Week 41: The COP drama is coming. The week after it’s long gone.

In this issue: ▸ The COP drama is coming ▸ The state of where we are is this ▸ The big threat to COP26 is… money ▸ China plans to build more coal-fired power plants ▸ And much more...

Dear all,

The past week has gone north, quiet and a bit frozen. Walking slowly, heavy steps, bent back. One foot in front of the other. Week after week, those weeks never actually meet. They carry their load to Friday and then they let the next week take it one step further. 

In a couple of weeks we have another COP, or shall we call it COPX? There is really no point anymore in the numbers. 

This time, like many times before, there will be speeches and there will be pledges. There will be media-friendly spins and corporate line-ups with happy, friendly faces installing confidence in the public. Yes, we can make it, and yes we can turn the tide. Humans. Big-eyed and narrow-sighted. Sealed in large rooms. Drafting the future for all of us. 

It’s human endurance in the making. We know the odds, we know it’s going to be tough. We are the heroes and the foes. The dramaturgic importance of the COP meetings is huge. We meet, we discuss, big words, we conclude, we agree on actions. But then reality takes over the week after, and we move on. Endurance.

The question is why we keep building these temples of air? Is it that we need the drama of the COP meetings so we can cope with ourselves a bit longer, until the next COP? But what about now? Yeah, right next week?

The state of where we are is this:

Carbon emissions “will drop just 40% by 2050 with countries’ current pledges”. Current plans to cut global carbon emissions will fall 60% short of their 2050 net zero target, the International Energy Agency has said, as it urged leaders to use the upcoming COP26 climate conference to send an “unmistakable signal” with concrete policy plans.

In its annual World Energy Outlook, redesigned this year as a ‘guidebook’ for world leaders attending the summit in Glasgow, the IEA said the difference between current plans and the change necessary to reach the net zero target was “stark”, requiring up to $4tn in investment over the next decade alone to bridge the divide. 

The IEA’s executive director Fatih Birol explained that major economies recovering from Covid-19 were already missing the opportunity to spur investment in clean energy. “We are witnessing an unsustainable recovery from the pandemic,” he said, pointing to sections of the report that show coal use growing strongly, contributing to the second-largest increase in CO2 emissions in history. 

“We are witnessing an unsustainable recovery from the pandemic.” – Fatih Birol

Birol called for developing economies in particular to make tougher commitments to reducing carbon emissions. But he said this could not happen without leaders of wealthier nations attending COP26 taking steps to unlock the flow of money into emerging economies, by applying pressure on private investors.

The big threat to COP26 is… money

As always, it’s all about the money. And as it turns out, a $100bn dividing line between the world’s richest and poorest countries is what threatens to undermine any hope for a grand deal at the COP26 climate negotiations. 

That’s the amount in annual contributions promised more than a decade ago by developed nations to help less well-off nations cut planet-warming emissions and adapt to climate change. It’s one half of a quid pro quo agreed in 2015 at United Nations-sponsored talks in Paris: Developed countries put up the cash, and in return poor countries invest in clean-energy technologies and resiliency projects such as flood defenses. 

Part of the problem is that it’s not entirely clear who owes what. There’s no set target for monetary contributions as there is with the NATO alliance, where members commit 2% of their overall spending on the military. 

The consensus is that most of the blame belongs to the U.S. The world’s largest economy contributed only 4% of its fair share in 2017 and 2018, according to the think tank Overseas Development Institute, based on its wealth, emissions, and population size. It’s also responsible for the greatest deficit in absolute terms. 

China plans to build more coal-fired power plants

Well, well. China plans to build more coal-fired power plants and has hinted that it will rethink its timetable to slash emissions, in a significant blow to the ambitions for securing a global agreement on phasing out coal at the summit in Glasgow. 

In a statement after a meeting of Beijing’s National Energy Commission, the Chinese premier, Li Keqiang, stressed the importance of regular energy supply, after swathes of the country were plunged into darkness by rolling blackouts that hit factories and homes. 

While China has published plans to reach peak carbon emissions by 2030, the statement hinted that the energy crisis had led the Communist party to rethink the timing of this ambition, with a new “phased timetable and roadmap for peaking carbon emissions”.

China has previously set out plans to be carbon neutral by 2060, a goal analysts say would involve shutting 600 coal-fired power plants. President Xi Jinping has also pledged to stop building coal plants abroad.

