After a formal rest day ahead of the second week of negotiations, the theme of this Monday was Adaptation, Loss and Damage, with the goal of “delivering the practical solutions needed to adapt to climate impacts and address loss and damage”. Indeed while much of our attention is on the future and ways to avoid the potential catastrophic consequences of climate change from damaging the way of life for future generations, the simple reality is that for many people the damage is already here and the best that can be done is adaptation.
The UN Race to Resilience programme has launched a new framework to get cities, regions, businesses and investors to advance approaches to resiliency. A Global Resilience Index is also to be launched to improve how investors measure the resiliency of nations, corporates and their respective supply chains. The UK government also announced a new £290m funding package to improve climate resilience and adaptation measures in developing countries, while government representatives from around the world discussed how to further boost flows of climate adaptation funding, as much a key part of the “$100bn a year figure” as funding for clean energy generation or carbon reduction.
Negotiations on Article 6 continue, with parties attempting to finalise the Paris Agreement rulebook in relation to emissions trading. The carrying over of emissions reductions credits from the Kyoto Protocol period (or not) has emerged as the most contentious issue so far. If older credits were to be allowed for use under the Paris Agreement then the supply would be higher, having a negative effect on the price of new credits when traded, but if they were to be banned from the new regime then the supply would be lower and prices would be expected to be higher. Higher prices for carbon credits would likely be seen as a vote of market confidence. While developed countries have tended to support the exclusion of Kyoto Protocol activities and credits, developing countries often have taken the other side. An agreement on the Article 6 rules is an essential outcome of this COP26 in order to boost the use the international markets to finance the transition toward net zero. The voluntary carbon trading market is already growing quickly due to corporate demand as businesses seek to use carbon credits as part of their strategy to reach net-zero emissions. For reference, the CORSIA-eligible carbon credit price, launched by S&P Global Platts in January 2021, has surged from $0.8 per metric ton of C02 in January to over $7 by November of this year (a jump of over 800 per cent).
Over the weekend Andrew Williams, an asset finance partner, attended the International Chamber of Shipping’s “Shaping the Future of Shipping” conference in Glasgow. One of the main focuses of the panel was on R&D and there was broad consensus on the need for a significant increase in research funding to progress the energy transition in the maritime sector. To address this, a $5bn fund was proposed, financed by a levy of $2 per ton on marine fuel and with a target launch of 2030 (but this must first be approved by IMO member states). Interestingly the session was full of encouragement as to the availability of capital to fund the decarbonisation of shipping once the right projects are available with proven technologies behind them – this is of course a very similar conclusion to that which we have drawn in relation to other industries and technologies, perhaps most notably hydrogen. The conference preceded Wednesday’s transport day at COP26, which the firm will be represented at by Phil Roche and Christine Ezcutari.