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4 Things Businesses Need to Know About COP26

The Paris Agreement approved by the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change ("UNFCCC") aims to (i) hold the increase in the global average temperature to well below 2 °C above pre-industrial levels and (ii) pursue efforts to limit the temperature increase to 1.5 °C above pre industrial levels.  

In order to achieve these goals, the nearly 200 nations that signed the Paris Agreement agreed to a framework for promoting policies and environmental actions focused on achieving a balance between anthropogenic emissions by sources and removals by sinks of greenhouse gases in the second half of this century. This objective of balance is often referred to as "net zero" greenhouse gas emissions and will be one of the main challenges that delegations representing the Parties to the Paris Agreement take up next week.  

Tackling that challenge, from October 31, 2021 until November 12, 2021, global leaders will gather in Glasgow, UK, for the 26th meeting of the Conference of the Parties to the UNFCCC ("COP26").1  

We have identified four key points that businesses should be aware of ahead of the COP26 negotiations. 

 

First: Nationally Determined Contributions 

Nations that signed the Paris Agreement agreed to prepare, communicate and maintain Nationally Determined Contributions ("NDCs"). The NDCs are how each country decides what its contributions will be towards fulfilling the Paris Agreement’s goals, including the temperature targets.2

Under the terms of the Paris Agreement, Parties are supposed to communicate updates to their NDCs every five years.3 The United States has recently updated its NDC, setting the target of reducing its net greenhouse gas emissions by 50%-52% below 2005 levels in 2030.4 The EU and its Member States, acting jointly, have committed themselves to a net reduction of at least 55% by 2030 compared to 1990.5 Many Parties have not announced updated NDCs since 2015.

Given that the NDCs are the bedrock of the Paris Agreement, agreeing on enhanced NDCs is expected to be one of the more debated and closely watched topics at COP26, including when and for which timeframe the new NDCs should be adopted. During the World Leaders Summit, when about 120 government leaders will speak at the start of COP26, we will likely see announcements from heads of state on updated NDCs and how countries plan to strengthen their commitments.  

 

Second: Paris Agreement Article 6

To ensure the operationalization of climate action, Article 6 of the Paris Agreement aims to incentivize international cooperation in implementing NDCs through various proposed mechanisms. One proposal concerns greenhouse gas emissions reduction or offset credit trading, a model allowing countries that are Parties to the Paris Agreement to sell unused emission reduction or offset units. Another proposal focuses on an international greenhouse gas emissions reduction or offset credit market, where private and public sector parties can trade credits.  

Article 6 is the only article in the Paris Agreement for which the Parties have not yet established rules, due to the complexity of its ambition. A key goal of the COP26 is finding a solution for Article 6. New rules will likely have more of an impact on countries that intend to use markets to satisfy their NDCs, and on businesses operating in those countries. Key issues that are likely to arise are accounting, certification of emissions reduction, and whether credits associated with the Kyoto Protocol market mechanism can be used under Parties Agreement Article 6. 

 

Third: Finance

At the COP15, held in Copenhagen in 2009, developed country Parties pledged to provide developing countries with $100 billion in climate finance per year by 2020.6  The latest studies indicate this target will likely have been missed with climate funding by developed countries reaching about $80 billion in 2019.7 The United Nations has described climate finance for both mitigation and adaption to climate change as a key pillar to achieving the goals of the Paris Agreement,8 and promoting an ambitious climate finance policy is one of the main goals of the UK presidency of COP26.9

In the run up to COP26, the European Commission announced it is increasing its climate finance by EUR 4 billion until 2027, up from the existing $25 billion yearly contribution by the EU and its Member States.10 President Biden also announced that the US is doubling its financing to help developing nations tackle the climate crisis, and that with the help of increased private capital, the goal of mobilizing $100 billion to support climate action in developing nations will be met.11 Even with increases in financing by developed countries on the horizon, negotiation points at COP26 will include how the financing must be done in practice; for example, whether it should be loan-based or in the form of grants, with the latter preferred by developing countries. There will also be debates over how to increase funding for climate change adaptation in the developing world, which currently receives less funding than climate change mitigation efforts.

