| 01 Apr 2021 |

COP26: What is it and why is it important?

What is COP26?

COP26 is the 26^th session of the Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC). The summit will be attended by the heads of state of the countries that signed the UNFCCC, as well as a variety of climate experts and campaigners, in order to agree and accelerate action on the Paris Agreement. The UK, in partnership with Italy, is hosting the summit this year in Glasgow from 1 - 12 November 2021 after it was delayed by a year due to the COVID-19 pandemic.

COP26 will give parties an opportunity to assess how far along they have come in meeting initial Paris Agreement emission targets, and to set new targets for the next five-year cycle.

Paris Agreement Background

The Paris Agreement is a legally binding international treaty on climate change adopted in December 2015 by 197 countries around the world. Its central aim is limiting the global temperature increase to 'well below' 2°C, compared to pre-industrial levels, and to pursue efforts to further limit increases to 1.5 °C.

The Paris Agreement marked a turning point in the global effort to tackle the climate crisis, as it was the first-time nations from around the world entered into a legally binding agreement to combat climate change and adapt to its effects.

The agreement works on a five-year cycle of increasingly ambitious climate actions to be carried out by signatories. The initial target for 2020 required countries to:

Announce 'nationally determined contributions' (i.e. the effort by each country to reduce national emissions and adapt to the impacts of climate change);
Reveal their long-term strategy to decarbonise their economies by 2050; and
'Developed' countries to scale up their climate finance under the UNFCCC to at least US$100 billion per year by 2020 - to help the states considered to be most vulnerable to the impact of climate change.

Why is COP26 important?

COP26 presents a crucial opportunity to reflect on what has been achieved, and importantly what more needs to be achieved, five years on from the Paris Agreement. It will also be the first-time nations will be convening since the US' departure and subsequent re-entry to the Paris Agreement, which has been seen by many to be a disruptive influence on achieving the initial goals that were set.

The global economic and social disruption caused by the COVID-19 pandemic has meant that governments around the world are beginning to focus again on how to rebuild their economies. One of the key issues that the COVID-19 pandemic highlighted was the importance of a co-ordinated effort between international parties when dealing with a global issue. COP26 will play a crucial role in encouraging the road to recovery to be more sustainable as governments begin their efforts to 'build back better'.

If the Paris Agreement targets are not met, our current emission trajectory is expected to cause the Earth to warm by 3-4°C in 80 years leading to irreversible and catastrophic environmental consequences globally, including droughts and famine for billions of people annually.

Experts warn this could also cost the world economy more than £480 trillion by the end of the century and so COP26 comes at a particularly critical moment - as 2021 is seen as our last best chance to address the climate crisis.

1. Developing carbon market mechanisms

Article 6 of the Paris Agreement provides that countries can cooperate in delivering their nationally determined contributions ("NDC"), for instance through a carbon market. The market would allow countries to trade in carbon credits or 'negative' emissions to enable them to meet their carbon emissions targets. Many carbon markets already exist, the biggest one being the EU emissions trading system ('ETS'). A lot of disagreement persists on the exact mechanisms of this new carbon market, and the rules for international transfers, such as how it will coexist with existing carbon markets. COP26 will provide a platform to bring together the many diverse views on the matter so that hopefully a consensus can be met.
2. Funding for loss and damage

Countries will need to address a funding mechanism for dealing with the impact of climate change, especially where developing countries, who are often impacted more directly (e.g. through flooding or forest fires), experience loss and damage.
3. $100B finance target

Under the UNFCCC developed nations committed to financing $100 billion per year by 2020 to support developing countries to build resilience to climate impacts and protect nature. COP26 will allow countries to assess progress, which some say has been too slow, towards the $100 billion goal and to set new targets for climate finance.
4. 'Nature-based solutions'

'Nature-based solutions' which focus on how forestry, agriculture and ecosystems can help in the fight against global warming by absorbing emissions will become increasingly important in helping countries reach their net zero carbon commitments. COP15 to the Convention on Biological Diversity will meet on 17-30 May 2021 in Kunming, China to agree and adopt the 'Post-2020 Global Biodiversity Framework' - and this will no doubt feed into the discussions on biodiversity at COP26.

Definition: Nationally determined contributions (NDC)

Nationally determined contributions (NDCs) are at the heart of the Paris Agreement. NDCs are intended to embody efforts by each country to reduce national emissions and adapt to the impacts of climate change. The Paris Agreement (Article 4, paragraph 2) requires each Party to prepare, communicate and maintain successive nationally determined contributions (NDCs) that it intends to achieve.

Definition: Net zero

Net zero refers to achieving an overall balance between the greenhouse gases put into the atmosphere and those taken out.

What will Travers Smith be doing in the run-up to COP26?

Over the coming months, Travers Smith will be updating this page to keep you informed of all the key developments and news in the run-up to COP26. Travers Smith is involved in a number of different initiatives connected to COP26.

For example:

Jonathan Gilmour, our Head of Derivatives and Structured Products at Travers Smith, has recently been appointed to the Principles & Contracts Working Group of the Taskforce on Scaling Voluntary Carbon Markets. Launched in September 2020, this is a private sector initiative working to scale a workable carbon credit market so companies can meet their carbon reduction commitments through purchasing carbon offsets.
Travers Smith's Environment Committee is actively committed to helping the firm reduce its overall carbon footprint and acting in an environmentally friendly and sustainable way. For more information on our efforts in this area, please see our Environment page here.
Please also see our Sustainable Business Hub – where you can find resources designed to help you and your business to anticipate regulatory developments, proactively manage risk and achieve your ESG focused business objectives.