COP27: Can't Fix Tomorrow With Yesterday's Tools

Key Takeaways

• The key thing that came out of COP26 was the Glasgow Climate Pact, where we were expecting everyone to revise and strengthen those national contributions.
• Eighty countries and about 1,400 companies in the world now have net-zero commitments.
• The U.S. Inflation Reduction Act, which stands to potentially unlock somewhere around $350 billion to $400 billion, is the biggest clean energy investment in U.S. history.
• The United Kingdom has a 78% reduction target in carbon emissions by 2035, but the plans don't match that much vaunted and laudable ambition and aspiration.

Ollie Smith: As the eyes of the world turn to COP27 in Sharm el-Sheikh, I'm here to ask long-standing climate writer and presenter Ed Gillespie about his hopes and fears for the conference.

Ed, thanks so much for joining me. In your view, what progress, if any, have major Western nations made since COP26 last year?

Ed Gillespie: It's a good question. I mean, I think COPs always leave us reeling a little bit. We have this great debate about whether it was a good COP or a bad COP, and then, everyone is desperate to pin a narrative on the outcomes, whether it's optimistic and hopeful or it's a whole bunch of blah blah blah, and usually, there's everything in between those two, sort of, binary positions. I think most of us were a little bit concerned when the Wombles were the mascot for COP26, not least because Uncle Bulgaria wasn't exactly up for a systemic change, which is what the challenge is really about.

I think, the key thing that came out of COP26 was the Glasgow Climate Pact, where we were expecting everyone to revise and strengthen those national contributions. Because clearly, we were on a pathway to somewhere between 2.5 and 3.0 degrees. And that revealed this, sort of, 20 gigaton of climate action gap that we still have by the end of the decade, which is roughly about cutting our emissions by about 50% in the next eight years. Now, countries are supposed to have gone back and revised those national contributions. Not many of them have. So, we will see what is revealed in Sharm el-Sheikh.

Some of the other good things: Australia is back from the climate outback. After the Morrison administration we had the Teal Party, a very climate-focused kingmaker in the new government. We've got about 295 gigawatts of green-generating capacity globally now, although the caveat to that is like most of that is still additional. It doesn't displace any fossil fuels out of the mix. So, whilst we're growing renewables really fast because our global energy appetite and demand continues to grow at the same time, we've got to not just do the good stuff, we got to stop doing the bad stuff.

If I get into my Austin Powers' Dr. Evil moments, there's supposed to be this long, vaunted goal of $100 billion, which is supposed to be going to the developing countries for their climate action. We still don't seem to be able to reach that. I think we're still $10 billion or $20 billion short of that. But on the positive front, we should recognize the fact that we've got 80 countries and about 1,400 companies, 780 of which are about a third of which are from the 2,000 biggest publicly listed businesses in the world who have now got net-zero commitments, although they are by midcentury and the devil is in the detail. And from my own work with people who work in internal audit in these large organizations, they're going, "Well, we're not quite sure how we're supposed to be measuring this and tracking the progress against these net-zero targets." But at least the targets are there.

We've got GFANZ, the only fans of climate finance, the Glasgow Financial Alliance for Net Zero, which has to be said from the financial perspective is backtracking a little bit. Some funds are now saying that the criteria are too stringent and they're identifying certain legal risks. And of course, there are political challenges, which I'm sure we will come onto. And I guess, the last couple of things: The Global Methane Pledge was really crucial in terms of getting about half of the world's methane emissions are now signed up via signatory countries. And that's really important, because in the short term, in the window of change, methane is 86 times more potent as a greenhouse gas over the next 20-year period. So, getting that under control is massive. And clearly, we're all breathing, hopefully, a very, very marginal sigh of relief that Lula seems to have been successful just in the Bolsonaro election in Brazil, which might help to readdress and halt the deforestation that had been massively accelerating under that regime. So, to your question, it's the usual mixed bag. We've got some bits of hope, a lot of kind of blunt and brutal pragmatism, but not enough and not fast enough.

Smith: I'm going to focus on Biden for a second. What do you think is harder for Biden? Convincing Westernized nations to unite on climate change, or perhaps negotiating with the more emerging markets and arguably the more hostile states? And I ask that because you've seen this year, in particular, a lot of the hostility to kind of climate investing and ESG has actually come from within the United States itself.

