How realistic are global climate ambitions?

Economic opinion

Cora Vandamme

With the 27th edition of the United Nations climate conference (COP27) on the horizon, we focus our attention on global climate policy. Many countries in the world have set climate ambitions but lack clear and concrete action plans and a legislative framework to implement them. Moreover, transition plans and commitments are still frequently put on hold because of acute threats, such as the current inflation crisis. COP27 will therefore again be an important event, especially as the global consequences of climate change become increasingly clear. 

Natural disasters on the rise

Forest fires in southern Europe, unprecedented floods in central Italy and droughts in many European countries. The past summer in Europe makes it hard to deny that our climate is changing. The impact of global warming is also visible elsewhere in the world. For instance, coffee prices are expected to rise sharply due to crop failures in Brazil and Colombia, and in Pakistan hundreds of thousands of people had to flee because of heavy floods. The current year is no exception; the number of reported natural disasters has clearly risen in the past decades (see Figure 1). 

Without additional measures to lower greenhouse gas emissions, the situation will worsen further in the coming years. Between 2010 and 2021, the average temperature increase compared to the period before the industrial era was 1.3°C. In the ‘hot house world’ model of the Network for Greening the Financial System (NGFS), which assumes no new policy implementation, the average temperature will be more than 3°C higher by 2100. This scenario would result in a sharp increase in severe and often irreversible climate events (called tipping points), such as sea level rise, coral reef death and the melting of polar ice caps.

High ambition but inadequate action

In order to limit global warming, action is urgently needed. Fortunately, many countries are aware of the climate threat and have set high ambitions. At the COP26 climate conference in Glasgow in 2021, more than 140 countries, together accounting for almost 90% of global greenhouse gas emissions, pledged to reduce their net emissions to zero by 2050.

Major efforts will be needed to fulfil these promises, but most countries still lack the necessary legislative and structural framework. In September 2022, the research groups behind the Climate Action Tracker published their analysis of the net zero targets of 41 countries, including major greenhouse gas producers such as China, Japan, the US and the EU. They concluded that most emissions targets are still too vague. Only 8% of the targets examined are currently sufficiently robust, complete and transparent to have a chance of success. Almost 40% of the targets are classified as weak and for 16% of the targets there is even too little information to make an assessment. Globally, according to the researchers, 74% of current greenhouse gas emissions are not covered by a sufficiently well-developed net zero target.

This weak framework translates into disappointing figures around compliance. Only 24 of the 193 countries that promised in Glasgow to revise and strengthen their climate plans also subsequently submitted updated plans to the UN (2022 NDC Synthesis Report, 26 October 2022). However, time is running out as the Intergovernmental Panel on Climate Change (IPCC) warned in 2019 that greenhouse gas emissions would already have to fall by 43% from 2010 levels by 2030 if we want to limit global warming. However, instead of a decrease, current climate plans will lead to a 10.6% increase.

On top of this, climate change as a policy focus seems to have faded into the background somewhat for many countries this year. Fighting high inflation and the energy crisis has become a top priority for many governments in 2022, while in China, the real estate crisis and the covid pandemic claim much of the attention, and in the UK, politically troubled waters are the main focus. In the EU and the US, the picture is more nuanced. During both the covid pandemic and the current energy crisis, the focus of EU recovery plans has largely been on fighting climate change. However, we should note that some measures to combat the energy crisis may cause a short-term increase in greenhouse gases because of the substitution of gas with more polluting fossil fuels, such as coal. In the US, the Inflation Reduction Act (IRA) was passed in response to the high inflation figures. This plan provides hundreds of billions of dollars in subsidies for more environmentally friendly technologies and brings the US a big step closer to meeting its stated climate target. Indeed, the IRA would help cut US greenhouse gas emissions by 37-41% relative to 2005 by 2030, rather than the previous 25% reduction.

Challenging environment for COP27

It is clear that successfully fighting climate change is subject to many conditions, and even though the stakes are high, the COP27 is likely to have a disappointing outcome. Heightened tension between Russia and the West and between China and the US make the outlook for negotiations grimmer. Moreover, China, currently the largest emitter of greenhouse gases worldwide (see Figure 2), remains an uncertain factor. Previous climate conferences often ended on a false note as Chinese diplomats again questioned earlier agreements. This was also the case at COP26 in 2021. At the last minute, China and India forced a weakening of the final declaration around coal phase-out. 

And then there is the thorny issue of financial support between the richer countries, which are responsible for the bulk of accumulated greenhouse gases in the atmosphere, and the poorer countries, which (will) face the brunt of the effects of global warming. The agreed-upon funding targets (USD 100 billion a year from 2020) have not been met and negotiators failed to agree on the creation of a so-called loss and damage fund at COP26. Egypt, the host of the COP27, has already indicated that the sensitive topic of climate finance will be a key agenda item next week.

For the future of our planet and the next generations, we can only hope that the COP27 conference will have an unexpectedly positive outcome. The stakes are surely high enough, but so are the obstacles.

Disclaimer:

Any opinion expressed in this KBC Economic Opinions represents the personal opinion by the author(s). Neither the degree to which the hypotheses, risks and forecasts contained in this report reflect market expectations, nor their effective chances of realisation can be guaranteed. Any forecasts are indicative. The information contained in this publication is general in nature and for information purposes only. It may not be considered as investment advice. Sustainability is part of the overall business strategy of KBC Group NV (see https://www.kbc.com/en/corporate-sustainability.html). We take this strategy into account when choosing topics for our publications, but a thorough analysis of economic and financial developments requires discussing a wider variety of topics. This publication cannot be considered as ‘investment research’ as described in the law and regulations concerning the markets for financial instruments. Any transfer, distribution or reproduction in any form or means of information is prohibited without the express prior written consent of KBC Group NV. KBC cannot be held responsible for the accuracy or completeness of this information.

Related publications

The impact of Biden’s new tariffs

The impact of Biden’s new tariffs

Inflation rose more sharply in April due to food, we expect a more modest decline in the summer

Inflation rose more sharply in April due to food, we expect a more modest decline in the summer

Is a green technology war on the horizon?

Is a green technology war on the horizon?

Emerging Market Digest: April 2024

Emerging Market Digest: April 2024