What next for the energy transition after COP26?

What has been agreed?

One of the most significant areas of discussion at COP26 concerned the extent to which, and how quickly, the world should commit to switching away from coal and other fossil fuels as the source of energy and replace them with low carbon technologies.

Efforts to obtain consensus to end fossil fuel subsidies and phase out coal failed, but parties agreed that the drive to bolster clean power generation and energy efficiency measures should involve “the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies”.

Also agreed in the Pact were new rules on how carbon offset schemes will operate. Under these rules, countries will have to decide whether emissions reductions can be exported or will count towards their own ‘nationally determined contribution’ targets for reducing carbon emissions. 

The Pact further contains fresh commitments in relation to climate finance, includes provisions aimed at cutting methane and preserving natural environments, and stresses the need for countries to develop adaptation plans.

Other significant commitments were made outside the umbrella of the Pact.

For example, the Beyond Oil and Gas Alliance (BOGA)was formed. Ireland, France, Denmark and Costa Rica are among the BOGA members. Countries that join the alliance must commit to limiting oil and gas production and extraction and plan for a just, equitable, and managed phase out of existing oil and gas production. Ultimately, the countries will also set an end date for national oil and gas exploration and extraction.

In the UK, much of the oil and gas reserves sit in Scottish territory, so it was significant that Scotland’s first minister, Nicola Sturgeon, said Scotland is considering joining BOGA alongside founding member Wales. The impact of such a move on any future North Sea development would be profound for the UK oil and gas industry.

At this stage, while the formation of BOGA signals a step change, its global impact seems relatively limited. The initiative does, though, chime with the transition we have already seen from some major global energy producers. DONG, for example, transformed from having a business model focussed on fossil fuels to one which, now as Ørsted, is recognised as “the world’s most sustainable energy company and a global leader in the transition to green energy”.

The drive to reverse deforestation and land degradation also took a step forward at COP26. More than 30 financial institutions pledged to “use best efforts” to eliminate investment and lending in activities linked to deforestation by 2025. A coalition of leaders representing more than 90% of the world’s forests also committed to “halt and reverse forest loss and land degradation by 2030”. That commitment is underpinned by a further pledge, made by 11 countries and the European Commission on behalf of the EU, to provide $12 billion for forest-related climate finance between 2021 and 2025.

Another significant development was the signing of a new declaration on zero-emission cars and vans by more than 100 national governments, cities, states and major car companies. Signatories have committed to end the sale of internal combustion engines by 2035 in leading markets, and by 2040 worldwide. A number of countries also committed to end the sale of fossil fuel-powered heavy-duty vehicles by 2040.

Some major car manufacturing economies have not signed the pledge, including Germany, China, Japan and the US. However, the declaration is nonetheless impactful and will further stimulate the need for electric vehicle charging infrastructure to be installed to support the step-up in e-mobility.

The energy transition, mobility and our view on what’s next

The conclusions on COP26 from the perspective of the advancement of cleantech and renewable energy have been mixed, Alok Sharma himself suggesting it was a “fragile win” and US climate envoy John Kerry suggesting that, “Paris built the arena, Glasgow starts the race”. What Glasgow does demonstrate is that politically, climate change represents a fine balancing act between economic advancement in emerging economies and the timetable for delivering the energy transition in those economies which are more advanced.

It is positive that governments of advanced economies recognise that they have an obligation to help less developed countries if we are to achieve ‘net zero’ in mobility and other elements of the energy transition. This is a very significant point, as Covid-19 shone a light on the importance of advanced economies helping poorer economies with vaccinations – without global vaccination, no economy can survive, let alone grow. Global commitments around climate change perhaps need to be seen in a similar way, with economies which have benefitted from using hydrocarbons for decades leading the energy transition conversation and action; but politics always inevitably requires a need for compromise. 

Positively, major global original equipment manufacturers (OEMs) headquartered in India, China and the US have committed at Glasgow to “work towards reaching 100% zero emission new car and van sales in leading markets by 2035”. Though this does not represent a binding commitment, it was further than their respective governments were prepared to go.

Vital to the transition to electrification is confidence – confidence to make change. OEMs can always commit to bringing more electric vehicles onto global markets, but without credible charging infrastructure, consumers will not have the confidence to change. And without widespread use of renewable power generation, consumers will not be confident that switching to electric vehicles helps the decarbonisation agenda. Consumers need to have more confidence in their ability to charge and that doing so is sustainable. This is one example of a conversation which needs to come out from Glasgow, to start the race and indeed start the change. 

So much has been done already across the globe to change consumer confidence in electric vehicle charging, but more needs to be done. Europe has a significant role to play on the global stage to help reduce emissions by giving confidence to consumers to make the switch and to help growing economies by-pass the investment in hydrocarbon mobility and go straight to electric and hydrogen where possible.   

Perhaps it was going too far to expect too much from Glasgow, given that all world economies are still trying to recover from the impact of a global pandemic, with many industries, such as automotive, still seeing reduced demand and supply chain shortages. Conversely, however, Covid-19 did also show the world that rapid change in behaviours can bring positive impacts in our oceans, air-quality and global warming.

There is therefore an argument that the pandemic should that have been the catalyst for more far reaching and ambitious targets being set, but then the difficulty with any race in an arena is that in most instances the runners end up back to where they started – with climate change this is something we can all ill afford to let happen. Governments in advanced economies have an essential role to play in creating the platform for energy transition. Once this solid base is achieved in the case of mobility, consumer demand and purchasing power will do the rest.

Co-written by Helen Gray and John Yeap of Pinsent Masons.