COP-out? Not quite, but Glasgow climate summit made little progress on crucial carbon markets

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Was the Glasgow climate summit, COP26, a success or failure?

The question will be asked millions of times as negotiations on a final text inevitably stray beyond the official early Friday evening deadline, U.K. time. While the question can be asked in binary terms, it can only be answered in shades of grey.

All United Nations Conferences of the Parties are a mixture of success and failure, though usually more of the latter. Not one has succeeded in bringing down global greenhouse gas emissions – they keep rising. But all, in their own small ways, have nudged the needle ever more slightly toward net-zero emissions by 2050 (though a few heavily polluting countries say they won’t get there until 2060 or 2070).

Glasgow will no doubt be dismissed as an overall failure by environmental groups and activists such as Greta Thunberg and Vanessa Nakate even before the final draft is banged out.

We know already that there will be no standout breakthrough at COP26, though the expectations of one were played down in recent weeks. The G20 summit in Rome on the weekend before COP26, widely seen as a warm-up act for Glasgow, effectively served as an enthusiasm buster. The climate sections of the G20 communiqué made no commitment to boost the carbon-reduction pledges countries had already made, and there was no expectation that they would magically appear in the final hours of COP26.

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Still, by Friday afternoon, there was some progress on a few important climate files, including coal, methane, forests, electric vehicles and finance. They went beyond blah, blah, blah – if only just.

Coal is the ugliest fossil fuel and generates more than a third of global electricity supplies, according to the International Energy Agency. There is no way the net-zero goals or the 2015 Paris Agreement grail of keeping global average temperatures from rising beyond 1.5 degrees above preindustrial levels can be achieved as long as coal thrives.

The midweek draft was encouraging. It called on countries to “accelerate the phasing out of coal and subsidies for fossil fuels.” The Friday draft changed the wording somewhat, calling for “the phaseout of unabated coal power and the inefficient subsidies for fossil fuels.”

“Unabated” refers to coal plants that lack the technology to capture and store carbon dioxide emissions. “Inefficient” subsidies are those that encourage wasteful consumption of coal, oil and natural gas. While all subsidies are inefficient to some degree, keeping that modifier in the text would allow countries to subsidize fossil fuels for the poor.

Some countries whose economies depend on carbon exports, among them Saudi Arabia and Russia, fear any mention of fossil fuels, suggesting that the final text might get watered down once again. If it survives largely intact, COP26 can claim a fossil fuels victory of sorts, even if no end date for the use of coal is revealed.

Also included in the Friday text were calls for countries to update their 2030 emissions reduction targets by the end of 2022 and for rich countries to double the amount of financing to help developing countries adapt to climate change. Again, progress can be declared if either makes it into the final draft without dilution.

But even if all the language remains intact for fossil fuels, finance and other climate initiatives, it will be hard to declare COP26 an overall success for the simple reason that, by Friday, no great progress, if any, was made in establishing the rules for global carbon markets. Those markets were envisaged in the Paris Agreement and have yet to come to fruition despite a big push in 2019 at COP25 in Madrid.

In essence, the markets would be governed by a carbon tax or taxes. Putting a global price on carbon would naturally discourage its use, making the net-zero commitments easier to reach. The rules would allow countries that exceed their climate targets to sell credits to underachieving ones. The system might include a carbon border tax to discourage outsourcing emissions to another country such as China, the leading manufacturing powerhouse.

“One of the critical areas on which progress is required but very little was made at COP26 is around the creation of an international carbon tax,” Leon Saunders Calvert, the head of research and portfolio management at the London Stock Exchange, said in an interview. “Once you price carbon into financial markets, and into companies’ profit and loss statements, carbon costs go from being an externality to being a direct financial material concern. That meaningfully changes the game. Business would have to make carbon decisions for the benefit of their own financial position.”

The beauty of a carbon tax is that it would ensure that fighting climate change is not merely a moral crusade, Mr. Saunders Calvert notes. If carbon reduction were to become a material obligation, it would happen faster. Spewing out carbon would simply become too expensive for countries, cities and corporations to bear. The trick is to make those markets fair – they shouldn’t penalize the poor.

While no one expected the carbon markets rulebook to be written and approved at COP26, the lack of any significant progress was a definite black mark on the entire event. Over to COP27, and maybe COP28 and COP29, to create a carbon market. It will take leadership, just as the drive to create a global minimum tax did. If the United States, the European Union and China push hard for a global carbon market, it will happen.

Eric Reguly covered the Copenhagen climate summit in 2009, Paris in 2015 and Madrid in 2019.

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