The Climake Newsletter #17: What happened at COP26
Global, Indian, and climate finance implications of COP26 + Introducing Climake
The Climate Finance Initiative is becoming Climake. The newsletter offers quick digests and insights around what is happening in climate action, with a specific focus on climate finance. While our work is India-centric, we capture a global perspective of climate finance in this newsletter on a fortnightly basis; a nod to the global nature of challenges and opportunities around climate change.
Alok Sharma’s impassioned pleas. Greta Thunberg rousing a protest crowd making “blah, blah, blah” the phrase of the Summit. The Tuvaluan Foreign Minister giving a press conference in the sea. But nothing seemed to quite bring the urgency to get our act together on climate change, as the sculptures of a penguin hanging from a noose and 3 polar bears in a life vest standing over a shrinking ice float, in Tuvalu’s booth at the COP26 exhibition. It leaves little to the imagination.
COP26 has not met that urgency as we needed. It falls short of really hitting the mark wanted, but there are progressive pledges and stances to build on.
We take a look at this, by looking at what the developments of COP26 mean overall for the world, its implications for India, and how climate finance may fare from it.
November 17th is the 1 year and 1 day anniversary of when we started this newsletter, and it is quite fitting that we have something new to announce on the day.
In parallel to running the Climate Finance Initiative newsletter, we (Simmi and Shravan and collaborators we have worked with) have spent the past year exploring different ways to support early-stage climate tech startups:
asset financing in edge sectors through Greenfunder - which has enabled USD 30 million of non-dilutive capital to finance startups;
alternative financing structures for impact enterprises through the Frontiers Labs Asia Program;
market access programs of the Circular Impact Market Accelerator;
and, of course, the knowledge sharing newsletters and reports of the Climate Finance Initiative.
We have pooled these experiments (the parts that worked) into a more refined and scale-focused approach as one consolidated structure, Climake: a platform for climate tech startups to access markets and access equity and asset finance.
Climake is a platform to support early-stage climate tech startups through interventions around extended strategic support, asset financing, equity connects, market access support, and thought leadership.
Our second news development is that Simmi is joining Unitus Capital to head their debt advisory and climate practice. The lack of climate tech funding in India is significantly spoken about, and having a person of the calibre of Simmi in this prominent role within such an exciting organization is great news for impact and climate startups out there to make a difference. Definitely watch this space.
If you are interested or curious about what are doing, just drop us a line any time. We are always happy for a chat.
What happened in Glasgow, doesn’t stay in Glasgow
We have a newly-finished COP, a new global climate agreement, and pledges and commitments from countries for a push against climate change and reducing global warming temperatures.
The consensus is that progress was made, but not enough; 1.5°C is still alive but we should have done more. We scribbled down our list of notable commitments from COP26:
Over 100 countries will aim to end deforestation by 2030 - an area constituting 86% of the world’s forests.
More than a 100 countries signed on to the Global Methane Pledge to reduce methane emissions 30% by 2030.
India is going net-zero by 2070.
US and China’s bilateral commit to work together on climate action by increasing the use of renewable energy, developing regulatory frameworks, and deploying technologies such as carbon capture.
A commitment to set up a mechanism to help countries already suffering loss and damage due to climate change to be compensated for adapting to its effects.
Over thirty countries, dozens of states and cities, and several automotive companies agreed to work to guarantee that new cars and vans sold are zero-emission by 2035 in leading markets and 2040 globally.
An agreement on Article 6 of the Paris Agreement, towards making voluntary carbon markets more lucrative to potentially support the adoption of more emission reduction solutions.
The commitment by developed countries to double the amount of support to developing countries by 2025.
Tame stances to phase out or reduce coal and fossil fuel dependence. Almost none of the major countries involved in use or production of fossil fuels have signed on to the commitment to phase out coal, stop public financing for most fossil fuel projects by the end of 2022, or joined the alliance that aims to halt new drilling for oil and gas.
450 banks, insurers, pension funds, and other firms that collectively manage $130 trillion have committed to use their funds to reach net-zero emissions by 2050
So where does this all lead us? Still quite far behind what we need.
Net-Zero and the 2030 Credibility Gap
Post the COP26 pledges we are still 15.3 gigatonnes short of the reductions we actually need by 2030. Instead of the 1.5oC trajectory, we are on course for limiting warming to 2.1oC, if (and a big if at that) all the COP26 pledges are met.
15.3 gigatonnes in GHG reductions is about 140% more than the reductions that the COP26 pledges will achieve. The lack of credible action over the next 10 years, by 2030, is one of the most pressing issues that need fixing.
Almost 140 countries have pledged net-zero targets by the mid-century, but a lot of their existing policies and commitments have a serious disconnect in meeting it. Concrete plans are needed over the next 9 years till 2030 to achieve the larger target of limiting warming to 1.5 or 2 degrees. However, only 6% of countries have enacted policies that align their Paris Agreement targets and their net-zero commitments.
The 2020s are critical in setting a foundational groundwork to get to long-term impact. Any low-carbon or zero-carbon innovations take time to achieve their full potential, gives us even less time for countries to take actions in line.
The Nationally Determined Contributions (NDCs) of countries are going to have to align their Paris Agreement targets with their larger net-zero aims. There have been calls for a more frequent update to the NDCs from the current 5-year cycle, but without such a demand there will be a lot more scrutiny of how actual progress matches the NDCs of companies, and for countries to adopt more stringent and progressive targets in their NDCs.
