The focus of this year’s gathering at the 26th UN Climate Change Conference of the Parties (COP26) held in Glasgow, Scotland, on October 31-November 12, was to strengthen countries’ emissions reduction goals to limit global temperature rise to 1.5°C. Kroll Bond Rating Agency (KBRA) monitored the proceedings to understand how country commitments will influence international climate investment and spur the low-carbon transition worldwide.
In this report, we provide a comparative analysis of the commitments of the European Union (EU), Group of Seven (G-7) countries, China, India, and Russia.[1] As a group, these countries have seen the most pressure to enact climate mitigation policies as they contribute the highest cumulative share of global CO2 emissions and also top the list in terms of absolute greenhouse gas (GHG) emissions (see Figure 1).
COP26
World leaders gathered for the latest United Nations (UN) climate change conference with the goal of securing commitments to limit global warming to well below 2°C (2.7 degrees Fahrenheit), in line with the Paris Agreement. The UN Environment Programme published an addendum to its Emissions Gap Report 2021, highlighting that the pledges countries have made to reduce GHG emissions—including new or updated nationally determined contributions—do not go far enough, and that emissions “would need to be roughly halved by 2030 to become consistent with a 1.5°C least-cost pathway.”
Of the selected countries in this analysis, President Vladimir Putin of Russia and President Xi Jinping of China did not attend the event in person, which was criticized by other world leaders.
Nationally Determined Contributions
The nationally determined contributions (NDCs) refer to the climate efforts by each country to reduce GHG emissions and limit global temperatures to well below 2°C, and ideally closer to 1.5°C. As part of the Paris Agreement, countries submit their NDCs every five years and assess the collective progress toward achieving the global temperature goal. Leading up to COP26, countries have announced their updated NDCs and set a net-zero target date (see Figure 2). Most of the countries have committed to net-zero by 2050 except for China, Russia, and India, which are committing to net-zero by 2060, 2060, and 2070, respectively. The delay in the timeline for those countries reflect their stage of development and related challenges in transitioning to a lower carbon economy.
Notable Environmental Commitments
G-7
In the most recent summit, G-7 leaders agreed on a shared agenda to halve collective carbon emissions by 2030 and reach net-zero emissions by 2050. Reaffirming their commitment to the Paris Agreement, G-7 members will “lead a technology-driven transition to net zero, supported by relevant policies.”[2] Notable policies include stopping funding for international coal-fired power stations by the end of 2021 and fully decarbonizing their power sectors in the 2030s. The countries also reaffirmed their goal to mobilize $100 billion a year for developing countries to help tackle climate change between 2021 and 2025.
European Union
The EU has played a key role globally in advancing environmental-focused policy, reaching an important milestone with Phase IV of the EU Emissions Trading System, the world’s first GHG emission cap-and-trade system. Under the European Climate Law, the EU has set a binding target to be net-zero by 2050 and reduce net GHG emissions at least 55% by 2030 compared to 1990 levels. In July 2021, the European Commission (EC) presented its “Fit for 55” package of policy initiatives and legislative proposals to achieve this new goal, which is currently under review. The EU and the United States spearheaded the Global Methane Pledge, which commits countries to reduce methane emissions at least 30% by 2030 compared to 2020 levels.
The EU is the largest contributor of public climate finance for developing countries, with almost EUR24 billion committed in 2020. Furthermore, the EC has proposed integrating climate action into the EU long-term budget, accounting for at least 30% of its expenditures during 2021-27. At COP26, the EC pledged EUR100 million to the Adaptation Fund, the biggest contribution made by donors.
Canada
Notably, Canada recently passed the Net-Zero Emissions Accountability Act, which mandates the country’s net-zero target. In 2016, Canada announced a methane reduction target for the oil and gas sector of 40%-45% by 2025 relative to 2012 levels. Since 2019, the country has had a carbon pricing scheme that requires provinces and territories to adhere to a federal minimum requirement, but also gives them the ability to adopt additional, more stringent policies. The country’s initial federal price on carbon was CAD20 per metric ton (mt); it currently stands at CAD40/mt and is slated to rise to CAD50/mt by 2022. Additionally, the country has a goal of 100% zero-emission vehicle sales by 2035. In 2020, Canada announced a $3.16 billion plan to plant 2 billion trees over 10 years, starting this year. At COP26, the country announced it would commit CAD5.3 billion to climate mitigation efforts over the next five years.
China
China has pledged that the country’s carbon emissions will peak before 2030. President Xi Jinping has committed to implementing stricter reductions in coal consumption between 2021 and 2025 as well as phasing down coal use between 2026 and 2030. However, in 2020, China commissioned 38.4GW of new coal plants, which accounted for 76% of the global total.
In 2021, China’s National Energy Administration announced that grid companies operating in the country will need to purchase a minimum of 40% renewable energy by 2030. The country also has a target of 25% electric vehicle sales by 2025 and currently leads globally in electric vehicle sales by country.
