Hard-to-abate sectors could pay for limited progress at COP27

• Current Nationally Determined Contributions (NDCs) set emissions targets that are insufficient to limit global warming to +1.5°C or even +2°C above pre-industrial levels by the end of the century.
• The NDCs implementation framework is designed to ratchet-up and we expect further commitments and actions across all sectors. However, given current geopolitical events, the timing of this acceleration is increasingly uncertain.
• The longer the world community delays more concrete action, the more of the remaining carbon budget will be used by easier-to-abate sectors. Hard-to-abate sectors will have less time to adapt and put in place the needed infrastructure and investments. This will make it more difficult and costly to decarbonise economies later and raises the risks of future transition or climate shocks.

NDCs set commitments to decarbonise and adapt to climate change

Nationally Determined Contributions (NDCs) are a much discussed but often misunderstood part of climate policy. Simply, NDCs are overarching country-specific pledges to reduce national emissions and adapt to climate change. They provide broad targets towards decarbonisation. However, on their own they will not deliver the actions needed.

NDCs and the framework they operate in have taken considerable time and effort to get approved. Under the current framework, governments agreed to ratchet up their NDCs but new geopolitical challenges might weaken their political resolve to do so.

The window for successfully decarbonising economies is limited and this is why an acceleration in climate ambition is needed to avoid disastrous consequences from climate change. Delays in decarbonising economies risk a more disorderly and costly transition down the road, or a failed transition, where physical climate change risks pose existential risks to civilisation. This provides the background and need for greater progress at COP27.

Current NDCs will not limit global temperature increases to 2°C, let alone 1.5°C

The principal aim of the Paris Agreement was to limit the global average temperature increase to +2°C above pre-industrial levels by 2100 at a minimum, and preferably to +1.5°C. This aim was reaffirmed in the?Glasgow Climate Pact ?signed at COP26 in November 2021 which “recognizes that limiting global warming to 1.5 °C requires rapid, deep and sustained reductions in global greenhouse gas emissions, including reducing global carbon dioxide emissions by 45 per cent per cent by 2030 relative to the 2010 level and to net zero around mid-century as well as deep reductions in other greenhouse gases”.

NDCs embody efforts by each country to reduce national GHG emissions and adapt to impacts from climate change. NDCs are designed to promote wide participation and help for credible decarbonisation plans. The UN states?“the best NDCs aim high and reach far. Grounded in sound analysis and data” .

The transition to a low carbon and regenerative economy is a vast undertaking, hence the need to revisit and enhance them on a regular basis. However, NDCs are often complex, difficult to understand, and each is bespoke, reflecting a country’s particular circumstances. Implementing, financing and monitoring them is extremely challenging.

The process that leads to NDCs is a carefully crafted compromise to encourage engagement and participation. Crucially, NDCs set the aims and roadmap that actions can be framed by, but NDCs need to be complemented by policies, subsidies, taxes, support, behavioural change and technological developments to curb global emissions. Progress on NDCs at COP27 is needed to ensure the world does not fall further behind on its climate aims.

The 1.5°C carbon budget could be exhausted within the decade

The carbon budget is the cumulative net global quantity of future carbon emissions that would limit the rise in the average global temperature with a given probability.

Climate modelling is probabilistic. In early-2020, the Intergovernmental Panel on Climate Change (IPCC) stated in its?Sixth Assessment Report (AR6) ?that: “the current central estimate of the remaining carbon budget from 2020 onwards for limiting warming to 1.5°C with a probability of 50% has been assessed as 500 GtCO2?and as 1150 GtCO2?for a probability of 67% for limiting warming to 2° C...”.

This is only about a fifth of cumulative carbon emissions during the period of 1850 to 2019. The IPCC reports state?“historical cumulative net CO2?emissions from 1850 to 2019 were 2,400 ± 240 GtCO2” . Moreover, carbon emissions are still rising. In the absence of any reductions in annual carbon emissions, the world community will have used up its entire remaining carbon budget consistent with limiting global temperature increases to an average 1.5°C above pre-industrial levels by the early-2030s at the latest.

Together, the current trajectory of NDCs leads the world to a ~14% rise in global emissions compared to 2010 levels, rather than a fall. Moreover, most NDCs remain vague on how governments intend to achieve their climate goals. A +1.5°C future requires an annual global ~9% fall in emissions from now to 2030; while a +2°C future requires falls of around 5% per annum. There would need to be a huge increase in spending, vastly more policy support, further technological developments and considerably more progress in hard-to-abate sectors to get us close to either target.

How the remaining carbon budget will be allocated will have substantial implications for hard-to-abate sectors

We expect that governments will ratchet up their NDCs and that climate action will increase across all sectors. Increasing pressures to decarbonise, and the policies as well as technologies that will drive it will shape the supply, demand and costs of many commodities as well as their value chains over the coming decades. Click here to continue reading.

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