Air pollution and cigarette advertising

Now onto what smart people are trying to tell us. 

The Italian physicist Giorgio Parisi spoke at the PreCOP26 meeting of parliamentarians. He said:

“Allow me to add an economic consideration. The gross domestic product of individual countries is the basis of political decisions, and the mission of governments seems to be to increase GDP as much as possible, an objective that is in profound contrast with the arrest of climate change.” 

In his speech – in the presence of the President of the Republic Sergio Mattarella and also the Speaker of the US Chamber Nancy Pelosi – Parisi said that he wanted to repeat (and make them his own) some of the words that Robert Kennedy spoke on March 18, 1968 at the University of Kansas: 

“Gross national product includes air pollution and cigarette advertising, and ambulances to clear the carnage on our highways. It includes special locks for our doors and prisons for people who break them. It includes the destruction of the redwoods and the loss of our natural wonder as a result of chaotic development… In short, it measures everything except what makes life worth living. And it can tell us everything about America, except because we are proud to be Americans, and it is so all over the world.”

What is your climate debt?

Are things getting better? For whom?

The global North is responsible for 92% of emissions in excess of the planetary boundary, while the global South bears the brunt of the destruction. The climate breakdown is a process of atmospheric colonisation. 

To date, there has been no robust attempt to quantify national responsibility for the ecological, social, and economic damages caused by excess global CO2 emissions. 

The predominant approaches to conceptualising national responsibility for emissions focus on current annual territorial emissions, or in some cases cumulative territorial emissions, in a manner that does not account simultaneously for both the scale of national emissions and population size of countries. 

The literature on climate debt addresses this limitation by recognising the principle of equal per capita access to atmospheric commons, yet existing methods in the literature do not allow quantification of national responsibility for emissions in excess of a given safe global carbon budget. 

Furthermore, no existing methods have attempted to quantify responsibility for emissions in consumption-based terms, in a manner that accounts for international trade.

Is nuclear power green? Who decides?

“Is nuclear power ‘green’? The EU shouldn't be the one deciding. Classifying energy should be left to capital markets, not government bureaucrats.”

Those were the headings in this opinion piece by Andreas Kluth, which I read twice. You should too. At least, it’s a clear-cut U.S. view on the issue.

The article goes on: 

“Green finance, green banking, green investing – in a time of climate change, the capital markets obviously want to assist in the necessary transformation of our economies. 

Unfortunately, the state is increasingly interfering in these markets in a way that will prove counterproductive because it falls into the same mental trap that once ensnared the Soviet Union’s central planners.

The problem has to do with definitions, and who does the defining. What exactly counts as ‘green’ (as opposed to brown, presumably)? If this assessment is left to decentralised markets, they’ll have a good chance of allocating capital efficiently. If it’s left to bureaucrats, capital will be wasted, hindering rather than helping our efforts against global warming.”

Kluth makes some fine points. We need to think about who defines what and how, in this case the classification of energy. Is it up to the EU? The markets? Or is there a third or a fourth way?

The next generation can smell the greenwashing

How about the future and the young people? Is there a hope for the investment industry and ESG? 

Well, not according to graduates. Very few graduates see a career in investment management as compatible with making a positive environmental and societal impact. This is what research led by the CFA institute reveals as only 8% said a career in investment management is compatible with making positive change. 

Nearly nine in 10 respondents said it was important for them to work in an industry that makes a positive societal and environmental contribution. 

More than 15,000 current university students and recent graduates from 15 markets were surveyed.

I do understand them. Investors around the world have an insatiable urge to invest in ESG-oriented funds.

Let’s consider the numbers. Industry group Global Sustainable Investment Alliance estimates that global investment in sustainable assets rose to $35.3tn in 2020 from $22.8tn in 2016. That is an astonishing 35.9% of total global assets under management.

Such funds pursue strategies ranging from integrating ESG factors into financial analysis to corporate engagement, with exclusionary or positive screening in between. Yet whether they will deliver on the ESG promise is another matter. 

There is little doubt that the majority of ESG funds are exaggerating their claims – and the next generation knows it. They can smell the greenwashing from afar.

More on this here.

For now, let’s see what happens next week. That’s all for today.

Kind regards,