 

Fourth: Accountability and dispute resolution

Since its adoption, the Paris Agreement has influenced climate change litigation in ways that cannot go unnoticed by negotiators. Climate actions have been filed not only against states but also against companies. In a series of landmark decisions, both states and companies were ordered to reduce emissions and comply with targets set out in the Paris Agreement. The Dutch Supreme Court’s 2019 Urgenda v. the Netherlands decision referred to the Paris Agreement in ordering the Dutch State to reduce its greenhouse gas emissions by 25% by 2020 compared to 1990 levels. That ruling was followed by courts in Belgium and Germany finding that governments in those countries had not met their obligations to implement robust climate change mitigation policies. In a recent landmark decision, the Hague District Court ordered Shell to reduce its carbon dioxide emissions from its business operations and sold energy-carrying products by at least net 45% at the end of 2030, relative to 2019 levels.

While the Paris Agreement did not provide a binding legal requirement in these cases, it provided the factual backdrop for judicial action and, in some cases, informed the duty of care of states and companies from which basis the courts calculated its decisions. These rulings not only put pressure on both states and companies to set emissions targets, they are also expected to accelerate negotiations during the upcoming COP26.  

Dispute resolution under the Paris Agreement is not likely to be a topic of debate. While Article 24 of the Paris Agreement sets the stage for negotiation and resolution of climate disputes, only a few states have made declarations to submit disputes to the International Court of Justice or arbitration.
 

1 The Conference of the Parties serving as the Meeting of the Parties to the Paris Agreement, which is the decision making body that oversees the Paris Agreement, will also be meeting in Glasgow.
2 UNFCCC, "Nationally Determined Contributions (NDCs)," available at: https://unfccc.int/process-and-meetings/the-paris-agreement/nationally-determined-contributions-ndcs/nationally-determined-contributions-ndcs
3 Article 4(9) of the Paris Agreement.
4 United States of America, "Reducing Greenhouse Gases in the United States: A 2030 Emissions Target," April 2021, available at: https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/United%20States%20of%20America%20First/United%20States%20NDC%20April%2021%202021%20Final.pdf. 
5 European Union, "Update of the NDC of the European Union and its Member States," December 17, 2020, available at: https://www4.unfccc.int/sites/ndcstaging/PublishedDocuments/European%20Union%20First/EU_NDC_Submission_December%202020.pdf. -
6 UNFCCC, "Roadmap to US$100 Billion," available at: https://unfccc.int/sites/default/files/resource/climate-finance-roadmap-to-us100-billion.pdf. h-2019-data-03590fb7-en.htm?
7 Elena Ares, Philip Loft, "COP26: Delivering on $100 billion climate finance," 12 October 2021, available at: https://commonslibrary.parliament.uk/cop26-dEuropean eliverinon-100-billion-climate-finance/; OECD, "Climate Finance Provided and Mobilised by Developed Countries: Aggregate Trends Updated with 2019 Data," 17 September 2021, available at: https://www.oecd.org/env/climate-finance-provided-and-mobilised-by-developed-countries-aggregate-trends-updated-witments/European%20Union%20First/EU_NDC_Submission_December%202020.pdf.
8 UNFCCC, "UN Climate Chief Urges Countries to Deliver on USD 100 Billion Pledge," 7 June 2021, available at: https://unfccc.int/news/un-climate-chief-urges-countries-to-deliver-on-usd-100-billion-pledge
9 UKCOP26, "COP26 Goals," available at:  https://ukcop26.org/cop26-goals/
10 European Commission, Press, "Opening address by President von der Leyen at the EU Sustainable Investment Summit via videoconference", 7 October 2021, available at: https://ec.europa.eu/commission/presscorner/detail/en/speech_21_5121
11  The White House, Briefing room, “Remarks by President Biden Before the 76th Session of the United Nations General Assembly,” 21 September 2021, available at: https://www.whitehouse.gov/briefing-room/speeches-remarks/2021/09/21/remarks-by-president-biden-before-the-76th-session-of-the-united-nations-general-assembly/. 

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