the air.

Countries' pledges to reach net-zero emissions
By which years have countries pledged to reach net-zero emissions? Source: World Resource Institute & Climate Action Tracker
 

 

What is Fortum expecting from COP26?

The world is looking for COP26 to keep the Paris Agreement goals within reach – to close gaps and build momentum beyond Glasgow.

We at Fortum welcome the recent new emissions reduction commitments from countries like India, Brazil, and Australia. From the point of view of Fortum’s climate targets, especially the Russian climate ambition is crucial. We welcome Russia’s long-term commitment, but short-term milestones and more concrete measures, such as emissions trading, will be needed to implement this.

We also welcome the G20 commitment ahead of COP26 to the 1.5°C degree target and hope that all countries will make progress in their climate pledges. The gap between the existing commitments and the goals of the Paris Agreement is still far too big.

We encourage COP26 to finalise the Paris Rulebook – the detailed rules that make the Paris Agreement operational. In particular, we emphasise the role of carbon pricing in the global efforts to mitigate climate change – simply because energy transition is a huge challenge and most of the investments should come from the private sector. Carbon pricing and the carbon market are the keys to mobilising these investments. Article 6 of the Paris Agreement defines the market mechanisms, but their rules are still fully pending. When finalised, Article 6 could significantly mobilise private funding.

Kari Kankaanpää

Kari Kankaanpää

Head of Public Affairs Finland
Tel: +358 50 453 2330
kari [dot] t [dot] kankaanpaa [at] fortum [dot] com

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