Insights & News / Markets

Leaders’ Summit on Climate: good news, but still not enough

April 30, 2021 in Markets

As major emitters announce new emissions-cutting pledges, the numbers confirm we are still far off what’s required to contain global warming

Last week’s Leaders’ Summit on Climate was a strong step forward as some of the world’s major emitters announced new emissions-cutting pledges. While the improved targets were a welcome sign of steadily increasing determination to fight climate change, the latest numbers are still far away from what’s required to contain global warming, analysis shows.

Headline commitments from the summit were as follows:

  1. US President Joe Biden said the US would decrease emissions by 50-52% from 2005 levels by 2030.
  2. Canada’s Prime Minister Justin Trudeau announced his country would cut emissions 40% to 45% from 2005 levels by 2030.
  3. Japanese Prime Minister Yoshihide Suga said the country will pledge to curb emissions by 46% by 2030 compared with 2013 levels.
  4. Brazil’s President Jair Bolsonaro vowed to end illegal deforestation in the country by 2030 and achieve carbon neutrality by 2050, instead of by 2060.

Other leaders made less specific commitments. China, Russia and India are generally supportive of global efforts on climate, but all three countries stopped short of announcing new and improved 2030 targets.

Under the UN climate process, all nations are encouraged to propose improved climate targets for 2030 ahead of the COP26 summit in November of this year.

Analysts at Climate Action Tracker (CAT) estimate that the pledges made last week will narrow the ‘emissions gap’ – the difference between the pledged 2030 targets and the total reductions needed to keep temperature increases to less than 1.5 degrees Celsius – by 2.6-3.7 billion tonnes of CO2 equivalent.1

It’s abundantly clear from this that these reduction commitments fall far short of where the world needs to be if we are going to prevent the worst effects of climate change.

Governments need to do more to mobilise their private sectors: incentives to cut climate pollution need to be increased significantly. One way to start would be to put a price on carbon emissions.

Carbon markets are the most efficient way to identify the cheapest sources of emission reductions. According to modelling carried out by the International Emissions Trading Association and the University of Maryland, a network of strong global markets could generate savings of up to $250 billion a year by 2030, freeing up more resources for carbon abatement.2

If emitting greenhouse gases incurs a significant cost to a company, the company will find ways to reduce that cost. Emissions trading unlocks capital and innovation in a way that direct government legislation (e.g. carbon taxes) cannot.

It’s no coincidence that the economies with the strongest 2030 climate targets – Europe, the UK, the United States and Canada – all have carbon markets covering some or all of their territory.

Where these carbon markets exist, the private sector can do even more to help climate ambition by withholding or “locking up” emissions allowances.

By taking carbon permits out of circulation, investors increase scarcity and therefore the ambition of specific cap-and-trade systems. This buy-and-hold strategy can bring national or regional efforts closer into line with the trajectory required to achieve net zero by the middle of the century.

[1] https://climateactiontracker.org/press/new-momentum-reduces-emissions-gap-but-huge-gap-remains-analysis/

[2] IETA CLPC A6 Report No Crops.pdf

Disclaimers:

This communication has been provided to you for informational purposes only. This communication is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. This communication is not intended as and is not to be taken as an offer or solicitation with respect to the purchase or sale of any security or interest, nor does it constitute an offer or solicitation in any jurisdiction, including those in which such an offer or solicitation is not authorised or to any person to whom it is unlawful to make such a solicitation or offer. Distribution of information contained in this communication may be restricted by law. Persons receiving this communication should inform themselves about and observe any such restrictions. Any dissemination or other unauthorised use of this information or documents by any person or entity is strictly prohibited.
Spark Change Group Inc. believes the information in this communication to be correct at the date of issue. However, no representation or warranty is given as to the accuracy of any of the information provided. Some information in this communication is based on information given/obtained from independent research providers that Spark Change Group Inc. considers to be reliable. Analysis provided in this communication may be based on subjective assessments and assumptions and can use one among several alternative methodologies that produce diverse results. Hence, analysis and projections should not be seen as factual and should not be relied upon as accurate predictions of future events, performance, results or otherwise.