A man is seen along the banks of the Huangpu river across the Wujing Coal-Electricity Power Station in Shanghai on September 28, 2021. Photo: AFP / Hector Retamal

With few solid commitments made on climate change, the Group of Twenty Summit that just wrapped up in Rome lent little confidence to the high hopes placed on the United Nations Climate Change Conference (COP26) now under way in Glasgow, Scotland. Neither an explicit commitment on countries’ carbon neutrality by 2050 nor a promise to end fossil-fuel subsidies was made, which had been placed high on the agenda of COP26.

Although the G20 leaders pledged to stop coal financing abroad before the end of this year, they failed to reach the same agreement on domestic production. That leaves the door open for continuing coal-fired production at home, especially for coal-reliant economies such as China and India.

Given that 82% of the world’s greenhouse-gas emissions were generated by G20 countries as of 2020, the very weak consensus at the Rome summit clearly does not bode well for COP26 and, more important, the world’s action against climate change.

One needs to realize that the largest “blockers” on climate issues are either the world’s largest emitters (China, the US and India) or the largest exporters of brown energy (Australia, Russia or Saudi Arabia).

China and Russia have pushed their net-zero targets to 2060, and India even further, 20 2070. This is much later than the mid-century target thought to be necessary to keep the increase in global warming over pre-industrial levels to 1.5 degrees Celsius.

Australia has only recently pledged net zero by 2050 under mounting peer pressure, while Saudi Arabia aims for 2060, but will still try to retain its primacy in oil production. 

Beyond the still relatively late commitments for carbon neutrality and the lack of concrete plans for the use of coal in the energy mix, two important issues seem to have been absent from the discussion so far. One is the decarbonization of global supply-chain plays given that eight key supply chains account for 50% of total emissions.

One potential path would imply greening but also shortening supply chains toward a more regional rather than global model, which obviously has important economic but also geopolitical consequences.

The second missing point is a strategy for global carbon pricing. While the momentum for carbon pricing is increasing, with an extension to new sectors in Europe but also a new national-level emission-trading system in China since July, it is still far from complete. Beyond increasing the scope (with the US as a huge missing point), it is also important to coordinate these efforts, so as to avoid carbon leakage.  

Two more issues to explain the very minimal consensus reached on climate by the G20. First is the increasingly serious power crunch in Europe and China, and now moving beyond those regions. The second issue is geopolitics, as shown clearly in the absence of key leaders such as Vladimir Putin and Xi Jinping from the summit, notwithstanding their crucial roles in reaching a coordinated solution to climate change.

In short, the limited breakthroughs at the G20 Summit foreshadowed the difficulties of reaching consensus at COP26. Beyond the obviously different national interests, the power crunch is clearly not helping, let alone the very tense relations between the US and China.

Moving forward, COP26 could mark a change in strategy as regards finding a solution to climate change by moving from a cooperative approach to one based on leverage. In that scenario, one should not dismiss the possibility of an alliance among the US, the UK and the European Union on taxing carbon, including overseas carbon, following the steps of the EU’s newly approved Carbon Border Adjustment Mechanism (CBAM).

Alicia Garcia Herrero is senior research fellow at Bruegel and chief economist for Asia-Pacific at Natixis.

Junyu Tan is an economist at Natixis specializing in Asia thematic research.