France
During COP23, President Emmanuel Macron reconfirmed France’s commitment to phase out coal (initially made at COP22) and brought it forward to 2022 from 2023. This commitment became law in November 2019. The law also included the country’s goal to achieve carbon neutrality by 2050 and reduce fossil fuel consumption by 60% by 2030 compared to 2012 levels. Recently, France reaffirmed its climate financing commitment of EUR6 billion annually between 2021 and 2025 (up from EUR5 billion), with a third of this funding dedicated to climate adaptation.
Germany
Following a constitutional court ruling that Germany’s climate targets were insufficient, the country amended its Climate Action Law for more ambitious reduction targets. This included moving its climate neutrality target to 2045 from 2050, targeting negative GHG emissions after 2050, and increasing its 2030 emission reduction target to 65% from 55% relative to 1990 levels. Additionally, the country has a coal power exit law, adopted in 2020, that stipulates a coal phaseout by 2038 with an option to bring it forward to 2035.
At the G-7 summit, Germany pledged to increase its climate finance by EUR2 billion to EUR6 billion per year by 2025. Similarly, at COP26, Germany announced an additional EUR150 million for climate adaptation, EUR50 million to the Adaptation Fund, and EUR100 million to the Least Developed Countries Fund.
India
At COP26, India set a net-zero target for the first time. The country’s 2070 target, past the COP26 goal of 2050, disappointed some but was applauded by others. While this is a positive step, India remains heavily dependent on coal for electricity generation. Other commitments included getting 50% of its energy from renewable sources by 2030 and reducing its carbon intensity by 45% by 2030.
Italy
Italy is largely adhering to the EU standards in place. Italy committed to phasing out coal by 2025, a target that is included in its National Energy and Climate Plan. To accelerate decarbonization, the country has also made strong commitments to increase the share of renewables in its final energy consumption to 30% by 2030.
Japan
Importantly, Japan’s net-zero goal is written into law as part of the Promotion Act on Global Warming Countermeasures. In October 2021, the country published its 2030 energy mix plan, which includes an energy source breakdown of 36%-38% renewable, 20%-22% nuclear, and 41% from fossil fuels. At COP26, Japan announced JPY6.5 trillion in public and private climate financing over the next five years.
Russia
In addition to its goal of net-zero by 2060, Russia is reportedly drafting a plan to cut GHG emissions 79% by 2050. However, the country’s Energy Strategy to 2035 plan continues to promote the extraction and exportation of fossil fuels and seeks to maximize the country’s role in the global fossil fuel-based energy sector. Also of note, Russia changed its forestry emissions accounting in February 2021 to include negative emissions from unmanaged forests, which violates UN emissions guidelines.
United States
Shortly after taking office, President Joe Biden began implementing his climate mitigation plan, but much will depend on what will pass through U.S. Congress. Biden has issued various executive orders focused on mitigating the effects of climate change, including a May 2021 executive order directing federal agencies to analyze and mitigate climate-related exposure. Additionally, he revoked permitting for the controversial Keystone XL pipeline and stopped oil drilling leasing in the Arctic National Wildlife Refuge. Biden also worked with EU leaders to launch the Global Methane Pledge.
The Biden Administration has set a goal of 50% emissions-free vehicle sales by 2030 and plans to set a clean energy standard at the federal level, but this measure would need congressional approval. President Biden has also proposed the Build Back Better plan, which includes $550 billion for environmental measures, but the likelihood of the bill’s passage is unclear. At COP26, Biden announced that the U.S. would double its climate financing to $11.4 billion by 2024.
In 2015, the UK was the first national government to announce a commitment to phase out its coal operations, setting a target date of 2025. However, in June 2021, Prime Minister Boris Johnson brought the deadline forward a year to October 2024. The UK committed to doubling its climate finance budget to GBP11.6 billion from 2021-25.
United Kingdom
The UK Climate Change Act 2008 set a legal framework for emission reduction targets. It initially committed the UK to cut its emissions at least 80% by 2050 from 1990 levels. The target was amended in June 2019, legally binding the UK to reach net-zero emissions by 2050. The UK government’s Net Zero Strategy outlines how it will achieve its carbon neutrality goal. After leaving the EU, the UK committed to reducing GHG emissions at least 68% by 2030 and 78% by 2035, compared to 1990 levels.
[1] https://www.g7uk.org/wp-content/uploads/2021/06/Carbis-Bay-G7-Summit-Communique-PDF-430KB-25-pages-3-1.pdf
[2] The G-7 countries are Canada, France, Germany, Italy, Japan, the UK, and the U.S.
Contacts
Andrea Torres Villanueva, Associate, ESG
+1 (646) 731-1238
andrea.torresvillanueva@kbra.com
Emilie Nadler, Associate Director, ESG
+1 (646) 731-3386
Gordon Kerr, Managing Director, Head of European Research
+44 20 8148 1020
