1.5 alive, but barely breathing – Thoughts on Week 2 of COP26

Friday 6 pm arrived and instead of a deal that delivered an orderly phase-out of coal, a clear goal of limiting global warming to 1.5 degrees, and a unanimous collective step towards a green future…there was nothing. That is to say that the COP reached its official end time and talks were still on, and, at the time of writing—late night Friday—and they still are.

While this is not the conclusion that one had hoped for, it is extremely critical for banks and private finance providers to understand what these obstacles are, and why they are in this fight against climate change.

The ongoing use of coal is a definite sticking point, interestingly, the compromise seems to be about changing the wording in the text from ‘phasing out coal’ to ‘phasing out unabated coal’. This means that, for coal plants to avoid being in the crosshairs of extinction, they would have to deploy carbon capture technology at the source. If this remains the language, it is a big step forward and has implications for relative production costs of coal versus renewables. Coupled with the intent of many countries to phase coal out completely, this is a clear signal to private finance about where subsidies and regulations will be targeted.

On the back of these coal discussions, oil is moving up the agenda, with an alliance being formed where countries commit to setting a date for ending its use. This could be seen as simply planning to plan, but it is again, a strong directional indicator in COP-speak. Reversing deforestation and cutting down methane emissions were significant achievements and will have a substantial impact on land use and agriculture

The Following Big Obstacles Remain:


The revised Friday text includes a doubling of annual funding from the developed to the developing world. This is contentious because of the failure of the original commitment, and because of how it can be interpreted – loans vs. grants being a significant concern to smaller nations.

Annual Targets Reset

It is generally accepted that all pledges made so far would see the final warming limited to around 2.2 degrees (there are small variances in the estimates). This is a significant improvement from 2.7 degrees, which was the target based on Paris pledges. It is still too high, however, and these targets need to ratchet up through the 2020s if the 2030 target is to be met, and the significantly safer target of 1.5 degrees is to be achieved. Five-year gaps between resets will not reach the goal. Holding annual meetings to make adjustments would send a strong market signal that green investment will only become safer, while brown investment has small and decreasing prospects.

1.5 Degrees

The inclusion of 1.5 degrees in the joint announcement by China and the US seriously bolsters the COP ambition of ‘keeping 1.5 alive’, and it is indeed alive. The much-discussed issue is that we are already at 1.1, and therefore, there is virtually no room for errors. It is, though, another powerful market signal that what needs to be done, will be somehow undertaken.

The second week has seen ongoing protests, but also had a decidedly upbeat start with Barack Obama and John Kerry showing real optimism that the world’s leaders were ready to act. The last-minute haggling was expected, and the expansive ambition of the UK presidency was always a stretch. Taken as a signpost to private finance, the second week and the summit as a whole can be viewed as a success.

It is unclear whether banks will be financing an orderly decade of change, or a disorderly flood of regulation after 2025, but it does appear that change will happen. We had mixed results from COP26. But it has certainly been a delight to be in Glasgow to witness this.

Sunday Addendum – A Deal is Reached

After working through much of the weekend, the COP26 agreement has been signed and as expected, there were last-minute adjustments to the wording.

The most significant was the change to ‘phasing down’ coal from ‘phasing out’. With Barack Obama’s imperfect compromises, and John Kerry’s market markers in mind, this does give fossil fuels more time. But, it also sends a strong signal to capital providers and markets as to where opportunities lie—renewables—and where risks have increased—fossil fuels.

The biggest win may be the review and resetting of targets annually. This makes it likely that a curve of successive and increasingly impactful changes over the decade can be enacted. Given an exponential difference in the global impact between the current projection of 2.2 degrees of warming and the target of 1.5 degrees, the annual resets could become the critical point of COP26.

Signing off, best regards from Glasgow…