Gillespie: Again, on the plus side, you've got the U.S. Inflation Reduction Act, which stands to potentially unlock somewhere around $350 billion to $400 billion. It's the biggest clean energy investment in U.S. history. So, that's great. But I think you're right to identify this sort of culture war, enemy within. That is the real concern. So, there's all sorts of challenges for the U.S. administration because many states are now using their political muscle to try and challenge any kind of integration of ESG criteria into state-run pension funds and these types of institutions. That's a real concern. And then, looking outward, as John Kerry has repeatedly said, we need China. We can't do this alone. And that's obviously become much more difficult because of some of the issues rattling around in terms of geopolitics.

I mean, ultimately, this is the end of the age of carbon. What we're trying to manage here is a shift of a finite commodity-based system, which is dependent on continuous material flows, which involves burning stuff, a low efficiency with horrendous negative externalities and a declining energy return on investment, the sources of which come from a limited number of countries that concentrate power and basically benefits oligarchs and authoritarian regimes. Now, that's what we're trying to move away from. What we're trying to move towards is this age of renewables where we have a pretty much infinite technology-based system of ubiquitous abundance based on high-efficiency electrons with a much lower impact on nature, a rising energy return on investment that distributes power and removes super profits. Now, that's the kind of battle, which is unfolding here, and it doesn't take much imagination to realize that that is only going to go away. The question is can we make it happen faster.

Smith: That's really, really interesting. So, on the U.K. then, we've heard today that there is a confirmed U-turn on the part of the prime minister who will now attend COP27. But at one point, it looked very much as though the king cared more about attending COP27 than the prime minister did. So, could you just give me your assessment of where the U.K. is at?

Gillespie: It's always interesting when you get this kind of monarchical, political disconnect. I mean, Charles is obviously wanting to kind of position himself as the Green King, and I think it was very difficult with the previous administration, a very short-lived administration for him to sort of step into that space. I think Sunak has been somewhat bounced into going to COP. I don't think this was necessarily his active choice. And the late head of the UN, Kofi Annan, always said, every politician knows what they need to do on climate. They just don't know how to get re-elected after they've done it.

And I think what we're facing, certainly in the U.K., is still this massive chronic failure of political leadership and creative imagination. It ain't going to be just a techno fix. The Committee on Climate Change here has already identified that about 60% of our emissions reductions depend on some kind of behavioral change or societal shift. And so, there's this huge potential of what we could really do together. And as I said, with that age of carbon/age of renewables tension, we're in the middle of a technology cost revolution where the prices of these renewables are plummeting. The cost of wind and solar is just dropping all the time, which makes additional drilling and fracking in the U.K. look bonkers and will have no influence on your energy bills at all and actually lock us into more fossil fuel futures.

But what's really driving, I think, hopefully, some of the pressure now is the legal case. The U.K. has a 78% reduction target in carbon emissions by 2035, but the plans don't match that much vaunted and laudable ambition and aspiration. And the law firm ClientEarth has successfully challenged that strategy legally in the High Court and said, the government's strategy is basically unlawful. And actually, the government didn't even bother appealing that. They kind of accept the fact that the plans don't meet the aspiration. So, we've got this potential, and I do really think that this is where long-term stability and freedom begin to come from. And I just want to hold my head in my hands like David Lammy did on Question Time the other night when Julia Hartley-Brewer said it's just weather. The fact that we've still got people saying that worries me in terms of the culture war. Because Pakistan went from a 50-degree heat dome to a third of the country underwater, displacing and affecting tens of millions of people. We've had 40-plus degree temperatures here this summer. We need to take these dinosaurs out of the discussion.

Smith: So, Ed, apart from the obvious march of time and the ever-heightening pressure to get this stuff right, what makes COP27 different to COP26, in your view?

Gillespie: It's the geopolitics which has really shifted since COP26, unfortunately. We touched briefly on the tensions between the U.S. and China in regard to Taiwan, but obviously, Ukraine and Russia dominate all of this, and this Russia effect has had us reopening and prolonging the life of coal plants, there's been a surge in gas deliveries, and it's a really mixed bag of responses. We're trying to reduce energy consumption and ramp up renewables but also extending and expanding some of that fossil fuel infrastructure, particularly around liquid natural gas in the short term. And perversely, we're still subsidizing fossil fuels more in 2021 than we did in 2020. This is before the geopolitics got messy. So, I still feel that yesterday's finance is still failing to fund tomorrow's future, and that is the key thing that has to be focused on at COP27.

Smith: A fantastic headline. A great summary. Thank you very much, Ed. For more on climate change and the climate crisis, check out Morningstar.co.uk or indeed, any of our editorial websites internationally. Until next time, I've been Ollie Smith for Morningstar.