By Ivy Yin and Ruchira Singh 

November 17, 2021 - The 26th UN Climate Change Conference or COP26 failed to achieve goals like mobilizing sufficient climate funds for developing countries or dial down projections of fossil fuel demand in emerging markets, but pledges against coal and methane, and agreements on cross-border carbon trading are being viewed as small wins in a bigger battle.

"Preliminary analysis is showing that full implementation of all of the commitments could get us to meet the 2-degree target, though 1.5 degree is still out of reach," according to Roman Kramarchuk, Head of Future Energy Analytics at S&P Global Platts.

However, some signs of success were the greater climate ambition shown by several countries, arrangements to revisit the stringency of targets every year to keep up the pressure, and the first COP pact to specifically call out action on coal, Kramarchuk said.

"COP26 will indeed see acceleration of energy transition given the more ambitious targets and the individual sectors' stated ambitions. At the same time, the high-profile announcements of addressing emissions from methane and halting deforestation do take some of the focus off solely energy combustion emissions," Kramarchuk added.

Kramarchuk said that the pipeline of new coal plants that was already in decline since the Paris Agreement will now shrink further, and a first-of-its-kind arrangement to financially assist coal-dependent South Africa with its energy transition could prove to be a model for others.

Apple Li, Director and Lead analyst for Global Infrastructure Ratings at S&P Global Ratings, said the US-China joint agreement was one of the COP26 outcomes that could deepen cooperation in climate change-related areas, and China's plan to reduce methane emissions could have implications for natural gas supply/distribution and other sectors if a more stringent national standard comes out.

In China's context, most other renewable/clean energy related development targets were largely in line with current economic plans and the government is unlikely to loosen restrictions on energy targets even if it takes down some economic growth, as seen in the current energy crisis, Li said.

"This COP will be remembered as the Methane Moment — the year this long-overlooked climate pollutant finally received the attention it requires," said Kelley Kizzier, vice president for Global Climate at Environmental Defense Fund, a US-based nonprofit environmental advocacy group that plays a key role in supporting the formulation of the Global Methane Pledge.

Coal/Gas Hard to Dismantle

On Nov. 13, India and China lobbied for a last-minute dilution of the language around the coal pledge to "phase down" instead of "phase out" of unabated coal-fired power, which underscored the difficulties in dismantling the coal-fired power system.

Matthew Boyle, manager of Global Coal and Asia Power Analytics at Platts, said the implementation of a phase down of unabated coal power and inefficient fossil fuel subsidies allows both countries to maintain their current electricity plans.

"Platts Analytics expects coal in India and China to remain the predominant form of electricity generation post 2030, and gradually decline as we move towards 2040," Boyle said.

Coal makes up 65% of China's and 71% of India's current power generation mix, official data showed, but the young age of the coal-fired power plant fleet makes decommissioning a long-drawn process.

"I don't expect the phase down to start before 2040... right now it's a situation where it is only going to go up," Partha Bhattacharyya, the former chairman of Coal India Ltd., the country's largest miner, said with reference to India.

"While it [COP26] is definitely a step in the right direction, there still needs to be greater concerted effort amongst stakeholders to mobilize clean technologies, public and private funding and expertise to encourage large carbon emitters, especially developing nations, to deliver on sustainable economic development," Sandy Gwee, Principal Consultant at Nomura Research Institute, said.

She said the growth trajectory of coal is not likely to slow down in the near and medium term due to growing demand for power, as was evident in the objections by India and China.

"We do not see any material change on the oil and gas demand and supply dynamics for the next 10 years. For energy transition, fossil fuel subsidies will remain a key challenge," Gwee said. She added that affordability and infrastructure are key constraints despite COP26 commitments to decarbonize transport and the phasing out of petrol and diesel engines.

Article 6 is the First Step

Gwee said "the deal on Article 6 will likely pave the way for the maturing of carbon marketplaces globally, as emissions trading credits begin to enter the phase of global trading which builds confidence and generates financial interest to fund green projects from both the public and private sectors."

"In a separate centralized system for issuing offsets, 5% of proceeds from offsets will be used to support developing countries in adapting to climate change. Another 2% of the offset credits will be canceled, aiming to increase overall emissions cuts by stopping other countries using those credits as offsets to reach their climate targets," she explained.

"This will offer a viable route, particularly for developing nations, to balance sustainability goals with economic growth, which will be critical in the long term," she said, adding that Southeast Asia holds untapped potential for the implementation of nature-based solutions.

"A clear roadmap towards Article 6 is an exciting outcome of COP 26," Chen Zhibin, Director of Finance and International Business with China's think tank SinoCarbon, said. "We can feel the time has already changed," he emphasized.

EDF's Kizzier said the agreed Article 6 rules "while not perfect, give countries the tools they need for environmental integrity to avoid double counting and ultimately clear a path to get private capital flowing to developing countries."