A year after the COP26 conference, not much progress has been made on the infrastructure front related to climate change, mainly due to the implications of the war in Ukraine, a tighter global monetary policy environment and competing national priorities around the world.
Research agency Fitch Solutions Country Risk & Industry Research says the upcoming United Nations climate change conference, COP27, to be held November 6-18 in Egypt, will highlight competing global priorities between the maintenance of infrastructure related to fossil fuels in the short term. exploring nascent areas of low-emission infrastructure and trying to close infrastructure gaps.
Associate Director of Political Risk at Fitch Solutions Matt Sethovski reports that there have been few commitments made to nationally determined contributions over the past year, except for Brazil and Australia, which are undergoing policy changes as new governments have come, or are due to come, into power.
He adds that the world’s governments have not done much to contribute to the $100 billion in climate finance pledged by developed countries during COP26.
“We have seen increases in inflation and concerns around the wider economy, but climate change remains a focus. It appears that COP27 may be a platform for political wrangling, with few updates on pledges. Tensions between the United States and China, in particular, do not appear to be dissipating,” says Sechovsky.
Despite this backdrop, Fitch Solutions notes that a greater focus on energy consumption is underscoring the need to invest in the energy efficiency of buildings to ensure the realization of the low-carbon energy transition.
The agency says oil and gas commitments are particularly out of sync with a 1.5˚C pathway, with few pledges targeted at the sector during COP26 and little impact or progress from those that were made.
While the Global Methane Pledge, launched at COP26 last year to catalyze action to reduce methane emissions, was a historic achievement, it is a long way from alignment with the Paris Agreement, Fitch explains Solutions.
Looking ahead, supply security concerns are at the fore in Europe, following Russia’s invasion of Ukraine, and global energy markets are struggling to adjust, limiting the scope for strategies of deeper decarbonisation at COP27.
Key focus areas for the oil and gas industry remain fossil fuel divestment, the evolution of carbon pricing, emission control and verification standards, interim climate targets and the destruction of demand in sectors difficult to reduce.
On the energy front, Fitch Solutions says coal-fired power generation will peak in the near term, before declining in the medium term, with the sector seeing a short-term boost due to concerns of energy supply security worldwide. Chinese and European demand for coal increased rapidly in 2021 and 2022.
However, China, the US, Germany and Japan have plans for a large-scale decrease in coal power production. Indonesia and Vietnam, as well as India, remain growing markets for coal-fired power generation.
Fitch Solutions confirms that renewable energy capacity development has increased significantly in response to power sector shortfalls and policy changes in Europe and the US.
The European Commission had increased its renewable energy target from 40% to 45% by 2030, for example.
Australia is also undergoing a major policy shift, since COP26, with a commitment to reduce emissions by 43% by 2030, compared to 2005 levels, and to achieve net zero emissions by 2050.
Australian politician Anthony Albanese has been making inroads with Australia’s climate action through legislation, notably pushing ambitious renewable energy targets.
Fitch Solutions expects the global hydrogen pipeline to continue expanding, with 400 commercial projects underway, up from 150 in 2021.
The agency believes that green hydrogen has emerged as a key ingredient in reducing emissions and forms a key part of the European Union’s renewable energy strategy. COP27 will likely see a strong emphasis on low-carbon hydrogen, compared to COP26, as political support for green hydrogen is increasing globally.
On the automotive side, 14 original equipment manufacturers have signed the Zero Emission Vehicle (ZEV) Declaration, which requires all sales of new cars and vans to be zero-emissions worldwide. year 2040 and no later than 2035 in the main markets.
The United Nations plans to relaunch the ZEV Declaration this year.
Meanwhile, volatile metal prices are limiting EV adoption rates, particularly lithium carbonate, cobalt and nickel. However, there is an exponential growth of car manufacturers investing upstream in metal mining projects, with a particular increase in such investments since COP26.
In addition, Fitch Solutions expects sub-Saharan African countries to demand more climate finance as they experience more extreme weather events. The agency expects resource conflict to intensify in the region as a result of climate change, while the climate crisis is also exacerbating income inequality.
