Anticlimactic, but Moving Towards Action

The United Nations Framework Convention on Climate Change's ("UNFCCC") 25th Conference of the Parties ("COP25") wrapped up on Sunday, December 15, 2019 in Madrid, Spain. What was slated to be a critical event, given the sustained and growing public focus on climate change in 2019, was anticlimactic. The conference's tag line, "A Time for Action", seemed to be a false promise when it came to concrete achievements.

Overshadowed by the impeachment proceedings in the US, and the election in the UK, the lack of media attention to COP25 may have contributed to insufficient pressure on the conference delegates to reach more impactful outcomes. Nevertheless, the conference resulted in a number of key outcomes and trends, outlined below.

Contentious Global Carbon Market Negotiations Led to Stalled Talks and Overtime

The COP25 negotiations were meant to finalize the "Paris Rulebook", a series of regulations that countries would use to meet their targets for cutting greenhouse gas emissions under the Paris Agreement - essentially, the roadmap for achieving Paris Agreement goals. However, by Friday evening - the last day scheduled for the conference - the talks had stalled. After more than 40-hours of overtime, the conclusion of the talks on Sunday resulted in only partial agreement, meaning many issues have been pushed off until 2020.

COP25's biggest aim also proved to be its biggest hurdle. This COP was meant to develop a set of rules for the creation of an international carbon market. As our previous post on COP25 mentioned, Article 6 of the Paris Agreement lays the foundation for the creation for a global carbon-trading scheme. Article 6 is the last outstanding issue to operationalize the Paris Agreement.

While most countries apparently agreed on the guidelines, Australia, Brazil and the U.S. were said to have stalled the negotiations by insisting that carbon credits under the previous carbon agreement, the Kyoto Protocol, should count towards their commitments under the Paris Agreement goals. Critics saw this an attempt to double count carbon credits, undermining the environmental integrity of the proposed market. This was characterized as a rift, for the second COP in a row, between how industrial and developing nations want the carbon markets structured.

As a result, the issue of global carbon markets under Article 6 was not resolved at COP25, and will be put over to next year's COP26 in Glasgow, Scotland.

More Ambitious Targets Set By Some But Not All

COP25 also aimed to have countries set more ambitious targets and updated plans to reduce greenhouse gas emissions in order to meet the 2015 Paris Agreement. The push for greater "ambition" was led by small-island and least-developed nations. However, by the end of the talks on Sunday, not all countries had agreed to even these voluntary targets. Some of the largest emitters, including the U.S., Australia, Saudi Arabia, China and India, made no moves to improve their current targets and emission reduction plans.

The concluding text of COP25 only recognizes the problem, as opposed to setting out solutions. The text recognizes the "urgent need to address the significant gap" between the parties current emissions-reduction pledges and the Paris Agreement's goals to halt the increase in the global average temperature at below 2°C above pre-industrial levels and, ideally, to limit the temperature increase to 1.5 °C.

That being said, Canada was among those that announced significant targets. Canada's Minister of Environment and Climate Change stated that Canada will develop legislation that commits the country to net-zero emissions by 2050, with milestones every five years. This echoes an election promise that the Liberals made this autumn.

Under the Paris Agreement, this is the ideal - but voluntary - target; the fact that Canada has adopted it sends a clear signal to industry that the Canadian Government intends to place greater emphasis on emissions reductions in the years ahead. While details of the legislation itself are not yet in place, an expert panel is to be appointed to help with its development.

The European Commission also unveiled its European Green New Deal, which pledges to render EU Member States (other than Poland) carbon neutral by 2050, as well as to halve its emissions by 2030.

Even for those countries that agreed to ambitious targets, this is only the first step. It remains to be seen whether these voluntary targets will translate into action by Canada, Europe and others.

Businesses Are Increasingly Proactive in Reducing Emissions

Governments are the major actors at COPs, but it was businesses and large organizations that led the way this year.

With nation-to-nation negotiations chastised for getting bogged down by diplomacy and bureaucracy, some companies have stepped up. Through the Business Ambition for 1.5 °C - Our Only Future, 177 companies around the world pledged to set climate targets that align with the Paris Agreement's goal to limit global temperature rise to 1.5 °C and to reach net-zero emissions by 2050. The companies represent 36 sectors, have a combined market capitalization of over US$ 2.8 trillion and include major players, such as AstraZeneca, Henkel, Hewlett Packard Enterprises, L'Oréal, Novo Nordisk A/S, Nestlé S.A., Nokia Corporation, Salesforce.com, Inc, SAP, Schneider Electric, Siemens Gamesa Renewable Energy, SkyPower, Sodexo, Tesco and Unilever, among others.

Investors have also made climate commitments, including the UN-convened "Net Zero Alliance", a group of investors managing close to US $4 trillion in assets who have committed to converting their investment portfolios to net-zero emissions by 2050.

These announcements may be in response to a trend of growing consumer pressure - and expectation of corporate response - for businesses to do more to reduce greenhouse gases, improve their supply chains, and help address climate change.

What's Next? COP26 and a Continued Focus on Carbon Markets

2020 will see COP26 held in Glasgow, Scotland. Coming five years after COP21 in Paris, COP26 is expected to be a significant COP as each nation's Nationally Determined Contributions ("NDCs") will be due for review. The NDCs encompass the various efforts each country has agreed to take to reduce national emissions and adapt to climate change. Although it has been predicted that COP26 would be accompanied by historic announcements with respect to NDCs, given the parties' lack of success in negotiating the carbon market mechanism at COP25, this is now less certain.

Although agreed-upon global carbon market mechanisms may have to wait until next year, carbon markets persist in many jurisdictions. Across Canada, the federal government rolled out the Greenhouse Gas Pollution Pricing Act ("GGPPA"), which imposed a fuel charge on fossil fuels and created an output-based pricing system for large industrial emitters. Although the GGPPA is still caught in constitutional battles brought by the provinces of Alberta, Manitoba, Ontario, and Saskatchewan, the Act remains in force pending decisions by the Supreme Court of Canada and the Alberta Court of Appeal.

To the south, the State of California has stayed the course on its cap-and-trade market, although President Trump has challenged California's ability to link its carbon market with that of Quebec through the Western Climate Initiative. Furthermore, despite the U.S.'s Republican government turning its back on carbon markets, there has been an interesting development within the younger generation: last week, young Republican leaders in the U.S, launched a campaign to promote a carbon tax to address global warming.

In Europe the EU Emissions Trading Scheme will continue, as will the UK's own trading scheme, although it is expected that substantial changes will need to be made in order to correspond with the EU's new Green Deal and the carbon emissions cuts that are proposed. The current practice of allocating free allowances is almost certain to come to an end (or else to be reigned in significantly); and shipping is likely to be brought into the trading scheme after years of being on the outside.

Therefore, while COP25 may not have seen a global carbon market take shape as anticipated, carbon markets continue to be front-and-centre in discussions on climate change solutions. The continued focus on carbon markets creates both challenges and opportunities for businesses and large organizations to leverage carbon emissions savings, develop greener supply chains, and assist with the transition to a lower-carbon economy. Gowling WLG will keep you informed as these developments progress.

The Gowling WLG Environment and Climate Change Group

Environmental, climate change and sustainability issues are at the heart of law and policy, impacting every business sector. Gowling WLG's International Environment and Climate Change Group helps its clients successfully navigate these complex regulatory frameworks by offering established businesses and organisations advice and insight into the new regulatory and stakeholder landscape and advising new businesses keen to grow in the green economy.

Thank you to our articling student, Maha Mansoor, who kept us apprised of the COP25 developments as they unfolded.