The IPCC estimates that we need to reduce annual GHG emissions by 45%, from 2010 levels, to 26.6 billion tons of CO2 by 2030. Before the COP26 pledges, the Pact noted that rather than reducing emissions, we were on course for 2030 GHG emissions to increase by 13.7% from 2010. COP26 might have made a dent in that but there is a long way to go.
A last point is on this whole process of developing a non-binding document to get everyone’s act together. While memes and jokes flew around about the seemingly overblown hysteria of using “urges” and “requests” in the final document, it is heartening to note that a non-binding document like the Paris Agreement, and hopefully the Glasgow Climate Pact, actually does work. Before Paris, the projection for global temperature increase was a nightmarish 3.7°C. Pre-COP26 policies put us on a path to 2.4°C, and the COP26 pledges, if fully met, are expected to get us to 2.1°C. Climate diplomacy does actually work, but more needs to be done.
India’s Big Bang (and an end with a whimper)
India made some big announcements on opening day of COP26. For the first time ever, we agreed to set a net-zero target. However, we pushed our net zero ambitions all the way out to 2070 and there is a lot to unwind in how India will do between now and then.
Part of the net zero pathway was laid out in other announcement made by PM Modi, include a set of quite progressive aims (check out our Twitter thread detailing these out in a bit more detail):
50% of electricity from renewable sources by 2030
Non-fossil fuel energy to constitute 500GW by 2030
Reducing the total projected carbon emission 1 billion tonnes by 2030
Reducing carbon intensity by 45%
Things went downhill from there, however. From third day of COP26 onwards, India’s reluctance to make changes showed up in pretty much every negotiation. Most notably, India has stayed away from any pledge to phase out coal or stop financing of new coal projects. As the negotiators went into overtime, a key discussion point was India wanting to remove ‘phasing out of fossil fuels’ from the final pact. This is despite the country being one of the 4 beneficiaries of the Climate Investment Funds, a $2.5 billion multi-lateral commitment to transition away from coal. The other beneficiary countries are equally coal-heavy users: South Africa, Philippines, and Indonesia. These 3 countries have signed deals that will lead to a phase out of their coal plants by the 2040s, which India has not. In addition to this, India has also refused to sign the pledge on methane emission reduction and global deforestation by 2030.
We believe that India has much to do in bridging the gap from here to net zero. Even the most prominent target - renewable energy generation - is facing implementation and policy hurdles. India started COP26 with a lot of hope and promise, but as it progressed, it has not followed through as we hoped. Sooner than later, a trigger is needed for India to break its affinity with coal. Moves like the Climate Investment Funds support, and further support can only be positives to this. We are hoping that the country shows up with more concrete plans in Egypt come next November. India’s upcoming updates to its NDCs will reveal a lot.
Climate finance has a lot of gaps
Climate finance's presence in COP26 was felt throughout, with big numbers with multiple zeros being committed; reflective of the urgency that money will make the world go round to limit warming.
The biggest ticket, quite encouragingly, belonged to private climate finance, with the ex-Bank of England Governor Mark Carney's Glasgow Financial Alliance for Net Zero (GFANZ) coalition of 450 banks, insurers, pension funds, and other firms that collectively manage $130 trillion committing to use their funds to reach net-zero emissions by 2050. There are questions its tangible impact though:
the lack of near-term targets (so far);
no restrictions on curtailing investments or phasing-down on fossil fuels;
Still step 1 of mobilising a big group to come together towards this broad target is something that has to be encouraged. And it is early days from GFANZ's inception in July of this year.
Private finance's other promising development is the agreement reached for Article 6 of the Paris Agreement, on voluntary carbon markets. The agreement has the potential to offer more incentives for more expansive emission reducing solutions to be deployed to achieve a higher upside through carbon credits. But as is often the case with compromise, there are issues that still remain: the potential for double counting and greenwashing is still present, and the presence of zombie credits - existing credits of poor quality and questionable impact that are still available for trading and are expected to lead to none to little positive impact. Still progress on Article 6 strengthens activities like reforestation that often have no other incentive structure to invest into.
Public climate finance had a tougher time, being low on detail, but high on calls to act. It needs more work. Bilateral and smaller pact deals offered greater success to channelise effective public climate finance. South Africa's deal to end to coal use and financing to support its transition to cleaner forms has been hailed as a model to follow, but it is only one example with more needed.
The Pact calls for financing to developing countries to be doubled by 2025, but with little urgency to reach the already missed target of 100 billion per year by 2020 (we are at 80 billion) faster, you cannot begrudge anyone to think that this is little more than just words, and the lack of teeth to get these in line indicate this.
Even the commitment to set up a mechanism on loss and damage - critical to support countries that face greatest risk but are among the smallest contributors to tackle and adapt to climate change - is not entirely a win in as there is barely any details as to the mechanisms for how such compensation will be issued. China, India, and a host of African nations have pegged this number at USD 1.3 trillion, which led to stone-faced non-committals from developed countries, and a stalemate that we can little afford to extend, sending everyone back to the drawing board.
COP26 didn’t achieve a lot of what it set out to do. But in all the pledges, both from governments and private sector (specially financiers), we believe the hope to keep the world less than 1.5 degrees warmer is still alive. Whether a sustainable world comes to fruition is up to actual implementation of the pledges, and the progress all countries make in ratcheting up the commitments when they come to COP27 in Egypt.
Engaging with Climake
As always, if you are keen to engage or talk to us on our work plans or if you have something of your own to collaborate on, reach out to us below!
That’s it for Edition #17 of our newsletter.
As always, send all feedback, compliments and brickbats our way. And of course, we do appreciate you spreading the word about this newsletter.
We’re growing to build something collaborative with you and the more the merrier!
Simmi Sareen and Shravan Shankar